Managers: Non-Family

Finding the right balance at Vertex

On a snow day in 2012, when kids had the day off from school and people were encouraged to stay off the roads, Jeff Westphal, second-generation CEO of Vertex Inc., called his sisters and asked for a meeting that day.

Stevie Westphal Thompson and Amanda Westphal Radcliffe are co-owners with Jeff of Vertex Inc., a tax software company in King of Prussia, Pa. Worried that something might be wrong, the sisters braved the snow to meet their brother at a local restaurant.

Jeff had an announcement that couldn’t wait: He wanted to step down as chief executive, a position he had held since 1996.

He told his sisters he had taken the company as far as he could, creating divisions including Vertex SMB, tax software for small and medium-sized businesses. Now it was time to turn over leadership to someone with the skills to scale up the family firm.

“He said the decision was six years in the making,” says Amanda.

In late 2015, non-family member David DeStef­ano was announced as Jeff’s successor.

“Jeff is a visionary,” says Stevie. “He thinks 20 years out. As part of that, he realized his strength was vision and culture.”

Many families in the Westphals’ position would have chosen to sell their company, especially since no third-generation members were working at Vertex. The Westphals opted instead to keep the business in the family under non-family leadership and focus their attention on governance. In so doing, they continued on the path they had forged in 2000 when they bought Vertex from their father and decided to professionalize the business.

From print manuals to cloud-based solutions
Ray Westphal, the siblings’ father, founded Vertex in 1978. The company provided businesses with paper copies of sales tax manuals that included information on jurisdictions, rules and rates. Ray’s wife, Antoinette Westphal, became his first employee, managing the books and serving as secretary. Jeff, Stevie and Amanda helped as kids, walking around the dining room table to collate rate cards. They particularly enjoyed using the shrink-wrapping machine.

The company grew as its products and services changed with the times. Today Vertex develops and distributes tax software for businesses, as well as cloud-based solutions and instant updates. Its products help companies manage sales, property, payroll and real estate taxes in the U.S.’s 11,000 tax jurisdictions.

All three of Ray’s children worked at Vertex in the 1990s. Jeff, now 56, became president in 1996 and took over the CEO role after the second generation bought the business in 2000.

Before the generational transition, the board consisted of Ray and Antoinette, their three children, and their family and corporate attorneys. The new owners wanted to make a change.

Building an independent board
After acquiring the company, the siblings started to search for independent directors. Their father left the board after the ownership transition. Their mother passed away from breast cancer in 2004.

Jeff is chairman of the board. Stevie and Amanda, who like Jeff have left their positions at the company, serve as directors.

“It was challenging to be [both] an employee and a board member,” says Amanda, 50.

The Westphals recruited large-cap board members to their mid-cap company, compensating them at a large-cap level.

Rich Teerlink joined the board in 2002, soon after retiring as chairman and CEO of Harley Davidson. Teerlink retired from the Vertex board in 2015 but remains a mentor to Jeff and an adviser to the board. Jeff credits Teerlink with helping him with the transition out of day-to-day leadership.

Today three independent directors serve on the Vertex board. Terry Kyle, the former SVP and CFO of Shared Medical Systems, helped take that company public and led the team that negotiated its sale to Siemens in 2000. Ric Andersen, a partner at Peak Equity, a Philadelphia-based private equity firm, has more than 25 years of consulting and management experience at IBM and PwC. Kevin Robert is the former global CEO of Wolters Kluwer Tax & Accounting. DeStefano, the CEO, also serves on the board.

Vertex’s board structure enables the three family directors to be outvoted by the three independent directors plus DeStefano.

The board has brought continuity and objectivity to company decisions.

“The initiative from the beginning was to do what we thought was best practice,” Jeff says. “Families bring family stuff, and you can’t take the family stuff out of yourself. We wanted truly objective directors.”

Amanda, who serves on the board’s nominating and governance committee, says the current structure helps avoid role confusion.

“Now that we don’t have a family member in an operational leadership role,” she says, “the various governing responsibilities are more clearly delinated between the voting shareholders, board of directors and ­management.”

Transition to non-family leadership
The independent directors helped the family and the company prepare for succession to a non-family member. With the mentorship of the board, Jeff had put the company in a strategic position that would enable it to succeed without family at the helm.

The company hired recruiting firm Spencer Stuart to conduct the CEO search. Together, the search firm and the board developed a five-year plan for the transition and began the process of evaluating senior leadership at the company.
“We were looking for a potential successor, but also wanted to work on executive development,” says Stevie, 55.

Spencer Stuart confirmed what the family already knew: They had a number of strong executives in place.

The field was narrowed to about four, and DeStefano pulled away from the pack. He joined the company as CFO in 1999 and then became executive vice president. He was elevated to president in January 2016 while Jeff remained CEO.

This trajectory was deliberate. “There was a transition so I could get my wings,” DeStefano says.

Stevie notes that when Ray retired, he “stepped down and away.” Having DeStefano work alongside Jeff would enable the non-family executive to grow into leadership. The gradual transition also helped reassure employees about continuity of the business.

“Jeff found opportunities for me to be the voice on company issues” during the transition, DeStefano says. In January 2017, DeStefano took over as CEO of Vertex.

Family culture
The Westphals say values and culture hold an important place in the business. The second generation followed in the footsteps of their father, who treated employees with generosity and respect.

“A very long time ago I remember an employee telling me how they had seen my parents hugging and kissing each other in the company parking lot at the end of a long and difficult day, and how they truly cherished working for a company like that,” Amanda says.

So when the search for a non-family CEO began, it was important to keep that “culture of care” front and center. Amanda says that in DeStefano, they found a leader well equipped to foster that culture.

“David embraces everyone, too, with respect, strong ethics, humility, laughter and genuine care,” she says. “There are tangible competitive strengths to being a family-owned business, and leveraging an exceptional culture is paramount among them.”

When Ray led the business, he showed his appreciation to employees by giving them an extra paycheck at random when the company was doing well. The staff never knew it was coming, “which was fun!” Amanda says.

Now that Vertex has 950 employees, that’s become impractical. But the company continues to have an elaborate holiday party and give away tickets to local sporting events. Last year, during a Super Bowl rally party, the company held a surprise drawing. The prize was airfare, hotel accommodations and two tickets to the big game to cheer the hometown team, the Philadelphia Eagles, on to victory.

The company emphasizes transparency and shares information on strategy with employees. “We treat everybody the way we treat each other,” Amanda says.

These are some of the reasons Vertex has been named as a “Top Workplace” by the Philadelphia Inquirer and was one of Working Mother’s “100 Best Companies” in 2016. In 2015, Vertex received SmartCEO magazine’s Corporate Culture Award.

Employee retention is about 95%, the family says, and nearly 100% for executives.

“Only one in the top 30 executives has resigned to go somewhere else in 20 years,” Jeff says.

The plan for the family
It’s still unclear whether any of the third generation will play an active role in the family business. Their ages range from 18 to 31.

Some third-generation cousins have participated in the company’s internship program. There is a formal family employment policy, but none of the third generation has yet shown interest in working for Vertex full-time.

