More than Family
Non-Family Executives in the Family Business
By Craig E. Aronoff, John L. Ward
Palgrave Macmillan Copyright © 2011 Family Business Consulting Group
All rights reserved.
A Fruitful Collaboration
One of the greatest challenges to family business growth is the willingness and ability to depend on executives who are not family members. Whether non-family executives are hired from outside the company or promoted from within, the issues are much the same: choosing the right person for the job and managing him or her in such a way as to mutually benefit the company and the non-family executive.
All growing family businesses eventually face the need to attract top-level talent from outside of the family. The business will need the energy and ideas that only outsiders can provide. Indeed, according to our research, about 12 percent of family-owned businesses have had persons outside the family serve as CEO.
This book is designed to help business owners become more knowledgeable about attracting and retaining valuable nonfamily managers. It will help you to understand how non-family executives can help you grow your business and assure its survival to the next generation. It offers guidance on hiring or promoting the right people for executive positions and managing them effectively so that they will want to stay with your company and give it their all. Chapter 4, "Making Non-family Executives a Part of Your Team," for example, tells you what non-family executives want and offers suggestions for meeting their needs so that they can meet yours. You will also find advice here on developing good relationships between your children and your non-family executives.
Family business owners need to understand what it's like to be a key player in a family company but not a member of the family. As often as possible, this book presents the perspectives of non-family executives so that family business owners can interact more successfully on matters like compensation, making the transition to the next generation, and professionalizing the company. Chapter 8, for example, is addressed directly to nonfamily executives, but it is also intended for family business owners and managers, board members, next-generation leaders, and others who are invested in their family business's future. It will help non-family executives more clearly understand their roles in a family business and how to manage those roles and work with the family successfully. Conversely, it will help the family, the board, and others understand what it's like to be in the position of a nonfamily executive.
We believe that all existing or prospective non-family executives in family businesses should read this book. Just as you as a family business owner gain an understanding of them from these pages, so will they gain an understanding of you and your needs, fears, and desires. We hope that as a result, you and your non-family executives learn to communicate with each other more effectively, better understand the expectations you have of each other, and achieve—and enjoy—long-lasting, productive working relationships that take your company forward.
To grow and achieve long-term success, a family business depends on a fruitful collaboration between the business-owning family and its non-family executives. As Charles E. "Gus" Whalen Jr., president of the Warren Featherbone Company, a family business in Gainesville, Georgia, once warned in a Harvard Business Review article, once a family firm runs out of competent family members, "you're out of business"—unless, of course, you turn to non-family talent.
"In short," he said, "you need to find and help develop new heroes for your business."
That's what this book is about: encouraging you and helping you to create new heroes for your business—heroes from outside the family to complement the heroes within.
A Delicate Relationship
Family Business Owners and Non-family Executives
Family business leaders are frequently resistant to and uneasy about putting non-family members into key executive positions. Talented executives are often equally cautious about joining family firms, even though they see many benefits of doing so.
The family business leaders have their reasons: They often see a non-family executive as a cost, rather than an investment in the business. Entrepreneurs often have a hard time accepting that good talent earns great returns. Sometimes, they worry that the non-family managers will not be as loyal, trustworthy, and hardworking as family members are, or that having people outside the family in key positions will dilute the family's power or role in decision making or erode the values so important to the company culture and to the family. They wonder about the effect of non-family executives on the career paths of younger family members.
They fret over the notion that a non-family executive will want equity in the company. They experience anxiety over how well non-family executives will get along with the next generation of family members in the business, or non-active family owners. And what kind of relationship will top family executives themselves have with these outsiders? How can you be sure non-family managers will do what you want them to do? What if they want you to change the way you conduct business? And what about the horror stories the business owners have heard about non-family executives who try to wrest control from the family or who go off and start competing businesses, or worse?
Non-family employees who have just become executives in a family business or are thinking about joining a family firm have concerns of their own. Will they be treated on par with family executives? Will their ideas be heard and will they be given a chance to make a difference—or will the family call all the shots on how the business is to be run? Will they be given an opportunity to advance in the company, or is there a "glass ceiling" for non-family employees?
They've heard their own horror stories—about what it's like to work in a family firm where family members are at one another's throats and want nonfamily executives to take sides, or where non-family executives are expected to help resolve family conflicts. They've also heard about autocratic founders who want you to jump when they say jump and about family firms that don't follow best business practices. What if, for example, a talented non-family executive is expected to work amiably with an incompetent family manager, someone who is in an executive position only because he or she is "family"?
