Why family business owners are reluctant to hire executives

“Prof, my children have been pressuring me to get senior executives but I have time and again refused to heed their advice. You know why I am scared of hiring professionals? Firstly, my children will not have anything to do anymore and they will become lazy. Secondly, senior executives are expensive plus they have no loyalty and they might even steal my money or they might just be spies sent by my competitors!”

Is this an act of definance by the founder/visionary in his mid-sixties? Is it unfounded? I don’t think so.

Is it a confession of the uncertainties when you bring in senior non-family members in the business? Yes and possibly other real fears!

This caselet is related to what I wrote in my previous column (When Generations Collide April 28, 2015). We cannot blame the baby boomer generation, a generation born from 1946 to 64. We must instead learn to respect understand and empathize with them. It will do well for the next generation leaders to reflect on the history of the business and how the founders struggled to keep the business afloat through sheer hard work.

Two years later

That exchange took place more than two years ago, after a colleague endorsed me to coach the family with their governance and succession plan. After several sessions with the family members where we balanced the concerns of the senior generation members and the need of the next generation leaders to pursue changes to keep the business relevant, the patriarch finally relented and heeded my advise to try out one HR senior executive.

Fast forward two years later…the business has senior executives in key departments covering sales, marketing, operations, logistics, accounting and business development with one of his children appointed as COO and with full oversight control over these departments. The patriarch retained senior family members to manage the finance, purchasing and audit departments and his growth has been remarkable, registering double digits.

The first HR executive was unsuccessful and stayed briefly (he was right on the loyalty part) but the succeeding hires proved to be the turning point. He has never been happier with his decision and has expressed his intention to aggressively pursue expansion in other countries.

Business first equals growth

The success, growth and well-being of a family business depend on its ability to attract, motivate, develop and retain outstanding executives who are not kin.

Any business with the intention to continue and grow needs executives with a profile matching the business culture, organization, and strategy (Gallo, 1991; Welch, 2005). This holds especially true for family businesses, since they tend to have a specific and distinct business culture (Denison et al., 2004).

In many cases the managing responsibility is partly or even fully handed over to non-family executives. The process of bringing a non-family executive into a family business requires much forethought and planning. Because of this, family business owners think a lot about how to determine the “fit” of a prospective non-family executive in a values-driven family company.

Executive hiring that went sour

When I was consulting for an Asean-based company a few years ago, I was introduced to the newly hired chief finance officer (CFO) whose previous engagement was as finance director of a multinational corporation (MNC). The CFO had the credentials, having worked with the MNC for more than 12 years. He even confessed that his new engagement will likely be his last, as he was already seven years away from retirement age.

Four months into the job, he shared his dissapointment that the financial statements were deliberately not being shared to him by the patriarch. Only the sales figures were being disclosed. The following month he tendered his resignation. When the patriarch asked me what went wrong, I took that opportunity to gather the family members for a full session articulating the importance of critical areas that must be included when hiring professionals.

According to Becker (2005), professional skills such as practical and leadership experience, industry knowledge, a sure sense of money and risk, entrepreneurial engagement, correctness and transparency are important, but for family enterprises determined to engage and retain professionals, the answer lies in the eight overarching attributes highlighted below:

  1. The hiring process must not only involved the HR department but ideally the family advisor and a select group of senior generation leaders including the patriarch.
  2. Roles and expectations of the candidate and the business owner must be defined and put in writing.
  3. Define the relationship between the senior executive and the working and non-working family members.
  4. The fit between the candidate’s social skills and the family’s cultural and value system.
  5. The candidate’s sensibility to deal with family issues and his understanding and sharing of the family’s interests.

To be continued…

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