“There are some really diverse interests in that group,” says Stevie, 55. Those who have embarked on their careers include an artist, an Army helicopter pilot and a couple in finance positions.

To promote connections among family members and engagement with the business, the Westphal descendants established KAFCA (“Kick Ass Family Council Assembly”). The assembly meets twice a year.

While it’s unclear whether anyone from the family will lead the company in the future, preparations are being made for succession after DeStefano.

“We’re definitely starting to build out the next [succession] process,” DeStefano says.                          

When a non-family member leads the family business

In 2008, when the search firm helping IDEAL Industries find a non-family CEO suggested Jim James, third-generation leader Dave Juday balked. James was then working an hour and a half away from IDEAL’s Sycamore, Ill., headquarters as a group president at Illinois Tool Works.

“I said, ‘No way,’ ” recalls Juday, then chairman and CEO of IDEAL, which makes tools and supplies for the electrical and telecommunications industries. Juday didn’t think an executive accustomed to the corporate culture of a $14 billion company would be a good fit for his family business. He didn’t want a CEO who would try to apply a “prescribed model” to IDEAL.

As it turned out, James wasn’t excited about the prospect of interviewing with a family business. He had worked for one before and had a bad experience.

“I had no desire. I was really talked into it [by the recruiter],” James says. The recruiter even told James that Juday didn’t want to talk to him.

“So there I was, driving an hour and a half to meet someone who didn’t want to meet me,” James recalls. “And I had promised the family we’d never move again.”

Dave Juday and Jim James celebrating Juday's retirement.“The first 20 or 30 minutes of that meeting, feeling each other out was challenging,” Juday says. But then the two men warmed to each other. “After that, we began to talk about how can we make this work, because this would be really great for both of us.”

James became IDEAL’s president and CEO in 2008 and was named chairman when Juday retired in 2014; Juday now serves as a director on the board. James did not move his family, opting instead for a lengthy commute.

As both men freely admit, the recruiter knew best. IDEAL has flourished under James’ management, and the CEO has a great relationship with Juday.

Looking outside the family
While most family business owners hope to pass ownership of their companies to their children, there may not be anyone in the next generation who is interested in running the business, or capable of doing so. Some business families hire non-family CEOs to serve as a “bridge” while the rising generation acquires the necessary experience. Other families recast their roles as owner-investors, ceding management to non-family professionals.

At E. Ritter & Company, an agriculture and communications business based in Marked Tree, Ark., the norm had been “succession through death,” according to retired chairman and CEO Dan Hatzenbuehler. After each family CEO passed, the next generation would scramble to fill the void.

Non-Family Executives


The role of culture in recruitment of non-family executive

Designing incentive compensation for key non-family executives

Finding the right balance at Vertex

Non-family CEOs need trust, support

Hatzenbuehler, a married-in family member, was the first CEO who was not a direct descendant of founder Ernest Ritter. When Hatzenbuehler began thinking about retirement, only one other family member worked in the business, and that family member was already 60 years old.

“Clearly we didn’t have a family member who was in the position to become the next president,” Hatzenbuehler says. “We pretty much knew from the outset.”

In 2010, Hatzenbuehler gave the board of directors 18 months to two years to find his replacement. The company hired a consultant to find his successor in a national search. Chip Dickinson joined E. Ritter & Company as president in October 2011 and became CEO in January 2013.

Herschend Enterprises, which runs theme parks and other tourist attractions across the United States, has had four non-family CEOs in 27 years. The company, founded in 1950 as a cave tour in southwest Missouri, is now the largest family-owned U.S. themed attractions company.

Chris Herschend, a third-generation family member who serves as lead shareholder, attributes the company’s growth to its independent board of directors as well as non-family leadership.

“If you don’t want the best talent running your business, you should think about if you’re the best ownership for the business,” Herschend says.

Herschend has a message for NextGen family business members who dream of becoming CEO when they are older: “I would say, from my own experience, that there is a whole world out there for you that is far more rich and satisfying. Ownership is part of your life, not your whole life.”

Herschend Enterprises’ current non-family president and CEO, Andrew Wexler, joined the company in 2007 as a corporate vice president and became CFO in 2008. He was promoted to his current position in 2015.

Tim Andrews was hired 15 years ago as CEO of Advertising Specialty Institute (ASI), a third-generation, Trevose, Pa.-based membership organization that supports the promotional product industry through technology, media and trade shows. Non-family CEOs have led ASI since Maurice Cohn bought the company in 1964.

Before coming to ASI, Andrews had worked at a larger company. He recalls that the Cohn family wanted to make sure he wouldn’t impose more of a corporate culture than ASI needed. Through a series of interviews, Andrews and the family got to know each other, and they discovered they shared the same values.

The search process
Wexler hadn’t worked at a family business before he came to Herschend. He has a finance background and a wide breadth of experience including real estate management and technology.

After he joined the company, Wexler worked closely with Joel Manby, the previous CEO. “He said that obviously the board would hire the next CEO, but ‘I want to develop you so you would be the right person at that time,’ ” Wexler recalls.

When Manby left his position, Herschend used a recruiting firm to find a successor. Chris Herschend says using an outside search firm ensures an objective process.

Wexler agrees the process was important. “Going through the search process, and emerging from it, gave me the confidence that I was the right person in the eyes of the board and, ultimately, the shareholders,” he says.

“The first question the chairman asked me was, ‘Are you sure you want this job?’ “ Wexler remembers. Then the chairman told Wexler it was the board’s fiduciary duty to bring in the best person to lead the company.

“And I understood that,” he says. “At the end of the day, we’re all here to be stewards for the Herschend family.”
Dickinson had family business experience before joining E. Ritter & Company. He had been president at Anderson-Tully Co., owned by his wife’s family, from 1995 until the company was sold in 2011.

Working at Anderson-Tully “helped me to appreciate the unique dynamics of a multigenerational family business — the ownership issues, management issues and strategic issues,” Dickinson says. “I saw it firsthand.”

Getting onboard
The easiest transfers of leadership occur when a successful CEO is around to help the new leader ease into the job. Because family CEOs in most cases are also owners of the company, they have an extra incentive to make the handoff as seamless as possible.

Dickinson joined Ritter as president while Hatzenbuehler was serving as CEO. Hatzenbuehler “was very intentional about the onboarding process,” Dickinson says. “It was 15 months before I became CEO and Dan became the chairman of the board.

“Having him there, rather than just a flash cut, was extremely beneficial.”

When James started at IDEAL, Juday came into the office every day for support, but kept his distance unless James needed him.

“There was one thing I wanted to know before I made my final decision [to join the company],” James says. “Would [Juday] allow the CEO the autonomy to make decisions, or will he be in all the decision making?”

Juday told James he was avoiding decision making because “I don’t want to mess it up for the next guy.”

Andrews recalls that ASI’s second-generation chairman, Norman Cohn, invited him to a family dinner just after he was hired. “At the end of the conversation,” Andrews recounts, “Norman said, ‘I have incredibly bright kids, as you can see. And I’ll be sending you a lot of ideas, but from this moment forward, you will be the person in charge and making the decisions. We will never talk about it publicly or privately and say we would have made another decision.’ ”

In 2008, ASI’s trade show company, which had been outside of Andrews’ purview, was brought under the umbrella of the legacy business. The head of the division, Norman’s son Matthew Cohn, ceded management to Andrews and was elevated from a director to vice chairman of the company.

