Coping with the family / entrepreneur
Typically, a family tends to be conservative while an entrepreneur tends to overreach. A family member or an entrepreneur, continuing as an executive head of the board, could therefore be a major constraint on a professional CEO’s style. The answer to this from a CEO does not lie in attempting to change the family member’s or entrepreneur’s business DNA. It lies in the CEO’s ability to offer a framework by which unreasonable aspirations and reasonable resources are harmonized to develop a workable blue-print for the future.
An organization in transition (from family-promoter control to professional management) needs intensive and structured interfaces at all levels, more so at the top to smoothen the transition. An entrepreneur-CEO and a professional CEO would most likely have dissimilar aspirations, managerial styles and personalities. The professional CEO would need to constantly evaluate how his relationship develops with the family / entrepreneur on one hand and the organization on the other hand. Only frequent and direct communication with the family and entrepreneur can help usher in the transition smoothly.
In an organization controlled or co-promoted by more than one family member or entrepreneur, the inter-se dynamics between the family members or co-promoters are not always visible. The apparently passive member(s) may have invisible influencing power, which needs to be understood. Similarly, an existing organization may have persons of influence who do not operate in the open. Molding all these relations in his favor is a challenge for the professional CEO.
A family or entrepreneur run organization is likely to have many informal channels of communication between various employees and the family member or entrepreneur,
which operate as a result of the micro-management of the company by the family or the entrepreneur. The informal channels could often distort information and even use the
information for ends which are not necessarily aligned to business goals. The CEO would need to establish structured strategic planning and budgeting processes, visible performance management systems and open communication channels as a formal means that renders the informal operations increasingly irrelevant.
Keeping up the growth momentum
As one moves into a CEO’s position of a hitherto family run or entrepreneur driven company, the challenges would be significant in the areas of project execution, operations management, strategic planning, business development, peer-relationships and communication with investors and employees. The focus and spirit of the role would need to be on managing for the future with the speed of an entrepreneur and the caution of a family. The CEO would need to innovate constantly on business, technical and operational models to achieve this. The knowledge, assets and execution capabilities of the past and present, though belonging to different businesses and products, often serve as the levers for new business development. These must be exploited on a proactive basis. At the same time, old business models and past experiences of established companies need not necessarily succeed in a family / entrepreneur company. The CEO has to be, therefore, dynamic, contextual and differentiated in respect of strategy as well as execution.
While the very reason for bringing in a CEO in a family firm is to do things differently, yet when it comes to systemic changes, the entrepreneur or the family would more likely baulk rather than support the changes ostensibly for fear of losing business momentum or stability as the case may be. Yet, as a CEO, one has to live with apparent contradictions; closing down manufacturing lines while investing in new facilities, slashing jobs while creating new knowledge positions, phasing out products while innovating new ones, eliminating today’s expenses while adding costs for the future and so on. Building long term value, without compromise to current revenue and profit growth is the essence of the CEO task.
Fusion of strategic intuition with operational excellence and balancing of the short term with the long term are the ultimate challenges for a CEO. A family or entrepreneur-led company would have achieved growth due to an opportunistic mix of operational and business strategies. This may not meet a professional CEO’s litmus test in all cases. Practically viewed, neither time nor resources will be on the CEO’s side to attempt a total structural, systemic and value-chain upgrade of a hitherto family or promoter run firm. The CEO is likely to succeed if he keeps the degree of revamp to a minimum even as he judiciously pursues newer options that comply with professional norms, both in technical and business arenas.
The responsibilities of a CEO would typically follow a normal distribution. About seventy percent of the focus would need to be on the core aspects of driving revenue and profitability. There would be two outlying areas of say, fifteen percent each, related to turnaround (extreme cost and efficiency management) and family or promoter inspired value-gaming (extreme futuristic investment bets). A focus on the outlying areas beyond the limits indicated could expose a CEO to the threat of weakened performance on the core.
In today’s competitive world, investors (including the promoters) have a relentless focus on continued growth in revenues and profits. Unless there is a need for a radical restructuring, ways and means have to be found by the CEO to keep growing, even while rectifying errant operations. If any part of the business requires radical restructuring with organizational implications or large investments with long lead times, the plan must be clearly articulated to the stakeholders so that there are no misunderstandings.
The domain of business development is almost always imprecise. As strategic business development is a key responsibility of a CEO, he would need an organizational infrastructure for a structured yet entrepreneurial business development. In business development, by definition and practice, the entrepreneur tends to over-commit. The family member, on the other hand, tends to be conservative and cash-conscious. The professional CEO, however, has to balance these trends by arranging resources and ensuring execution.
