A Recipe for Success in Family Businesses

For many family businesses, the decision to appoint a non-family CEO can be a daunting one, especially as the business is often built on the blood, sweat, and tears of generations of family members. As family businesses grow and evolve, the need for the best person with the right skills and experience to lead the business becomes increasingly important and may require the appointment of a non-family member as the CEO.

At the recent KPMG Private Enterprise South Africa family business conference, in partnership with KZN Top Business and supported by Cox Yeats Attorneys, a prominent non-family family business leader of a fourth-generation family business shared their insights on how to make the transition from a family to a non-family CEO a success.

The chairperson of the board of the family business is a third-generation family member, who transitioned out of their CEO role. The fourth generation of the family are currently working in the business, at management level.

Here are some of the key takeaways from the presentation and discussion with the conference delegates (which included other prominent South African family businesses):

The pioneering founder’s guiding vision is paramount

The founder’s vision is the foundation upon which the family business is built. It is essential for the non-family CEO that they understand and respect this vision, and they ensure that all decisions are made with reference to it, while allowing them to bring their views, based on prior experience outside the family business. This has helped to ensure that the business continues to grow and thrive in accordance with the family’s shared purpose.

Phased autonomy from the family to the non-Family CEO

The transition to a non-family CEO should be a gradual process. The previous family CEO (now chairperson) gradually relinquished control over the day-to-day operations of the business, allowing the non-family CEO to take the reins. This helped to ensure a smooth transition and minimise disruption to the business.

The family must act on the promises made to support the non-family CEO

When the family appointed the non-family CEO, they in essence made a promise to support that individual. This means providing them with the resources and authority they need to be successful. Once the transition period was completed, it was evident that the family was comfortable to step back and allow the non-family CEO to do their job without interference.

One additional element to the success of this transition is that the non-family CEO has an excellent working relationship with family chairperson, providing access where required and purely on an advisory basis.

Ensuring a growth focus across generations

One of the biggest challenges facing family businesses is ensuring that they remain focused on growth across generations. The non-family CEO understands that this can be difficult, factoring in that family members may have different priorities and goals. For the non-family CEO to be successful, it is essential that the family is united in its commitment to its shared purpose and the long-term success of the business.

The non-family CEO also needs to understand and embrace the upcoming generation showing interest in joining the family business, as this not only enables the business growth and prosperity for generations to come but allows the upcoming generation to be a part of the growth journey.

Clear communication channels between the business and the family

When the family is not in a leadership or management role, it is essential that there are clear communication channels between the business and the family. Regular meetings and open communication are key to maintaining a strong relationship between the business and the family. It is thus important for the non-family CEO to ensure there is a mechanism to facilitate these communication channels, to ensure everyone is kept informed of important decisions and that there is no room for misunderstandings.

Retention of non-family executives

Family businesses often have a strong culture in the business underpinned by family values and the long-term perspective, which allows them to invest in patient capital. This can be a key advantage when it comes to attracting and retaining top talent, including non-family CEOs.

Governance underpins successful transition

Good governance is essential for any business, but it is especially important for family businesses that are transitioning to a nonfamily CEO. Strong governance structures, for the business, the family, and the owners, should help to ensure that the business is run in a transparent and accountable manner, and that the interests of all stakeholders (including the family and owners) are understood and protected.

Concluding remarks

Although each family business is unique, due to the family dynamics, the insightful presentation and robust discussion amongst the delegates in the room confirmed that should these principles be followed family businesses can make the transition to a non-family CEO a success. It is also important to note that many of the principles discussed above could be applied to the transition to another family CEO. It is, however, cautioned that there are some additional nuances with another family member transitioning into a leadership role. For either, considering these principles in a transition process (documented in a succession plan) will allow the business to continue to grow and thrive for generations to come.

The value of attending the KPMG Family Business Conference in person cannot be underplayed as attendees were able to hear firsthand the stories and insights from the leaders of prominent family businesses, engage on pertinent questions, network with likeminded individuals from across the country and even secure business deals. This series of articles has been prepared to capture some of the key takeaways from each session at the conference.

We are here to help

In addition to providing you with the platform to learn and engage with other business families at the annual family business conference, KPMG Private Enterprise family business advisers understand that family dynamics can make it difficult to come to an agreement on the best strategy for growth.

There is not a one-size-fits-all answer—our advisers can help you explore all of your options and find the approach that is right for your business and family.

Alan Barr - Head of Private Enterprise: [email protected] ?

Creagh Sudding - Lead: Business Families: [email protected]

W: https://kpmg.com/za