“I remember it being hard because these were people I worked closely for 10 or 12 years,” Cohn says. “It was an orderly transition, announced to the team; we made a transition plan.”

However, Cohn notes, employees still came to him with questions.

“Habits are incredibly hard to change,” Cohn says. “People looked at me and said, ‘He knows the business very, very well, so I want to ask his advice on something.’ I told them, ‘I can’t give you my opinion on this; have you talked to Tim?’ I ended up asking more questions rather than giving them answers.”

Cohn says it took about six months for the staff to get used to the new structure.

Establishing boundaries
“In a family-owned company it is very natural for leadership to want to please the family, full stop,” Herschend says. “But it is important for the owners to respect their boundaries.”

For example, he says, there can be a subplots and history wrapped in a family owner’s request for information from a non-family CEO.

“It’s important to pause and to send that family member back to another family member,” Herschend says. “Close the loop and keep the family stuff on the family side.”

Wexler said it took time to apply this philosophy at the company.

When he started as CFO, “Roles were not well-defined,” he says. “Over time I had to be empowered to say, ‘You need to talk to the family office.’ We’ve worked very hard, and the family have learned their roles as owners.”

What comes next
When Wexler moved into the top job at Herschend, the company began to address succession planning every year, starting at the manager level all the way to CEO.

The company has created a  “QTE chart” for every position, Wexler says. The person designated as “Q” would be most qualified for the position if the incumbent left the company. “T” is someone who has potential to take the position but would need training. “E” is a person who could handle the job temporarily if an emergency arose.

“We’re working to develop those people,” Wexler says. “There’s no guarantee one of them would replace me; it’s up to the board to find the best candidate. If there was a family candidate that was capable, we would have no problem putting them on the chart.”

Juday says IDEAL will continue to have non-family management with strong family involvement on the board. His daughter Meghan is currently the non-executive vice chairman and is likely to become chairman.

“Is going to the outside good or bad? That’s the wrong question,” Juday says. “If you don’t have the right person inside, you have to go outside.”                   

The role of culture in recruitment of non-family executives

In late August, Dave Glenn, a family shareholder in Elkay Manufacturing Company — an Oak Brook, Ill.-based manufacturer of commercial and residential sinks and other products — hosted a few relatives at his home. Glenn, who doesn’t work in the company, also invited Elkay’s non-family CEO, Tim Jahnke, to the gathering.

“We had pizza, and he had to listen to all our family stories,” says Laura Gicela, a fourth-generation family member who works in the business as Elkay’s family employee engagement liaison.

How many other CEOs of industry-leading global companies with more than 4,000 employees would attend a pizza party at the home of the chairman’s second cousin? Gicela says Jahnke’s presence at the gathering was right in line with Elkay’s culture. Glenn, Gicela and Jahnke all serve on a committee working on a history book to commemorate the 2020 centennial of Elkay.

“We are one big family,” Gicela says.

Because family business owners have such strong emotional ties to their companies, corporate culture is something they take seriously — and personally. When recruiting senior executives, family businesses seek candidates who not only have demonstrated leadership capabilities but also will promote and perpetuate the culture.

Recruiting firm Egon Zehnder, in partnership with the Family Business Network International, interviewed key family members and non-family executives at 50 family firms from around the world with revenues exceeding €500 million. “When we reviewed the transcripts of our interviews, we found a 95% overlap in the language that each firm’s family members and nonfamily executives used to describe their corporate ethos,” Egon Zehnder’s Claudio Fernández-Aráoz, Sonny Iqbal and Jörg Ritter wrote in Harvard Business Review in April 2015.

John Baumann took over in 2016 as CEO of Dayton, Ohio-based Midmark Corporation, a family-controlled global manufacturer and supplier of healthcare products, equipment and diagnostic software. He succeeded Anne Eiting Klamar, a fourth-generation family member. Klamar, now chair of the board of directors, says values congruence was an essential factor in the decision to hand the reins to Baumann.

“If John were going to go out as CEO and be in the industry [as the face of the company],” Klamar says, “he had to reflect the family’s values.”

Non-Family Executives


When a non-family member leads the family business

The role of culture in recruitment of non-family executive

Finding the right balance at Vertex

Non-family CEOs need trust, support

Designing incentive compensation for key non-family executives

“It’s incumbent upon the [non-family] executive to understand what the family needs and what the business means to the family,” says Sharyl Gardner, Midmark’s chief administrative officer and secretary for the board of directors.

Gardner, a non-family member, started at Midmark as vice president of human resources and today oversees HR and leadership development and training as well as a variety of other areas at the company. “In a family business, it’s like the family is writing a check” to fund major budget items, she says.

The Eiting family holds the largest block of shares in Midmark; there are some additional shareholders outside the family.

Executives must understand that “the way we’re going to invest is never going to be extravagant,” Gardner says. “We’re going to make the investments that are needed for the future, but we’re not going to build the Taj Mahal in a factory.”

At Elkay, one of the company values is “We’re in business forever.” That means Elkay’s business decisions center on a long-term vision, even if the choices are painful in the near term, explains Larry Brand, non-family vice president and chief human resources officer. “That’s a huge differentiator from what you face in public companies,” where quarterly or annual results are paramount, he says.

Culture on display
In a family business, “family culture always defines some part of the company culture,” formally or informally, says Jack Ouellette, the non-family executive chairman and former CEO of American Textile Company, a Duquesne, Pa.-based manufacturer and supplier of bedding products. “Family personalities and behaviors always make up the fundamentals of the company culture: what the family says, what the family does, how the family does it.”

Families may not understand the implications, Ouellette says. “Some family cultures overpower the company culture, especially when cultures have not been thoroughly discussed,” he says. “Some family cultures are just more difficult to manage due to dysfunctional relationships. And some families are more aware of family vs. company culture and behave accordingly.”

In the early 1990s, American Textile’s revenues increased more than 40-fold, and the number of employees grew from 90 to more than 1,000. Third-generation member Lance Ruttenberg succeeded Ouellette as CEO in December 2013.

When the company was just a small business, “we never talked about culture or what we stood for,” says Ouellette, who joined American Textile in 1976.

“Not until we got more sophisticated did I come to realize that we really express our culture through a couple of major vehicles. One of them is the strategic plan. Another is our statements of vision, mission and values. Another is what we display in public places in our corporate office.”

At Elkay, Brand says, when decisions need to be made and the relative merits of alternative strategic directions are being considered, “you’ll hear employees refer to the values in business meetings to help guide our decision-making process: ‘What’s in the long-term interest of the company?’ That, to me, is the differentiator from other companies.”

Matching up
Gardner explains executive recruitment at Midmark this way: “We want someone who can work effectively in the culture but not lose what they bring.”