Family business owners and non-family executives both have a lot of legitimate concerns about working with each other. However, we believe wholeheartedly that these relationships can work for the good of all concerned, including the business itself. We have seen it happen over and over again.
Our decades of experience in working with family businesses have led us to some simple but important conclusions: You deserve the best. Not only that, the best of the best want to work for family firms. Finally, you should expect nothing less than the very best performance from your non-family executives.
In survey after survey, managing non-family executives ranks in the top three areas of concern for family business owners. This is a complex issue. It's an area that requires a big investment of your time and salary dollars, and—if it works out—it can yield an excellent return on your investment. You are not alone in your search for answers to questions about managing key non-family executives. That's why we wrote this book.
RECOGNIZE THE BENEFITS
As a family business leader, and especially if you're the CEO, the place to start is to recognize the many ways that non-family executives benefit a family business. As we pointed out in Chapter 1, non-family executives enable your business to grow. If executive positions were limited to family members, the business would be narrowly confined and, by necessity, would have to stay small. Business growth requires a larger, deeper pool of qualified management talent than any one family can realistically produce.
In addition, good, well-chosen, and wisely managed nonfamily executives help your company keep its competitive edge. Hardworking, professional non-family managers set an example for other employees to follow, including up-and-coming family members. If they come from other companies, they bring to your business the knowledge, experience, and discipline that they gained elsewhere.
Furthermore, your company gains the advantage of their ideas, ideas that you might not come by if you limit your executive team to an inner circle of family members. Any company can benefit from diversity of thinking, and when fresh ideas come from outside the family and decision making is shared with talented non-family people, your company stands a better chance of keeping an innovative edge and meeting its strategic challenges.
Beyond these broad and vital benefits, our experience tells us and research shows that non-family executives can play a number of valuable roles in a family firm. These include, but are not limited to, the following:
* Serving as an alter ego or "consigliere" to the founder/Being close to the seat CEO. In this role, the non-family manager embraces the family and its culture and values as if they were his or her own. While complementing the CEO's skills, he or she also promotes the family culture to non-family employees and assures them that the family is trustworthy, solid, and strong. This can be a very powerful role to play, one we like to describe as "part warrior, part pastor."
* Serving as strategic planners and implementers. Founders tend to work in spurts of creative genius and need stable implementers who can pick up the pieces, transfer the strategy to other people, and build support for ideas. Non-family executives in this role can also surface disturbing data of value to the organization ("That person you hired that you were so keen about isn't really working out.")
* Supporting the succession process in a variety of ways. These might include mentoring the next generation and helping to prepare it for leadership, or serving as a bridge between generations when an heir is not available to take over. Sometimes the non-family executive even catalyzes the process. (We go into this in more detail in Chapter 5.)
* Being an insurance policy. If something happens to the chief executive—a serious illness or an accident, for example—a trusted non-family executive can step in and run the company until the CEO's return.
* Serving as an "adoptive" son or daughter. When business owners have no successors, they may want the emotional satisfaction of having somebody that they like and believe in growing into the leadership position. So sometimes, there's a very constructive and special relationship that builds up between an entrepreneur and a non-family manager.
All of these roles offer a measure of comfort to business owners. They get the reassurance that they and their families don't have to go it alone and that there are smart people by their side to help them meet the difficult challenges of running a family firm.
WHAT ATTRACTS OUTSIDERS
You've heard the old joke: "I wouldn't want to be the member of any club that would accept me." Sometimes family business owners are like that—they get suspicious of non-family executives who would want to join a family firm. A business owner simply may not understand the motives of someone who can't ever expect to be CEO of the company.
Yet, many "outsiders" find family businesses attractive places to work. Not every talented manager wants to be a CEO. For some, particularly those with low ego needs, it's more fun to be close to the seat of power rather than in it. Many non-family executives see in family businesses an opportunity to build personal wealth. Some are attracted by the opportunity to have broader responsibilities than they might get somewhere else. Others are attracted to a family firm's exciting mission, its non-bureaucratic nature, or its family-friendly attitude toward employees. Others are drawn by respect and admiration or the owning family's values and culture. And to some, family companies committed to long-term private ownership look increasingly secure in this fast-paced world.
