Where Do CEOs Come From?
Many of today’s CEOs are founders of their firms. Their names are on the door, and they have been unquestioned leaders from the start. They defined the first vision when they started the firm, and they have recruited and groomed the firm’s other partners. However, this is not always the case. Many successful CEOs are one of several founders and have not always been the clear leader. Instead, they reached their position as the top executives in the firm because of their passion for making the business better. In other cases, CEOs are hired externally in order to bring experience and expertise in leadership—experience that perhaps was missing on the inside.

The ability to identify and develop future leaders is critical for the continued success of any firm. This generation of CEOs will likely retire in the next five to 10 years, and the task of identifying future leaders may be even more pressing than the development of advisors who can handle relationships and business development. In fact, our experience shows that while larger firms have done a good job of training the next generation of advisors, they are missing the next generation of leaders.

Part of the problem is that leadership is a bit like driving a car—you have to do it in order to learn it. Much has been written on leadership, and many programs are designed to teach it, but the reality is that you can’t learn to drive by watching your dad drive the car (trust me on this one). Sooner or later, future leaders must grab the wheel.

Leadership opportunities on the inside offer valuable learning opportunities. A future leader can develop necessary experience by chairing committees, leading departments or managing offices.

CEOs who come from the inside have a natural advantage. They know the firm, understand and live the culture and are accepted and known by their colleagues and partners. Sometimes, however, they may have trouble asserting their authority. As they say in Bulgaria, “No one is a prophet in their own village,” and a firm may have a hard time seeing CEO potential in the professionals who grew their careers in the same office, particularly if the CEO has to lead the firm through a lot of change.

The advisory industry does not have a lot of second-generation CEOs because many of the industry’s firm founders have not yet retired. But firms that have gone through internal changes frequently hire their CEOs from the outside. Those outsiders come with experience and credibility, having done the job before, and perhaps the knowledge to change a firm. But they can be harder for insiders to accept, and they raise issues about culture.
The original leadership models in human history were the biggest dudes good with clubs. We later understood that successful leaders must derive their authority from a group. Similarly, future CEOs will not be the biggest shareholders, but those empowered by the people they lead.

There are reasons to hire from the outside and reasons to groom from the inside, and a firm has to keep asking itself where future leaders will come from. Of course, “the firm” is a nebulous concept. It helps to ask more specifically: Who is responsible for identifying the future CEO?

The CEO And The Rest Of The Firm
A CEO cannot work in isolation or lose connection with the owners of the firm and other stakeholders (advisors, employees and, of course, clients). Ideally, a firm has a functioning executive committee (or board of directors) that represents the owners of the firm and stays awake at night thinking about the future ownership.

A good CEO needs to have an executive committee. Because an unchecked CEO can turn into a dictator and lose the hearts and minds of the other partners, an executive committee can offer balance. A CEO needs to hear and understand the thoughts of the other partners and consider them in decision-making. A strong board can also hold a CEO accountable—after all, we all need accountability.

Ideally, the CEO is also surrounded by other executives who are able to provide management and leadership in their respective roles. In advisory firms, these executives include the COO (chief operating officer), CCO (chief compliance officer) and CIO (chief investment officer). An executive team allows the CEO to maintain strategic focus and avoid becoming entangled in the daily battles of managing operations. Once again, the executive team also provides the necessary information and perspective.