Once the family decides to bring a non-family executive aboard, how can they assess candidates’ cultural fit (or lack thereof)? Behavioral interview questions, aimed at discovering how candidates acted in specific situations, can help predict whether their instincts are in alignment with the family mores.

Brand notes, for example, that all candidates will give an affirmative response to the question, “Do you have integrity?” Instead, he suggests the following: “Give me an example of a time when you violated your own integrity values. Why did you do that, and how did you rectify it?”


The success of a top non-family executive in a family business depends on mutual trust between the executive and the family. How is trust achieved and maintained?

•  The family speaks with one voice. Anne Eiting Klamar, fourth-generation chair of the board of directors at Dayton, Ohio-based Midmark Corporation, says “clarity and consistency of communication” between the family ownership group and non-family executives is key to building trust.

“If the family doesn’t speak with one voice, there’s confusion,” Klamar says. “When you have confusion, the decision making gets bogged down, and you can even engender negative emotion.”

•  Boundaries are set and respected. Family members must respect the chain of command and let non-family executives do their jobs without interference.

Larry Brand, non-family vice president and chief human resources officer at Oak Brook, Ill.-based Elkay Manufacturing Company, says, “One of the things that I appreciate most about being at Elkay is that family members will say, ‘We’re sixth-generation family-owned and professionally managed.’ That makes me smile with a sense of pride, because it tells me that the family trusts the executive team to make sure that we’re doing what we’re supposed to do for the benefit of the business and the family.”

Boundary issues are particularly likely to arise when a non-family CEO succeeds a family member, who assumes the role of chairman.

Linda Doyle, an independent director on Midmark’s board, recommends creating “decision rules” to clarify which decisions fall under the purview of the CEO and which will be made by the chairman.

Non-family member John Baumann took on the CEO role at Midmark in 2016. Klamar, who had been CEO, became the chairperson.

“I think if the boundaries get crossed, there needs to be an ability to reset the boundaries,” Klamar says. “John and I have gotten sideways on a few things. I crossed into his territory unknowingly, and he’s crossed into my territory unknowingly, and then we have to sit down and get un-sideways.”

• The family always does the right thing. “The family must be known for always doing the right thing, even if it’s painful for the family,” says Jack Ouellette, the non-family executive chairman and former CEO at American Textile Company, based in Duquesne, Pa.

For example, Ouellette says, there may be a year when the company doesn’t achieve budget goals for reasons outside the senior executives’ purview. On several occasions at American Textile, “we paid bonuses out when it hurt the family,” he recalls. “They didn’t make the income numbers they wanted, but they felt that the senior leaders did their share.”

•  The family and the executive get to know each other. “Spending time together is important,” says Klamar. “Certainly, trust flows from that time together.”

Board meetings present a good opportunity for executives and family directors to build understanding. “Trust comes from having a family seat on the board,” says April Katz, a fifth-generation director of Elkay.

Elkay’s non-family CEO and executives who give presentations at board meetings “know how my mind works,” Katz says. “If I wasn’t allowed in the board meetings, that dynamic wouldn’t be there. They wouldn’t see the skills that I can bring to the table, even though I’m not a senior executive in the corporation.”

Laura Gicela, a fourth-generation family member who works in the company as Elkay’s family employee engagement liaison, attends board meetings as a guest. Family employees who attend board meetings “know what’s going on at a lower detail level,” Gicela says. When executives present to the board, “we’re kind of keeping everybody in check.” An executive wouldn’t give a rosy presentation about a struggling program in front of family employees who know the real story, she explains.

Gicela says she will talk to non-family executives about their presentations before board meetings, “just making sure that we’re all on the same page, because obviously I don’t want to call anybody out. It’s building those relationships, that trust.”

•  The executive remembers they’re not family. No matter how high a position a non-family executive holds in the family business, “they never should present themselves as if they were equal to family,” says Ouellette.

“To be successful as a non-family executive, I think it’s important to always remember that at some point, family will win over non-family,” Ouellette says. “I can’t define that point. And in many instances, it may not come on your watch.

“I think it’s important for a non-family person to remain humble and appreciative that the family has chosen them. The first commandment is: Always support the family in public, and only challenge the family behind closed doors.”

— Barbara Spector


In addition to learning about candidates through behavioral interviewing, “We also can get a pretty good feeling when we tell them our values and get their reaction,” Ouellette says.

“Most importantly, as they talk, I look for whether they mention things that are part of our values and part of our mission. And they won’t be the same words, but it gets to it.”

Such strategies, however, aren’t foolproof. Klamar recalls a Midmark hire who, along with his spouse, responded with “all the right words” in conversations about values. But after the executive had been on the job a few years, he took an action that violated Midmark’s values. “A choice was made of money over people and doing the right thing,” Klamar says.

April Katz, a fifth-generation director on Elkay’s board, says emotional intelligence helps her family assess whether someone is a good fit for the organization. “Through the interview process, you get that feeling,” Katz says. “If someone’s rubbing you the wrong way, it’s probably for a reason.”

Top non-family candidates use the interview process to determine whether the company culture is in line with their career goals.

“Even among the leading companies in our study,” the Egon Zehnder researchers wrote in the 2015 Harvard Business Review article, “a quarter of the nonfamily executives we interviewed said they originally had governance-related concerns about joining a family business: uncertainty about levels of autonomy, hidden agendas, lack of dynamism, and the potential for nepotism and irrational decisions.”

Jennifer Pendergast, who leads Egon Zehnder’s U.S. family business advisory, lists some questions candidates would like to have answered:

• How many executives from outside the organization have joined the company in the recent past?
• Why does the company want to bring in an outside professional now?
• How does the family interact with the business? Are they very engaged? Would owners not working in the company feel entitled to contact me directly with questions?
• Have there been family issues in the past that have created challenges for management?
• Will the board chair role always be held by a family member, or would a non-family chairman be considered?
• Would young family members be working under my ­direction?

Ouellette says candidates are wondering if there is uniform buy-in to the culture and if family members are held to the same culture compliance standards as non-family members.

Candidates need information from the hiring organization not only about the family culture, but also about their vision for the business, Pendergast says. One candidate she’s worked with had been happily employed at a family business for only a year when the company was sold. He was apprehensive about facing a similar situation if he joined another family firm.

Pendergast says families should be clear about what they mean when they say they are committed to their business for the long term. Do they mean they are committed to their operating company, or are they simply committed to being in business together as a family?

Prospective non-family CEOs should understand whether the family shareholder group is engaged or disengaged, Pendergast says. In a less engaged family, the CEO has “an important shareholder relations function,” developing ways to communicate with family owners so they understand what’s going on in the business.

Face-to-face with the family
Brand, who joined Elkay in 2016, recalls that during the interview process, “I probably met over a dozen people.” He estimates that before he met with Elkay’s chairman, Ron Katz, he had spent 20 to 22 hours in interviews.

Self-aware candidates who become frustrated by such a lengthy interview process will likely recognize that the job is not a good fit for them, Brand says.

“It’s really important that the external candidate meet us,” says April Katz, who is Ron Katz’s daughter. “They have to know what they’re getting into. They have to know that they’re going to have to communicate with us, be engaged with us, have lunches with us.”

