The power transition from Founder to paid CEO: why does it sometimes fail?

Recently, the Chamber of Young Entrepreneurs asked for a presentation on the topic “What should owners (founders) consider by handing power over to a paid CEO?” I went through many of the interviews in the past with paid managers and entrepreneurs/founders/owners and recalled situations when it was a success or a failure.

Understandably, such a change is an important event for both the organization and the founder. Unfortunately, it must be admitted that an entrepreneur’s first experience of working with a paid CEO tends to be over rocks and stumps. Even experienced CEOs see a myriad of risks for themselves right from the start.

The owner may have very different reasons for hiring a paid CEO: the company has grown large enough, and it is necessary to make management more professional; The owner prefers to take a passive role in the company, etc.

Before hiring a CEO, an entrepreneur should sit down for a moment and think: Am I actually ready to hire a CEO? Do I need a CEO at all (maybe a vacation instead?)? Do I have a vision of what the collaboration with the CEO is going to look like? Does my company have the money and resources to hire a CEO? Am I ready for a new person to bring new views, values and practices to the team? Who am I, i.e. what are my values, leadership style and personality traits? What kind of people next to me have “survived”? For example, do I have a tendency to micromanage my employees from time to time (this is especially a big risk for owners who themselves once started as a specialist in the company)? What rights am I willing to give him (balance of rights-obligations-responsibilities-resources)? Can he put together his own team, for example? Do I actually know who and how to recruit as CEO? Most important: Why do I need a leader?

Summary of conversations where owner-CEO cooperation has gone smoothly:

The owner is generally aware of the practices of professional management and sees value in it in order to take the company to a new level. The owner and the paid CEO have very clearly agreed on goals and expectations, how they will be measured, what are the rights, duties, responsibilities, resources of the CEO. The form and frequency of cooperation has been established. The agreements shall be adhered to by the parties.

The organization has grown large enough under the leadership of the owner, and system capital and a certain maturity have arisen: structure, goals, strategy, roles, metrics, software, data. In addition, the level of middle managers has already arisen. The basis for making important decisions is empirical data. The less the organization has been dependent on the owner on a daily basis, the easier it is to hand over the baton.

The owner has an understanding of what he needs a manager for and the ability to choose suitable players for his team. Not all managers are suitable for working in small businesses. CEO does not always mean a top manager. In smaller companies, the manager must constantly move between issues of strategic and operational management, if necessary, prepare his own coffee, print papers. Profiling a suitable person can be a challenging challenge for the owner. Understandably, for the owner, the credibility of the A and O leadership candidate and a sense of similarity of blood groups – otherwise the collaboration will simply not work. This decision is often intuitive. However, it is also important to understand: what kind of problems has a suitable candidate for leadership had to solve in the past? Has he managed to create functioning teams? What kind of work environments are suitable for him? What is his value profile and does it overlap with the owner? At what stage of the career is the manager? What does he want to do professionally and can the new place offer it to the candidate?

There is enough time for power transition. The owner helps the new manager settle in, and then carefully monitors that he does not diminish the authority of the manager in the eyes of the employees. It can be quite difficult for a paid CEO to gain trust among those who have ever started with the owner. Is the owner ready for the departure of the old-timers if they do not reach a constructive cooperative relationship with the CEO?

The alternative to hiring from the outside is to look around inside the company and think about whether there is someone to promote. Working as a CEO definitely requires not only leadership skills, but also managerial skills and knowledge. In order to make strategic decisions, it is also necessary to understand the market, the customer and how the company makes money. In internal promotion, observe: is a person generally a recognized professional by others in the team (above all, this is important in professional services companies and where the role of the human factor is business-critical) and a leader? Has he initiated new development acitivities, led projects and led project teams? Can he build and maintain relationships? How does he behave in crisis situations? How quickly does one learn and is able to adapt to non-standard situations? Does he believe in our products and is a brand ambassador for the company? NB! CEO choices are just as important as strategy and financial issues.