However, as some of the fears of non-family executives discussed above suggest, they leave family businesses for a variety of reasons: when the family engages in destructive nepotism, placing family members in jobs just because they are family members, not because they are qualified; or the family abuses the business, using employees to take care of personal chores at an owner's home for example. Non-family executives also leave if they perceive an inequity of rewards that grossly favor family members over outsiders. Sometimes they leave because they don't fit in with the culture of the family business, or because the family closes itself to innovation and change and fails to stay competitive.
The many reasons that non-family executives leave a business suggest that companies that want and need to go outside the family to fill executive posts must prepare themselves for the experience. That means opening themselves up to change, dedicating themselves to being as professional in their practices as they can be, and being prepared to give up some control and power in return for greater business success. It also means regarding non-family executives as investments, not costs. You can rarely have too many good, well-managed people, whether they're family members or not. And they will nearly always provide a handsome return on your investment.
Striking the Right Match
It's a commonly held myth that business founders are confident, dynamic go-getters who are charging up the hill every minute of the day. Our perception, however, is that entrepreneurs are often humble people whose sense of self-worth can be lower than it should be. They are modest, and modest people tend to underhire.
One of our missions is to convince you, the family business leader, that you deserve the best managers, and you can get them.
A business leader's attitude has a great impact on a company's ability to attract and retain excellent managers. In the first generation particularly, when the founder is in charge, there may be some psychological hurdles to overcome—among them being the modesty we've described above.
We find that business owners often are suspicious of talented people. They worry that excellent, intelligent managers will judge them harshly and that such executives will pressure them to conform to standard management practices. Owners also worry that they need to please talented people to keep them.
In addition, research supports the notion that entrepreneurial personalities display a tremendous need for control and a desire to be at the center of things. As a result, they hire people who won't challenge their control.
Family business owners also tend to avoid the use of search firms and industrial psychologists when they're hiring executive talent. Search firms are seen as not only expensive, but they also won't let you be ambiguous. And if you can't be ambiguous, you have to say what you really want! That's hard for a lot of business owners.
We also find that family businesses exhibit an enormous tendency to hire people who are looking for jobs, rather than seeking people who are already happily employed and doing great at their current jobs. Needless to say, the latter make far better candidates.
Many business owners simply don't like the whole business of hiring. They dread the process of recruiting people and negotiating compensation. They don't feel confident about assessing people. They've been burned by past hiring mistakes. They understand that a mistake leads to another dreaded situation: letting someone go.
Once hires are made, family businesses often do not adequately train and develop employees for future roles, thus to promote from within to executive levels. Let's suppose you need to fill an executive slot with a non-family employee. Of course, we encourage promoting from within, if possible. Promoting from within means that you have had an opportunity to observe the candidate over time. You already know that he or she is capable, loyal, and trustworthy, and fits into the corporate culture. What's more, if you've done your job, you've already developed the candidate for this new role. The inside candidate also already understands the dynamics of your family business.
While sometimes you have no other choice, hiring an outside executive is riskier because such issues as loyalty, trustworthiness, and shared values have yet to be tested. Furthermore, bringing somebody in from the outside can be disruptive and time consuming as the new executive learns the ropes, scrambles to earn the trust of a whole new set of personalities, and perhaps struggles to cope with the realities of working in a family firm.
VALUES ARE KEY
What should a family business be looking for in its non-family executives? Like any company, a family firm needs executives with talent and skill to meet the demands of the position. This may mean superb ability to lead others and a solid knowledge of the company's products or services.
In a family company, however, an important part of finding a good fit is being sure that a non-family candidate holds values that are similar to those of the business-owning family and the business culture. Even though one candidate for a top job appeared to share values that the business-owning family held dear, the company put him through a battery of psychological tests. "They reinforced our impressions that he was a good person, an honest person, and a very high-energy, intelligent person," said one of the family owners.
Many business owners ask their spouses to meet the candidate to get a valuable, often instinctively insightful opinion.
Additionally, when you are conducting your search, you will want to:
* Seek people who complement the abilities of family executives. You want to multiply the talents of the company, not duplicate them. You will need people who have abilities that are not available within the family.
* Look for a prospective employee who will have credibility not just in the business but in the family. Family members who are not directly involved in the business need to feel that the non-family executives are people they can trust—particularly if they are in top positions. (Continues...)
Excerpted from More than Family by Craig E. Aronoff, John L. Ward. Copyright © 2011 Family Business Consulting Group. Excerpted by permission of Palgrave Macmillan.
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