Candidates for executive posts at Midmark are taken to Versailles, Ohio (2016 population: 2,608), where the company was based until 2013 and still maintains its largest facility.

“We bring them in and they get ‘the full Midmark experience,’ as we call it,” Gardner says. “They see all of the things that make us unique. We have a conference center, and we have an inn, and we have our own jet. It’s an amazing ­experience.”

Candidates’ reactions to what they encounter in Versailles, and the questions they ask, provide insight into whether they would fit into the Midmark culture, Gardner says.

Klamar has invited executive candidates and their families to dinner at her home. “I don’t know if this is a standard practice,” she says, “but it just made sense to me to see how they treat their spouse, to see how they treat their children. To just assess them on a different social level.”

“I always prefer, if I get the chance, to see somebody interacting with people at various levels,” says Linda Doyle, an independent director on Midmark’s board. “Not [just] the people who are in the power position, but how they interact with peers, and particularly with people who are in support roles. Because I’m vastly suspicious of anybody who treats somebody who’s below differently from how they treat people sideways and upwards. So I like to be able to watch people’s behavior to try to figure out if there’s a match between the lyrics and the music.”

Candidates vying for executive positions previously held by a family member should expect the interview process to take longer, Pendergast says. “They’re going to have to meet more people [at the family company], and they’re going to have to meet with them multiple times to really get a comfort level.”

Laying the foundation
It’s incumbent upon the family ownership group to do its governance work before the hiring process begins, to ensure all family members agree on the company mission, vision and values as well as their goals and expectations for the business.

Klamar says her family engaged a consultant and began working on governance two years before non-family member John Baumann succeeded her as CEO. At first, those efforts seemed frivolous, she recalls. Her brother and sister both work at Midmark.

“ ‘Why do we have to waste time articulating mission, vision, values?’ ” she remembers thinking. “ ‘We know them, we all work in the company. This should be really easy.’ Well, guess what? It wasn’t.

“While my brother may have the same core values, or my sister may have the same core values, we all live different lives for different reasons. So I felt really good that we had done that work up front.”

The change from a family to a non-family CEO is a huge step for an organization, and few families realize all the ramifications until the evolution is imminent.

When Klamar was Midmark’s CEO, family governance “was pretty darn easy,” she says. “I had the respect of my siblings, and they trusted me. The decisions were always aligned with the family’s values. But when you take that away, the family governance has become incredibly more important. And one of the surprises was how time-consuming it is to get it right.”

Baumann has approached the family for answers to questions they hadn’t considered before, Klamar says. “[He] came to me earlier this year and said, ‘I need an Eiting family shareholder group statement of risk. I need to know what levels of debt you might be comfortable with.’ And that was something we had never, as a family, talked about.

“We had to really start exercising a few governance muscles to provide the company with what was needed through the non-family CEO’s eyes. It’s the family’s responsibility to serve the non-family CEO by doing this work.”

Good governance helps convince skeptical candidates that the family runs its business professionally, Pendergast says.

“Putting in place that infrastructure is very attractive to non-family management, because they want the security of knowing that there’s a support system to make sure that they can do their job well.”

Pendergast says it’s an advantage when a search firm can tell top candidates, “This family actually has a family council. They’re organized. They’re thinking about developing their next generation. They have policies in place so that they don’t just hire anyone from the family. They’ve had independent directors on their board for 15 years.” 

Families planning to bring on a non-family CEO to succeed a family leader “absolutely” need independent boards, Pendergast says. “Otherwise, you don’t have a good oversight mechanism. You need the infrastructure to support” the dramatic change, she says.

“I give my board a ton of credit,” Klamar says. “As the family’s kind of finding its way to serve the board and the company through better and clearer governance, the board has been right there to ask questions and provide support and make sure that there is the clarity that’s needed by a non-family CEO and management.”

Developing internal candidates
Companies increase their odds of choosing the right successor by developing leaders internally.

“In a privately held enterprise, the ability to develop internal succession is really important to the future of the business,” Gardner says.

Executives now working at the division president level (“P-level”) at Elkay are being groomed for C-suite positions.

“They’re aware of it, they’re getting training on it, they’re getting education and whatever it is that they need,” Katz says. “And I’ve started to have lunches with them, to start building that relationship before they become an executive, because that’s part of the deal. It gives the executive at the P-level an opportunity to learn more about the family.”

Family CEOs whose successors are likely to be non-family members should start five years in advance of their retirement date by bringing in executives to serve in developmental positions such as division president, Pendergast says.

“It’s just a huge risk” to hire an outsider directly into the chief executive post when “they’ve had no exposure to the family and the family’s had no exposure to them,” she says. “Ideally, you’d like to be thinking with a time horizon.”

“People can say anything in an interview, but it’s watching them under fire, under pressure, when values are called into question — that’s when the rubber really meets the road,” Klamar notes.

Baumann joined Midmark as an independent director in 2009 and became chairman of the company’s board in 2013. When he was named CEO in 2016, Klamar took on the chairman’s role.

“We were extremely lucky because we had the right runway of time to know our new CEO and his values,” Klamar says. “I think it’s a lot trickier to bring in a non-family CEO after a relatively short or less robust process.”

Before Baumann was named chairman in 2013, Klamar recalls, she spent several months considering what each director would bring to the culture if they were elevated to board chair.

“Knowing that that bedrock of cultural fit and values was there was incredibly important in my decision-
making process,” she says.  


Non-family CEOs need trust, support

How many times have you heard a business leader say something like this: “I want to retire and our NextGens aren’t interested in taking over the business, so we have to sell it”? Or you might have heard this: “I’m ready to retire, but our NextGens are too young [or too inexperienced] to take over the business, so we have to sell it.”

There is a fallacy in that line of thinking. A family may decide to sell their business if the next family chief executive isn’t waiting in the wings, but they don’t have to sell it. The family could continue to own the company with successive non-family CEOs at the helm, perhaps with a family member serving as non-executive chairman. If a high-potential NextGen needs more seasoning before taking the reins, a non-family CEO could serve as an interim leader and help train the prospective successor.

Non-Family Executives


When a non-family member leads the family business

The role of culture in recruitment of non-family executive

Designing incentive compensation for key non-family executives

Finding the right balance at Vertex

But in order for a non-family member to succeed in the CEO role, several essential elements must be in place.

An atmosphere of trust. The family ownership group must trust that the non-family CEO will carry out the family’s mission for the business. The non-family executive must be trusted to keep sensitive information about the family and its finances in confidence. At the same time, the non-family CEO must trust the family to not allow family dynamics to interfere with the executive’s ability to run the business.

One way to build trust — and to fully prepare the non-family executive for the top job — is to bring the person on board to work alongside the retiring family CEO before the reins are handed over.

Values congruence. Before the search for a non-family CEO begins, it’s a good idea for the family to develop a written set of business values that everyone can agree on. Family values might include social responsibility, a long-term orientation and a commitment to responsible risk taking. The right candidate will be someone who fits in with the company culture and is excited about perpetuating these values. In a family company, prospective CEOs need more than a strong business track record.

