The eternal debate of Professional CEO VS Promoter CEO

In the contemporary era of the corporate world, the companies are growing at an enormous rate and more than that, the business dynamics are becoming more and more fluid. This rising volatility in all the sectors is raising a demand for stronger and nimble leadership, which can ensure sustainable growth for the organization in such dynamic times. Such a scenario puts the family-owned businesses at a very critical juncture, as they try to seek the answer to what is best for their organization. It also raises a genuine debate about which kind of CEO – professional or promoter, should an organization have. More often than not, it is assumed that in a family owned business, it is would be difficult for the next generation to attain the desired competency to handle organizations in a professionalized manner. So, hiring a person with the desired set of professional skills, insights, and experience emerge as a solution. At the same time, professional CEOs come with their own nuances and may not share the same amount of passion and vigor for the business as a promoter CEO may.

The recent appointment of N. Chandrasekaran as the head of the Tata Group has imbued an inclination of the debate in the favor of professional CEOs. Before arriving to a conclusion, it is important to take a peek into the merits and demerits of both- professional and promoter CEOs.

The major plus point in the promoter style of management is that they have their money invested in the company. This is the very reason, that they are more interested in long-term shareholder values. Moreover, it is the promoters that have started the business and seen the evolution of the company closely and hence, it is expected that they know the intricacies of their respective organizations more than anyone else. They have the moral authority and comprehensive knowledge about the organization. On the other hand, promoters inadvertently happen to be the one that curbs the corporate democracy. They are, more often than not, stereotyped to be more dominative or authoritative- which may lead to them missing some potential business opportunities, as they dispel other’s opinions. They can be reluctant to give up the control and hand over the responsibilities to their professional counterparts, and would like to be consulted in every organizational decision hampering the overall speed of operations of the business.

On the contrary, a professional CEO is imbibed with the specialized skills required to run the company given their vast experience and managerial knowledge. Unlike promoter CEO, they don’t curb the corporate democracy, but rather work towards professionalizing the way the organization operates, especially the family run business. By recruiting a professional CEO, the organization achieves better corporate governance and a wider business outlook. On the other hand, the professional CEOs are more concerned about short-term profit and goals, because they are driven by their KRAs set by the promoters.  It is not out inconsequential to mention- that no matter how well placed the professional CEO will be in the organization, he would always be tempted by greener pastures, considering the fact that he would not share the same loyalty as a promoter CEO. Also, professional managers are often considered as an unofficial mediator between different parts of the family of a family-owned business. It can damage the working relationships.

Recently, there are a lot of companies in India that are hiring professional CEOs. As mentioned earlier, Tata Group has hired N. Chandrasekaran. He has been working in bringing a digital transformation in the organization. Experts had commented saying that the management styles of Ratan Tata and Chandrasekaran are different, and do not overlap- which helps in attaining complimentary management. Another famous example from this league of CEOs is the CEO of Adani Enterprises, Vinay Prakash, who is also the youngest CEO of the group. The biggest advantage, in this case, was that the owners had given him the power and freedom to work with his own modus operandi, towards the goals of the organization, and he has been instrumental in multiplying the business.

Although, it is a rising notion to recruit a professional CEO in a family firm, there are examples that offer an oppositional reading. A large number of companies in India that are doing exceptionally well, are run by promoter CEOs or family members. The examples include Bajaj, Hero Group, Bharti, Mahindra, Dr. Reddy’s, Lupin and Sun Pharma. Vishal Sikka, the first non-founder head of Infosys had resigned as the managing director and CEO of the IT major firm. Although the company was doing well under his leadership, there was an alleged rift between the founders and board that led to him quitting. Globally, the view is also dissected with an example being cited in favor of both types of CEOs. Major conglomerates like Apple, Microsoft, Google, Facebook, and others have seen an unprecedented rise under the promoter CEO.

The debate is still open out there regarding which CEO as they both have their inherent advantages and disadvantages. The preference can vary from company to company, depending on the mindset of founders and board. It can be extremely beneficial, if the companies hire a professional CEO, who can produce rich dividends with the vast knowledge and rich experience of the role.