Want the family firm to thrive? Then call in the professionals | Torsten Bell

Regents, stand-ins for monarchs who are too young or incapacitated, feature prominently in the history books. Scotland managed six regents for the young David II during the 1330s. Then there’s Richard III’s brief period as lord protector for (and deposer of?) his 12-year-old nephew, Edward.

There’s not much call for regents these days. But new research reminded me that modern ones, of sorts, exist in the corporate world. So-called placeholder CEOs are common in family firms, serving between two family members when a suitable heir isn’t immediately available. The 10-year gap between Zara’s founder (Amancio Ortega) standing down in 2011 and his daughter (Marta Ortega) taking over was filled by a lieutenant.

What impact do these placeholder CEOs have? The researchers examined listed Japanese firms postwar. The sheer number of these regent-style chief execs stands out – they make up a third of non-family member CEOs. And they aren’t just short-term interims, lasting longer on average than other chief execs.

The research shows these placeholders work, if your success metric is keeping the show on the road until the family scion is ready to take over. On average, they maintain firm performance in line with their family CEO predecessor.

But delivering continuity also defines what they don’t do: aim higher. We know professional CEOs outperform family bosses generally (some mean academics have even shown that family chief execs tend to possess lower cognitive ability than external CEOs), but placeholders’ performance matches family bosses, not the professionals. Maybe nepotism, even with a pause, isn’t the best selection process after all.

Torsten Bell is Labour MP for Swansea West and author of Great Britain? How We Get Our Future Back

Do you have an opinion on the issues raised in this article? If you would like to submit a response of up to 300 words by email to be considered for publication in our letters section, please click here.

This post was originally published on this site