As regular readers of the Family Business Advisor know well, a “Family Firm” can be a small, corner shop or a huge industrial concern. In fact, family firms represent more than 50 percent of the GDP in the UK; and in Chile, for example, three families represent approximately 90 percent of the value on the Santiago stock exchange. While there are family firms that have transcended multiple generations of ownership and management and continue to thrive today, others fall before the second-generation hurdle. One thing all family businesses have in common is the need to manage multiple roles and realities. The system within which family businesses operate is complex and varied. The priorities and concerns of at least three interest groups must be taken into consideration, including the executive management of the firm, the ownership community and the family itself. Then of course, one must manage oneself. The politics within a single individual, not to mention amongst different individuals, can be rife as well.
It is easy to see why the emotional foundations of families, combined with business, can become a breeding ground for relationship and business breakdown. Now add a non-family member into the mix and the complexity grows. Someone who does not share our blood, our legacy and, in some cases, the values family firms hold dear.
So why do family firms seek to hire external professionals into their firms?
As many firms grow, the issue of succession and “who shall take over the helm” appears inevitably. The belief that an individual has a birthright to take over the business is increasingly challenged as family businesses seek to do what all businesses do…professionalize for maximum shareholder return. In many cases, there is a family member with the capability and desire to take on the mantle. However, if capability and desire do not emerge, then the search must move outside the confines of the family.
What makes this search difficult and how can these difficulties be overcome?
We researched a number of family businesses and found they had a number of things in common when it came to embracing outsiders. Many issues around trust were a source of fear and hesitation:
- How can you trust a non-family member to be as dedicated and loyal to your family’s concerns as you are?
- Why would anyone want to join our firm if equity is not provided? How can we trust their motives?
- Do we want someone privy to our family background and dynamics?
- What if they don’t like my children and feel threatened by their entry into the firm one day?
- Blood is thicker than water and we might be counter-intuitively willing to sacrifice short-term profits for longer-term gain—will an outsider respect and understand this?
- Do we want challenge? Are we ready to shake up our status quo? Or will an outsider’s view simply add to our already fraught environment?
- If we trust too readily, might not an outsider run off with the family silver?
Trust takes a lifetime to build and a moment to lose. Therefore, the most any family business can do is to build processes and systems that allow them to minimize risk. Let’s take a look at what some of the best family firms do:
- They begin by looking at the strategic imperatives of the business, not only the aspirations of family members.
- They then build a competence profile that allows them to agree on what they need—genuinely addressing the question: What leadership skills does our company need going forward?
- They hire executive search firms to conduct a professional search, relying NOT only on their personal contacts, but casting their net wider.
- They understand the behavioral requirements and preferred characteristics of a non-family member. Values become equally important to skills and experience.
- They reach agreement on what they want as a family first.
- They build robust processes for hiring, agreeing to the roles of family in the hiring process and the process for reaching agreement.
The recruitment process must take into account a number of key elements:
Chemistry: Both parties must have the same values and approach to the firm’s strategy and culture. Long-term thinking, appreciation of and protection for a workforce for whom a family business considers themselves responsible over generations are also critical variables. In addition, different management styles should be leveraged. Ego clashes must be avoided.
Structure: A clear legal contract with appropriate financial protection must be ensured. Long-term incentive plans go a long way to making up for unavailable shareholdings and base salaries must be increased to ensure loyalty and adhesion to the firm and the family over the long term.
Management and Ownership: A clear distinction must be made from the outset and conveyed to any potential external hires. Good family firms have very clear views on what constitutes responsible ownership and what they need from management in order to exercise this.
In order to ensure these variables are adequately considered, a number of steps are suggested below for optimal hiring of non-family executives into a family business leadership role:
Exposure: When hiring, the external executive should ask lots of questions from as many key family stakeholders as possible, including the extended families of those not directly involved. A concerted effort to understand each other’s needs and aspirations must be gleaned by both parties. As JoAnne Norton put it in the prior article, seek the win-win.
References: When we have a need, we want it met. Sometimes we hire too quickly and believe an individual is the answer to our prayers. Extensive reference taking by a neutral non-family member is essential. Don’t ever act in desperation.
Psychology: Rely not only on interviews but on external psychometric questionnaires that provide insight into an individual’s motivations, decision-making processes, approach to conflict and ability to work with others. Most locations will permit the use of professionally administered psychological assessment as part of an overall hiring process, and many of our clients swear by this approach.
Time: Take as long as is required, but keep all candidates informed of the process from the outset. Stick to one motto: “When in doubt, don’t hire.”
Building a platform for integration: Provide “onboard coaching” and share the passion and values for the company by ensuring a schedule of meetings with key players is in place such that current challenges and key business dynamics can be experienced firsthand.
Watch the natural human tendency to expect things to go wrong: Don’t over-inflate the negative or the positive, and provide for a six-month settling in period.
Never try to hide the truth: If harmony in the family prevails, so be it. If it doesn’t, make sure all candidates know what they are getting into.
Never throw a person at a problem: If family dynamics are strained, do not expect an outsider to solve issues for you. Family business owners must take accountability for their dynamics, perhaps with the help of an experienced facilitator.
So what makes an outstanding non-family executive?
- Impartiality and someone who will never take sides
- Low ego and high self-awareness; nothing left to prove
- An open and honest communicator
- Facilitation skills
- A thick skin and ability to deal with ambiguity
- A thorough understanding of the principles of good governance
- Compassion and empathy. The ability to walk “a mile in another man’s moccasins”
- Someone who makes the effort to get to know and appreciate your children
- A strategic, not just tactical, thinker.
For many firms, employing a non-family executive has been transformational. But this is largely due to design, preparation and a serious investment of time, rather than luck.