A compensation plan that aligns interests. Non-family executives in a closely held family business understand that, unlike their public company counterparts, they will not be rewarded with ownership in the company they help to grow. In order to retain these talented leaders, it’s important to develop a compensation program that provides ample performance incentives.

Clearly defined roles and expectations. Non-family CEOs need the family to give them the authority that goes along with the title. The family must understand that the CEO was hired to run the business — not to mediate intrafamily disputes or field random calls from family shareholders.

Talented non-family leaders can help a family business grow so future generations will inherit a strong, sustainable enterprise. Family members should publicly acknowledge their contributions to the business. The family also needs to recognize that solid family governance plays an essential role in helping a non-family CEO achieve ambitious business goals.

Preparing for new leadership from outside the family business

Family firms account for two-thirds of all businesses around the world, and an estimated 70% to 90% of global GDP annually is created by family businesses, according to the Family Firm Institute. Whether the business in question is a $3 million operation or a $3 billion multinational enterprise, family business success and continuity matter—not only to the family but also to their employees and to the country's economic health.

Leading any organization successfully requires a clear vision, operational and managerial capability, market insight, the right people and a differentiated product or service, among other critical factors. Overlay family dynamics (functional or dysfunctional), the responsibility and desire for legacy and a business climate where the rate and pace of change are unprecedented, and you have a challenging and complex landscape.

Leadership from outside the family can provide additional perspective and a set of capabilities that contribute to the sustainability and growth of your business. Here are four pivotal issues that family business owners and directors should consider in determining whether the next leader should come from outside the family firm.

1. The business: Current state and path forward

Considering any change in leadership requires a careful assessment of where the company is at present, and also of where it is going. Although none of us has a crystal ball, this is the time to ask the tough questions about your business.

How effective and efficient are you today from an operating perspective? How well positioned are you operationally for the future? How are your markets changing and evolving? What new markets might be available to you? What market or competitive forces are you likely to face over the next three to five years? What are the implications from a financial standpoint?

Include these factors in your analysis:

Growth: What's the rate of growth? Is it occurring organically? Might an acquisition or strategic partnership accelerate it?

Performance: Is the business performing to its potential? How do you know?

Market: Has the competitive landscape shifted? Have markets changed owing to new entrants, new technologies or new buyer behaviors?

An objective and rigorous review of the business, the markets in which it operates today and those it likely will face going forward will help inform your assessment of the leadership capabilities most needed in the future.

Does your organization possess the talent and, in particular, the leadership capabilities to address and drive these critical business issues and seize the market opportunities ahead? As the CEO or a director of the company, can you answer this question in an objective manner? Understandably, it is difficult for many of us to recognize that the leadership skills needed to capitalize on future opportunities may be different from the ones we or other leaders in our organization possess.

2. Leadership capabilities

If your business assessment yields any of the following conclusions, it may be time to consider bringing in a leader from the outside.

• Changes (or likely future changes) in the marketplace will require new capabilities or experience.

• The company has grown significantly via M&A yet has limited internal capabilities to manage a larger organization.

• There is a desire for "new blood," given the stage of the business or its products or services.

• The CEO or other key business leader will be ready to retire soon, and no internal successors have been identified. (Prospective future successors are either not ready or not interested.)

• The growth of the business or scope of the role has outpaced the incumbent leader.

For many, determining the need for outside leadership is the easy part. The process of identifying the right person, however, can be daunting. It begins with role definition and clarity regarding the skills and experience required for success in the position. It continues with careful selection and assessment of candidates and concludes with the integration and assimilation of the new leader.

In assessing candidates for your family business, consider the following:

Chemistry: Does the candidate share your family and business values? Does he or she have a temperament that can work with your family dynamics?

Insight: Does the candidate understand the intricate links between family and business?

Passion: Is the candidate "fired up" about your business, products or services, and industry sector?

Trustworthiness: Does the candidate demonstrate integrity and credibility? Can he or she be trusted to make decisions that are in the best interest of the business?

Capability: Would the candidate bring new skills, creative thinking, experience and business relationships to your company?

3. Preparing the retiring leader

You may have identified a great new leader, and the business may be ready for the change, but are you yourself ready for the transition? How will you hand over the role? The best leaders will want to have full authority to run the business from Day One. How do you transition leadership quickly yet ensure the family asset is being protected?

It's critical to determine in advance what the new governance model will be. Will the retiring CEO assume the role of chairman when the new CEO takes over? What decisions must the outside CEO first discuss with the board?

Planning for your personal transition is as important as planning for the business transition and should be given the time and attention it deserves before a new leader is brought into the business. How will you fill your days when they have been traditionally focused on the day-to-day running of the business?

4. Preparing the family

Even in highly functional business families, there may be benefits to changing the dynamic by bringing in a new leader from outside the family, who can help change unhealthy communication patterns. And when family business interactions have become untenable, outside leadership can be essential to maintaining family bonds while strengthening the family business. As stated before, a leader from outside the organization often provides a fresh, objective perspective that can help the company to grow and evolve.

Before the new leader comes aboard, the family should establish or reinforce its governance processes to separate business from family issues. This should include "soft" issues, such as decision-making processes, as well as "hard" issues, such as expense controls.

The board of directors and the family must also ensure that the new leader has authority in addition to responsibility. An outside leader should not be brought into a business unless the shareholders are willing to truly give that person the authority to do the job. This includes the recognition that, as is true of all leaders, not everything the person does will be perfect.

Bringing in a leader from outside the company involves real change for the business and the family. The readiness of the family and the organization must be carefully considered. A critical first step involves analyzing where the business is today and discerning the best path forward; this will help identify what qualities are needed in a new leader. Understanding how to identify a high-potential new leader and preparing yourself and the family for this major decision is paramount, as the family legacy, and likely its most valuable asset, are at stake.

Janice DiPietro is CEO and Margarete Dupere is partner at Exceptional Leaders International (

Copyright 2016 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact

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Beyond the day-to-day

There are many myths about family businesses. One of the most common is that all family companies are led by a family member. In fact, many family-owned companies, including some of the world’s most successful family firms, have non-family CEOs at the helm. Yet some people—even those who are family business owners themselves—find it hard to fathom that this is a viable arrangement.

Professional outside management can improve business performance and family relationships. In November, I moderated a panel discussion entitled “Separating Ownership from Management” at the Transitions West conference in Marina del Rey, Calif., presented by Family Business Magazine and Stetson University’s Family Enterprise Center. The three panelists—Jim Ethier, chairman of the board, Bush Brothers & Company; Michael Rucker, former chairman of the board, Geo. H. Rucker Realty Corp.; and Roger Muselman, chairman and director of DRG—described how their businesses are flourishing under non-family leadership. Muselman, whose publishing and fulfillment enterprise was profiled in Family Business in 2007, said that he and his cousin, as owner/investors rather than owner/managers, focus on strategy rather than management.

Ethier, whose maternal grandfather founded Bush Brothers, maker of the nation’s leading brand of beans, said non-family management has led to increased growth and profitability at the company.

Rucker said that if his family company had not named a non-family leader, the family probably would have decided to close the business. As he told Family Business when we profiled the company in 2008, the move to outside management helped the factions within his family to unite.