Reshaping the organization
The effectiveness of a CEO lies in the smartness of delegation, notwithstanding the possibility that the informal or unstructured nature of the organization requires his close attention. The CEO cannot afford to have all “pupils” and no “masters”, if he wishes to succeed fast. A CEO has also to make sure that the persons to whom responsibilities are being delegated are good enough for the job. For delegation to be effective, the overall level of competence (both individually and collectively) has to meet stringent standards. Effective delegation also requires that various departments at all levels interact meaningfully without ‘upward delegation’ which is characteristic of organizations functioning as vertical silos requiring sanctions from the top for everything. Cross-functional teams will need to be encouraged at all levels to enable executives broaden their horizons, without the day-to-day involvement of the CEO or even the next tier. While speed of execution is important, issues have to be prioritized. A smart CEO would use multiple levers differently, to blend delegation with accountability.
When a new chief takes over a family or entrepreneur run firm, people who have been wayward or powerful hitherto in the organization tend to be defensive or manipulative. There can be no implicit belief in anyone until his or her professional competencies and managerial approaches are established. Setting uniformly clear goals would be one way to isolate performers from non-performers. The concept of a long grace period could be as detrimental as bundling all the old guard as being irrelevant. An objective judgement on each executive and checking out with the entrepreneur or family would be a quick and effective route to aligning the organization to the CEO’s thoughts.
While the board deliberations in general tend to be a matter of form than substance, the boards of some family or promoter companies may have an even greater issue with regard to the independence. With Clause 49 coming into force, one has to hope that such boards will reflect objective and strategic oversight on corporate matters. The professional CEO will need to add his inputs specifically to enliven and spark the discussions, even though he may be constrained by what the family member or entrepreneur has been disclosing so far to the board.
Though in an organization the buck certainly stops at the CEO, all onus cannot be on the CEO alone. For the organization to really reap the value from a professional CEO, the family member or the entrepreneur would also need to fulfill certain responsibilities. For example, he has to respect the mandate given to the CEO, explain the past and integrate his experience with the new CEO’s perspective, follow the CEO’s advice in matters of strategic plan and operational execution, eliminate invisible or whimsical checks on the CEO’s style and create forums for free flow of information.
Dealing with oneself
A CEO who is new to the job would need to ensure that his time gets channeled to activities which are most productive for his physical and financial performance. Even though teaching and coaching are an integral part of a good CEO’s profile, the CEO cannot allow them to erode his ability to focus on other key factors relevant to his new position. Consolidation of his own position should be as important as coaching others at least until he gets a solid grip on the company affairs.
The hallmark of a true CEO is that he outgrows his functional core competence. In several respects, he demonstrates that he is “equi-distant” with all functions and all professionals. Similarly he “owns” all the functions, whether or not they work for him, against him or with him. This is easier said than done. It requires a constant work-out on oneself to achieve this state of mind. A CEO, in the event he is from a technical background, will definitely need to become financially savvy as well. Similarly, a non-technical CEO has to demonstrate certain grasp of the technical nuances of the business to gain an overall organizational command. In addition, any CEO would benefit from tracking the successes and failures of other CEOs. Such readings would help him raise the bar of performance on one hand and develop a sense of equanimity about the limits of performance on the other.
Ultimately, all stakeholders, the family or the entrepreneur and the board need assurance that things are moving fine. Regardless of the past track record of the CEO and his current level of confidence in the new job, the CEO needs to periodically assure his stakeholders regarding corporate performance and investor returns. The longer the gestation period of a project or the more traumatic the nature of a change, the greater would be the need for such assurance. Often written reports, value-added by face-to-face discussions reinforce such confidence all-round. The CEO will also need to significantly work on his presentation skills as well as his diplomatic approaches which are as important as the raw results of operations. The CEO is also a dependent member of the organization, in some respects. He cannot be a silent sufferer for the corporate mission when resources are not available. He has as much responsibility for demanding (or generating / deploying) capital as he has for delivering on achievements. It is not infra dig for a CEO to demand the due resource inputs for the business from the board, the family or the promoters.
The CEO’s role in creating a positive organizational culture, conceptualizing a growth-oriented business model, developing a new corporate plan and driving a tight execution program would be vital in determining his impact on the hitherto family or entrepreneur run organization. If a CEO desires to make a lasting impact beyond the level of his past achievements, he would also need to do something that rivets attention. Given India’s niche in the knowledge-led activities and the several business opportunities waiting to be tapped in these areas, fundamental innovation would be a key driver. It certainly calls for resources, skills and equally importantly, time. However, unless the seed is sown one day and carefully nourished every day, the professional CEO and his company (in transition from the hitherto family or promoter led status) will not have the comfort of lasting shade in the future.
Posted by Dr CB Rao on February 22, 2009