For a professional CEO to be successful in a family firm, they must understand the values of the family. Every family has its identity and in a family firm, that identity can be part of its intangible assets
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Family firms, especially established ones, often hinge on a story. History is a kind of intangible asset that is unique to these firms, like Hermès. When we buy an Hermès scarf, it’s not only the silk material and bold pattern that draw us in, we are also buying a story and a brand integrated into French culture. For family firms like Hermès, it’s important to have a family member in the top job because the name of the family is integral in story building.
Yet, for 14 years, Hermès had a professional CEO who wasn’t part of the family. In 2013, rather than continuing the professionalisation of the firm, the family chose Axel Dumas, a descendant of the Hermès line, to lead, reaching back to the family for leadership.
In situations like this, when the family owners reassert direct control after a period of interregnum, what might we expect to see vis-à-vis business performance?
Professionalisation is the transition from a purely family-managed and governed firm to the inclusion of non-family members in the top leadership, both the corporate board and top management. There is a huge variation in this transition, but on average, it's productive for family firms to have professional managers at some point. Family firms often embark on this process during the transition from an older generation to a younger one.
On average, professionalisation benefits family firms, but the transition can be difficult. After all, these firms have been built around the family for decades so the transfer of power, leadership and CEO position to a non-family member may be uncomfortable.
[This article is republished courtesy of INSEAD Knowledge, the portal to the latest business insights and views of The Business School of the World. Copyright INSEAD 2024]