Yet even when moving to non-family management makes business sense, it can be a challenge to get the family on board with the shift. Rucker explained that his company’s first outside leader was initially brought in as a consultant; after he gained the family’s trust, he was given an executive title.

The family member who champions this move must be prepared to respond to relatives’ questions and concerns, and demonstrate how the family can add value as owners without involvement in day-to-day issues. In this issue, Meghan Juday, chair of the IDEAL Family Council, describes how her family developed a “family strategy” that supports and enhances the ambitious business strategy of IDEAL Industries Inc. IDEAL, too, is led by non-family managers.

As our Transitions panelists noted, the path to non-family management may have bumps along the way. But the move can be the change that is needed to ensure your business can continue as a family-owned company.







Copyright 2013 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact

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Welcome to the family

Recruiting senior management is a very delicate and complex process, especially in family-controlled businesses. Beyond the traditional recruiting criteria—determining whether a candidate has the needed skills, leadership acumen and business maturity—there is a whole other layer of complexity to consider. This involves cultural alignment and, ultimately, power and control.

Cultural alignment is particularly important in family-controlled businesses. One of the key ingredients that make working in family businesses unique is the family culture, which in large and well-established firms can stretch back generations, and even hundreds of years! That can be a daunting prospect for the new hire and a sensitive situation for the family ownership. While maintaining the success and profitability of the company is clearly essential, so too is preserving the family reputation and legacy. Business is one thing, but heart and soul are quite another.

Consequently, successful hiring at the senior management level is contingent upon not only ensuring strong alignment with the culture of the business, but also properly integrating the non-family team member into the firm.

Cultural alignment

Culture is established by the business leaders and their management practices. As we all know, “actions speak louder than words.” It’s not enough to say you will be something; you must act upon it too. In a large organization there might be many different cultures at work, depending on how the business is managed and whether common management tools are used, even down to the department-by-department level.

A main advantage of family businesses stems from their family culture, which traditionally involves continuity of ownership and management, a long-term mindset and deep personal connections. Beyond that, however, each company’s expectations regarding performance and behavior are unique. How you behave, what values you consider important and how decisions are made all define the culture of your organization. Family firms are uniquely placed to define their own culture so as to be leveraged to their advantage.

Additionally, unlike publicly held companies, family businesses are not constrained to act solely in the interest of shareholders. Family firms can act as they wish, which is often in the interests of their stakeholders, and that can be quite different. They have more freedom to shape their culture and satisfy different constituents’ needs—including, perhaps, their employees’.

The success of any new outside hire is crucially contingent upon cultural alignment. Does the new hire share the culture of your organization? First, from the perspective of the new hire, the culture must be attractive and appealing. It must align with his or her values, interests and motivations. Second, and equally important, the employee must work well and be able to succeed within the culture. In other words, there should be a cultural fit.

The right perspective

Typically we talk of family businesses from the perspective of the owner rather than the employee. When discussing hiring professional managers, we should consider their perspective as well. In fact, successful hiring is equally contingent on balancing the needs of both parties—the employer and employee equally.

By and large people are the same, whether they are owners or employees: When they get up in the morning they all want to do the best they can for their families. They want to be personally successful, which achieves personal advancement and enrichment and makes their employer and those around them more successful. It’s a win-win situation, not a zero-sum game.

The key is to understand how to leverage the assets that are your employees, regardless of whether they are family members or not. This often requires recognizing that everyone should be treated equally, insofar as they must be given equal opportunity and resources to be successful. However, not everyone is motivated in precisely the same way, and therefore they should not be managed the same.

While I’ll leave the finer points of motivation to industrial psychologists, basically all people are motivated by some mixture of the following:

• Career advancement: the prospect of a better job with more responsibility.

• Personal development: doing the job better or learning something new.

• Financial reward: earning more money.

• Group identity: contributing to something bigger than themselves.

• Self-actualization: fulfilling their potential.

An enlightened family business leader creates a work environment that encourages employees to leverage their personal motivations.

Of course, the “elephant in the room” is that a non-family senior manager will not be an owner of the business. But remember, it’s not a zero-sum game. Just because an employee is not a family member does not mean he or she cannot also have a personal stake in the success of the business.

The performance expectations associated with senior management hiring are as high now as they ever have been. A very clear advantage is that we can more easily measure the impact of senior management upon the performance of the business. If the manager performs well, or exceptionally well, should that person not be rewarded well, or exceptionally well?

There are a range of financial alternatives available that both maintain competitive parity with publicly traded companies and provide a long-term incentive to stay. These include phantom stock programs and other long-term incentives based on the performance of the business.

In this current economic climate, with many stock options “under water,” the greater certainty that comes with family businesses’ long-term thinking is actually quite compelling. And remember, reward (or motivation) does not always need to be monetary. It could be, or should be, a mixture of the reward types listed above.

Equal opportunity and consistency

Ultimately, you run the business as you wish. It’s yours. Enlightened employers seek to attract and nurture talent within their business so that it can be more productive and competitive. And if we agree the best way to achieve this is to provide opportunities for all employees to be as successful as they can, then this is mostly a question of consistency and fairness.

One of the most dangerous behaviors of family businesses is being arbitrary. When decisions are made arbitrarily, fairness and trust are undermined. It’s also a question of power and authority, which are core motivations. If you act in an arbitrary way, you not only are being unfair but also are taking power away from people—all of which is highly de-motivating to your employees, and potentially destructive.

It may be argued that a valued trait of family businesses is informality. This often means having short and direct lines of communication that encourage fast decision making. But when a non-family member is hired into a senior position, great care must be taken to incorporate the new hire into the decision-making process.

A leadership role, by definition, is linked with power and authority—the power to make decisions and take necessary action with consistency. Leaders whose legitimate authority is undermined cannot fully exercise the very talents and commercial value for which they were originally hired. This point is crucial and key.

Another important cultural paradigm involves openness and transparency. There is a huge temptation to keep information—especially financial information—tightly controlled and within the close-knit circle of family members in authority. However, hiring a non-family member into an executive position demands you rethink how information is managed and shared. A non-family executive hired into a position of strategic impact requires access to appropriate information in order to make the right decisions for the health and success of the business. Remember, it’s not a zero-sum game. If the employee “wins,” then so do you.

Strategic human resource management incorporates a range of tools that can help you construct the appropriate organization design, systems, policies and procedures that leverage the talents of all employees to create value for the organization. A professional human resource team can help you design programs to smoothly transition the new hire into the culture of your family business.

Competitive advantages

Hiring professional managers can improve your company’s gene pool. To be successful and have a competitive advantage, companies need the right people in the right jobs at all times. In this respect, family-controlled businesses are no different from other businesses—they need to attract and retain the very best talent available.

Family businesses have some pretty compelling unique advantages over other types of firms, including long-term decision making, a stable senior leadership structure, continuity of succession and strong personal commitments and connections to the business. Family businesses that couple these advantages with other strong benefits (from the employees’ point of view), such as an empowering and enlightened culture, are in a good position to attract and retain professional management talent.

