Why family biz owners are reluctant to hire execs (Part 2)

IN MY previous article, I shared the opportunities and challenges of hiring non family members/executives in the family business. Today we will complete the elements in the hiring process.

As a family business advisor, one of my key responsibilities is “transitioning the family business from a family first business mindset, to a business first business model.” The latter is naturally preferred as the family business transitions from a founder centric model to a more complicated, sibling and cousin consortium phase. A major “business first model” attribute is growth with strong emphasis on business governance, process and accountability and bereft of emotions and entitlement.

My role during this challenging phase is to handhold family members as they adjust from the informal phase to a more formal process of coming together and agreeing to formulate family agreements (Constitution and alignment of ownership).

While the formal family agreements take shape, the change process entails the simultaneous integration of non-family members in the business organization. And this is where some of my biggest fears manifest…hiring the right candidate and ensuring she/he stays in the job for long. I have outlined below the continuation of what I highlighted in my column last week:

h. The candidate must adjust into the composition of the management team (where members are family members and long time employees).

i. The candidate must demonstrate a mature personality by displaying self-confidence, authority, and modesty.

j. The candidate must show loyalty, readiness to subordinate and compromise with the family.

k. And finally, trustworthiness, credibility, reliability and humaneness

The absence of any of these elements will certainly compromise the hiring process and the likelihood of an executive staying longer than one year in the family business is slim.

Senior executive preferences

Highly qualified non-family managers might favor non-family businesses instead of family businesses because they may present fewer emotional complications e.g., the absence of family quarrels or unqualified interference or disposal (Poza, 2004; Ibrahim & Ellis, 2004). However, there are still good reasons and prospects for qualified non-family executives to work in a family business. “Family-owned companies give you a level of collegiality and informality rarely found in corporate environments.” (Welch & Welch, 2006, p. 144). According to Aronoff and Ward (2000) non-family executives often expect a family business to be less bureaucratic with fewer hierarchies.

Why do we need to employ a non-family manager?

The necessity to employ a non-family executive can be caused by the state of the family or by the family business itself. An increasing number of family business owners are facing the problem of having no successor in general or no family member who is willing, qualified, or accepted (Chua et al., 2003; Ibrahim & Ellis, 2004; Schultzendorff, 1984).

The family business owner might also expect the outsider to be an interim solution e.g., to bridge two family generations together in order to perhaps prepare a member of the next generation as a potential future family manager or in order to help the business through a serious crisis. Finally, in some cases, non-family executives may be hired in order to avoid interpersonal conflicts and problems in the owning family.

They may serve as a neutral solution between conflicting family owners or family members and reduce unintentional family entrenchment (Astrachan et al., 2002).

The larger and more complex the family business, the more executives with a higher level of professionalism and external knowledge are required (Klein, 2000).

In an early approach, Schultzendorff (1984) defines a non-family executive as a person who is neither a blood relative nor related to the owning family by marriage or adoption. She/he should hold none or only a few shares. Another premise is the non-family executive’s seat on the management board. Here, the non-family executive is able to shape actions according to his/her individual intentions, motivation, skills and scope. Like family members or other stakeholders, she/he can influence the system and its subsystems.

In any case, the importance and the percentage of outsiders involved in family business management seem to be increasing. Current literature, although often not empirically proven, confirms this development (Becker et al., 2005; Chua et al., 2003; Aronoff, 1998; Dyer Jr., 1989; Hennerkes, 1998).

Key non-family executives carry on a variety of responsibilities beyond the title of CFO, president, or general manager. They tend to be the key “insider from the outside” who can mediate family generation concerns, hold family members accountable in their performance, and lead business units while balancing family dynamics that are played out at work.

It is indeed a challenge, creating an energy not found in other settings.

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