BUSINESS

[Management in Korea] CEO succession: A powerful tool for chaebol continuity

By Korea Herald
  • Published : Apr 25, 2018 - 15:57
  • Updated : Apr 25, 2018 - 16:27
Management in Korea is a regular column written by the members of Egon Zehnder Seoul, touching on various aspects of Korean enterprises and business leaders and offering management tips. -- Ed.

The transition to a new CEO is a vulnerable time, as the rest of the company, its business partners, investors and customers size up the new leader and his or her effect on the trajectory of the organization. If this is true for companies in general, it is often particularly so for family businesses.

In addition to the normal uncertainties inherent with a new CEO, the elevation of one family member over others will almost certainly be highly emotionally charged and may exacerbate fissures between branches of the family. 

Eugene Kim
Kim Ah-jeong
As the Korean business community knows well, CEO succession within chaebol often provides vivid examples of infighting and disruption.

The problem is rooted in the fact that most chaebol leaders treat choosing their successor as a personal prerogative, and therefore undertake it without the safeguards and safety nets provided by objectivity and a well-defined process.

To put the matter in sharper perspective, even the most conservative chaebol leader would find it laughable if Microsoft or Apple handled CEO successions the same way that chaebol do.

Chaebol, too, are large global organizations and must act accordingly. If that is not reason enough for chaebol leaders to look closely at their succession process, they should remember that a rigorous and well-run succession process contributes greatly to the long-term continuity of the enterprise -- a priority for every leader of an owner family.

Chaebol leaders can take some comfort in knowing that the need for a more professional and sustainable approach to succession in family businesses is not endemic to Korea. Around the world, board directors of family businesses rate themselves much lower in talent management than do the board directors of nonfamily companies.

Well-run family businesses, however, prioritize establishing rigorous succession planning. To get a better understanding of how they approach the task, Egon Zehnder’s Family Business Advisory partnered with the Family Business Network-International to interview family members and senior executives at 50 leading family businesses around the world -- all in the top three in their category leaders and with annual revenues of 500 million euros ($611 million) or more.

We found that the families with the smoothest transitions had extensive processes for determining the qualities needed in the next leader, objective frameworks for evaluating candidates and mechanisms for supporting the chosen executive. (The full report can be found here)

Developing a role specification for the company’s next leader starts in the same way that it does for nonfamily businesses -- identifying the experiences and competencies that match the company’s market environment, strategy and resources. But it is also likely that seismic shifts in business models, technology and regulation will place the new CEO in situations for which his or her experiences and competencies are no help. In these cases, the agility to adapt -- and thrive -- in unforeseen environments is critical. At Egon Zehnder, we call this ability potential, and our experience working with thousands of successful CEOs has shown that it is built upon four traits: curiosity to question and learn, insight to make sense of seemingly disconnected events, determination to persevere in the face of adversity and engagement to connect with others both inside and outside the organization.

Experience, competencies and potential are qualities that all business leaders should have. But it is also essential for family business leaders to possess certain traits specific to family business leadership. The CEO must embody the family’s values and be adept at harnessing those values and the family’s vision and history in how it runs its companies. The CEO will also have to control the internal dynamics of the family, arbitrating disputes, ensuring strong governance and mentoring its next generation. Finally, the leader must guide the relationship between the family and its businesses on the one hand and society at large on the other. This quality is particularly relevant for chaebol leaders, given both the scope of their impact in Korea and the increased scrutiny they and their families are under.

Establishing a clear vision of the next leader’s qualities provides a benchmark that is independent of any individual candidate and is rooted in the needs of the organization. But there also must be an objective and transparent succession process -- even if there is an obvious front-runner or even only one candidate. Such a process includes agreement among the board of directors on a succession timeline and a structure for developing the internal talent pipeline and then for making a final selection.

Once the candidate has been selected, a thorough transition process will put him or her on solid footing. Quickly affirming the candidate in the new role will reduce the opportunity for dissention or doubt. When possible, the outgoing leader or other senior family member should be frequently at the side of the successor to show support and to provide nuanced insight in real time. Both formal and informal opportunities for the new CEO to work and socialize with both family and key nonfamily members in his or her new role will solidify the transition. And the board should remember that the new CEO’s professional development does not end with his or her selection. Board members should actively mentor the new leader where needed and assess his or her performance against agreed-upon benchmarks.

The process of CEO succession is more than a rite of passage -- it is the most visible sign of the health of the inner workings of the organization. Today, chaebol face increased competition abroad and greater scrutiny at home. Ensuring that they have the right leaders at the helm is more important than ever.

(Herald DB)

By Eugene Kim and Kim Ah-jeong


Eugene Kim is the managing partner of advisory firm Egon Zehnder Seoul. He can be reached at Eugene.Kim@egonzehnder.com

Kim Ah-jeong is the head of research at Egon Zehnder Seoul. She can be reached at AJ.Kim@egonzehnder.com

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