Professionalisation 2.0: The role of the professional CEO

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In 2014, our survey’s main theme was the professionalisation of the family firm. This year’s results show that real progress is being made in this area, but there is clearly more that still needs to be done.

Every firm will eventually reach the point when it has to professionalise the way it operates, by instituting more rigorous processes, establishing clear governance, and recruiting skills from outside, and family firms are no different. This year’s survey proves – again – how important these priorities are.  For example, 43% of respondents say the need to professionalise the business is a key priority over the next five years.

“The next generation isn’t old enough to take over for a while yet, and we really felt we needed an injection of new blood and a different set of professional skills, insights and experience to help us to the next level. So we made the decision to hire a President from outside.”

Paul & Michael Higgins Co-CEOs, Mother Parkers, Canada

But the family firm has another dimension which other companies never have to tackle: the family itself. The issues here are much harder to address. They’re more personal, more complex, and the risks if it goes wrong are potentially terminal: as we’ve said many times, ‘family firms fail for family reasons’. No surprise, then, that progress in this area is slower, or that some companies like to think they have made advances when in fact, little has really changed.

“We currently have ten family members actively involved in the day-to-day operations of the business, but we recognise the value of bringing in skilled professionals from outside, and there are many in senior management or C-suite roles."

Osama Ibrahim Seddiqi CFO, Seddiqi Holdings, United Arab Emirates

This year’s survey shows that family firms are continuing to establish processes to ‘professionalise the family’, including mechanisms such as shareholders’ agreements, family councils, and incapacity arrangements.

Bringing in external managers is another way of professionalising the business; this takes on an added importance and urgency in the context of the ‘missing middle’.

At the most basic level, better processes and a clearer division of roles and responsibilities frees up time and space for the senior team to think and plan more strategically.

“We’d got where we were by being really flexible and entrepreneurial, but there comes a point when you need rules. We had a lot of unwritten rules, but they can start to get in the way eventually. Professionalisation is an ongoing journey, but I see it as my mission to make us more resilient in the face of any future downturns. To make us stronger for the future.”

Dato’ Roslan Executive Director / Group COO, AZRB, Malaysia

The role of the professional CEO

We’ve looked before at the advantages of bringing in an external CEO, and the challenges that this entails, both for the family and the professional coming in. Some external hires clearly relish the chance to make decisions quickly, and enjoy the autonomy that the family business model can offer.

But many CEO respondents this year cited the difficulties they continue to encounter. Families can be reluctant to give up control, and external CEOs can find their professional judgements over-ridden by family and owner decisions, which may appear to be based on emotion rather than rational argument.

Given the overall theme we have been highlighting this year, it is particularly significant how many external CEOs say they are excluded from the strategic planning process – many describe this in terms of decisions taken by the family ‘round the dinner table’ (or in the case of one Australian firm, at the barbecue). A CEO from a third-generation Australian business said: “I am not privy to the inner circle of decision making, that doesn't worry me but might worry some people.”

Another common observation is that professional managers are often called upon to be an unofficial mediator between different parts of the family. Not only can this be difficult and damaging to working relationships, it’s a role no professional manager should be asked to play: they need to focus their skills and energy on running the business. Many talented managers are, in fact, putting off taking roles in family firms for precisely this reason.

Judging from this feedback, many family firms still have more work to do to understand the value of an external CEO, and give them the freedom they need to do the job properly. If not, the risk is that they will not stay and the value to the business won’t be realised.

“Not being a family member or shareholder means you don't get the chance to be involved with the strategic business decisions going forward. So, it can be difficult to put forward your own personal perspective. So, you don't always feel that you're adding any value to the business.”

South Africa non-famaily, 2nd generation business

“Turnover among managers is very high as family members dismiss the management team frequently even though the business results are significantly better than the prior years.”

US 5th generation

“You’re a communicator between family members, they cannot talk to each other so they use me to talk to them.”

Singapore non-family member, 1st generation

The professionalisation agenda: Some practical tips

Siew Quan Ng, Family Business Leader, PwC Asia Pacific, highlights the role that governance and risk management play in the professionalisation journey.

Governance at the early stages of a family business is typically effected through informal systems centred around the owner, who makes major decisions concerning the business. This arrangement is fine so long as management and ownership remain concentrated within a few individuals/family members. But as the business grows and transitions to a stage where there are more shareholders who may have different interests, mechanisms must be put in place and formalised so that all these views are taken into account. This is all the more evident when the family decides to list the business. Aside from compliance to regulatory requirements by local authorities, the business needs to demonstrate to investors through corporate governance disclosures that the board and senior management are running a tight ship.

 
Which brings me to the next point on risk management. The universe of risks faced by a small owner-managed business is nowhere as complex as that of a multinational conglomerate. When a family business starts to scale up and evolve, so too must the way in which it manages risks. Unfortunately, risk management is often seen as an afterthought - a part of the compliance process. The reality is that successful businesses all manage risk from the onset, beginning with the articulation of strategy. The board (and by extension the shareholders) must be able to gain comfort from the fact that the business’s governance architecture supports this. In essence, it is not just about effectively managing risks, but just as importantly, knowing when to take on the right risks as well.”

Explore the data

Use our data modeler to look at the findings from our Survey in greater depth. 

Explore five themes: Business performance & challenges; global considerations; The family business DNA & succession planning; digital; the people piece. 

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Contact us

David Wills
Global Leader - Entrepreneurial & Private Business, PwC Australia
Tel: +61 3 8603 3183
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Peter Englisch
Global Family Business Leader, EMEA Private Business Leader, PwC Germany
Tel: +49 201 438 1812
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Siew Quan Ng
Asia Pacific Leader, Entrepreneurial and Private Clients, PwC Singapore
Tel: +65 6236 3818
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Alfred Peguero
Partner, PwC United States
Tel: +1 (415) 498 6111
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