What Authority Should a Nonfamily Chief Executive Have in a Family-Owned Company?
Short answer. A nonfamily chief executive should have clear authority over the company's agreed operating responsibilities, with owners and the board setting strategy and oversight. They should also define reserved decisions. Put decision limits in writing, provide the CEO with needed information and resources, and evaluate performance against objectives agreed with the board.
A nonfamily chief executive should have authority to run the company within a written mandate set by the owners and board. The CEO needs enough control over daily operations and staff, along with approved budgets, to be accountable for results. Owners should retain clearly defined decisions on strategy and ownership, plus other reserved matters handled through the board or shareholder process.
Set the Boundary Between Oversight and Operations
Write down which decisions the CEO can make without seeking approval and which require board consent. Common topics to define include hiring and dismissal of senior staff, spending limits, contracts, borrowing, capital projects, and changes to the business plan. The exact list depends on the company, its governance documents, and any legal obligations. Talk with your attorney and CPA about those specifics.
The board should agree on the company's objectives, risk limits, and reporting expectations, then allow the CEO to manage within them. If owners give instructions separately or reverse agreed decisions informally, the CEO cannot lead effectively and employees receive mixed signals. A clear governance model for balancing family interests with business needs helps define the channels for decisions and oversight.
Give the CEO the Means to Deliver
Authority must match accountability. The CEO should have access to timely financial and operating information, capable managers, and the resources needed to carry out the agreed plan. Ask the CEO to bring material risks and proposed exceptions to the board promptly. The board can challenge assumptions and ask for changes without taking over routine management.
Agree on a small set of role-specific objectives and how the board will review progress. Include operating performance and leadership of the management team. Where relevant, consider customer and employee continuity, along with execution of the approved plan. The CEO should receive regular feedback, not discover concerns only during a formal review.
Protect the Working Relationship
Explain the CEO's authority to family owners, employees, and key business partners. Family members who work in the company should follow the same reporting lines and decision process as other employees. Concerns about the CEO should go to the chair or designated board process, instead of being handled through informal directions to staff.
When owners and managers have competing interests, disclose them and use independent review where appropriate. Document material approvals and the reasons behind them. This keeps the company's decisions clear and helps the board fulfill its oversight duties. See how to handle conflicts of interest between owners and managers for related guidance.
Review the Mandate as the Business Changes
Revisit the CEO's authority when the company's size, ownership, or strategy changes. A mandate that worked when the business was smaller may create bottlenecks later. The board should review whether decision limits and reporting still fit the company, then update them openly.
If performance falls short, first determine whether the CEO had clear objectives, reliable information, and sufficient authority. A fair evaluation separates execution issues from unclear governance. The board can then coach, revise the mandate, or make a leadership change through the agreed process.
Read next: How should owners separate family decisions from business decisions?
The CEO role typically includes selecting the systems, consultants, and software programs; overseeing the CIO, CFO, and other staff to make sure they are performing as expected; and helping to make hiring decisions for the core team and advisory board.
Sources: The Single Family Office. Informational only, not financial, legal or tax advice.