Alan George is president and CEO of Penfold Executive Search in Princeton, N.J. ( He has 25 years of experience recruiting domestic and global executives, including four years leading an assessment center engaged in management assessment and organization development.

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Winter 2011 Openers

Do Americans recognize family business brands?

The results of the Family Business Brand Test USA reveal some misperceptions. Marketing staff at family companies should take notice.


By Willem Smit and Joachim Schwass

When it comes to branding a family business, an interesting paradox emerges. On one hand, it can be very advantageous to advertise a company’s family heritage because its long-term orientation is at the root of its valuable and difficult-to-copy competitive advantage. On the other hand, we have noticed that very few companies actively promote this aspect of their uniqueness to the outside world.


Why don’t family firms reveal their “familiness factor” to their customers, suppliers, future employees and investors? In these times of economic uncertainty, when longstanding, caring institutions are valued more and more, family firms play a guiding and stabilizing role. Their solid, long-term reputation gives family businesses a corporate brand advantage.


DNA test for family business brands


In order to truly benefit from this corporate brand premium, family firms should first be recognized as family businesses. So, to measure the public’s awareness of the family DNA in corporate brands, we designed a test that was posted on and on the IMD website.


The Family Business Brand Test USA asked participants to identify whether or not 24 companies from six different industries are family businesses. In each of the six industries (hotels, consumer products, wineries, quick-service restaurants, grocery stores and department stores) we listed two well-known family businesses and two equally well-known non-family firms.


The survey results enabled us to classify corporate brands into four categories (see figure). The True Positives are real family businesses and viewed as such by the general public. The False Negatives, or “Lost Sons,” are family firms whose family connection is not recognized by the majority of respondents. The True Negatives are non-family businesses that are correctly perceived as such. Finally, the False Positives are like “Step Cousins” —companies that are regarded by the public as family businesses but in reality are not.


About 127 individuals (of whom 65% work or have worked for a family business) completed our test.


Mixed results


The main finding of our test is that family businesses have a mixed score on the branding performance of their family factor. Their family business brand premium is recognized in less than 60% of the cases.


Particularly strong in perceived familiness is S.C. Johnson, famous for household brand names like Pledge and Windex. Notably, S.C. Johnson promotes itself in ads as “S.C. Johnson: A Family Company.”


S.C. Johnson is closely followed by winery E.&J. Gallo, hotel chain Marriott and quick-service restaurant Chick-fil-A. Winery Kendall-Jackson, Hyatt hotels and supermarket chain Wegmans are the other three that are recognized as True Family Business Brands.


The relatively low 58% recognition rate implies that the other 42% of the family firms included in our sample are falsely identified as non-family companies. These “Lost Sons” are department stores Dillard’s and Nordstrom, the relatively lesser-known In-N-Out Burger fast-food restaurant on the West Coast, supermarket chain Publix and consumer products company Alberto Culver. (In late September 2010, after our brand survey was completed, Unilever PLC agreed to acquire Alberto Culver.)


What about non-family business brands?


Nine of the 12 non-family firms in our survey are correctly classified as not being family-owned or family-controlled: department stores Sears and Macy’s, consumer products companies Colgate-Palmolive and Procter & Gamble, fast-food chains Wendy’s and KFC, the Holiday Inn hotel chain, and the Kroger and Safeway grocery chains.


Yet there are notable misperceptions. Two wineries, Vendange Wine Cellars and Inglenook Vineyards, are falsely identified as family firms. More than half of the respondents are certain that these non-family vineyards are family-controlled or family-influenced.


More than 90% of the respondents think the Hilton Hotel chain is still run by the Hilton family. The company founded by Conrad Hilton agreed to an all-cash buyout from the Blackstone Group LP in 2007, which made the private equity group the world’s largest hotel owner. Perhaps Paris Hilton’s frequent media exposure is the reason behind the misclassification.


Marketing implications


The mixed results of this DNA test for family business brands should serve as a wake-up call for corporate communication executives and marketing managers at family firms. The fact that less than 60% of the family firms in our survey were correctly identified should make us all consider where and how to position family business corporate brands in the perceptual space of the general public.


Joachim Schwass is Professor of Family Business at IMD and director of the Leading the Family Business program. Willem Smit is a research fellow at IMD, specializing in marketing strategy and global branding.










Data can help firms seeking a non-family CEO



Is your family firm thinking of hiring a non-family chief executive? A new report from executive recruiting firm Spencer Stuart provides some data to inform your negotiations with top candidates.


The report, “Beyond the Family Tree: Succession Planning for Family Businesses,” was written by Gil Stenholm, who leads Spencer Stuart’s family business practice in North America. The data are based on “real-time compensation data” from Spencer Stuart executive searches for family companies over the past three years, plus discussions with CEOs and others who have worked with or for family companies, Stenholm says.


Stenholm notes that even executives with top-notch credentials—a degree from a blue-chip MBA program and experience at a Fortune 500 company or leading consulting firm—may not succeed at family firms. “It’s usually not because their résumé is bad; generally it’s because somebody’s trying to fit a square peg into a round hole,” he explains. “It’s chemistry, it’s style and it’s personality.” To ensure a good fit, Stenholm recommends that family business owners identify the skills and traits needed to lead their firm.


To obtain a copy of the free report, see








CEO compensation snapshot


Average base compensation, bonus and trends in equity compensation for a representative sample
of public, family and private equity companies with less than $1 billion in revenue.


  Public company Private equity
portfolio company
Family company
Base salary $605,000 $508,000 $497,000
Bonus $321,000 $703,000 $211,000
Equity Stock option or equity awards very common, ranging in value from $70,000 to nearly $15 million 3% to 8% ownership, generating a payout, usually at the exit, but under unique circumstances partially before, equal to $3 million to $40 million Typically long-term incentives similar to profit sharing and annual awards range from 50% to 150% of salary, equal to $3 million to depending on company and individual performance
Other Non-equity incentive compensation common Drivers selected to EBITDA Non-equity incentive plans common
Source: Spencer Stuart, “Beyond the Family Tree: Succession Planning for Family Businesses”













Company and CEO traits comparison


Observations based on Spencer Stuart’s CEO, COO and board searches over the past ten years
for public, private equity portfolio and family companies.


  Public company Private equity
portfolio company
Family company
CEO turnover Approximately 4 years Approximately 2.5 years Approximately 7 years
CEO influence over governance and strategy CEO drives strategy, reportsto board. Sarbanes-Oxley compliance is time-consuming. Especially if also chairman, CEO oversees most governance responsibilities CEO and PE sponsors develop strategy jointly; chairman is almost always a private equity owner Limits on external CEO’s ability to shape strategy, given family priorities, politics, traditions, ties to community and employee commitments
CEO ownership 1% to 2% of outstanding shares, accumulated during the course of tenure 3% to 8% of outstanding shares, negotiated up front and vesting upon private equity’s exit Generally, none
Control over operations and team selection CEO is directly responsible for company operations and performance; has complete control over who’s on his/her team CEO is responsible for company operations and performance, with ongoing participation by sponsor companies; sponsor firms may force some team changes in key roles CEO is responsible for operations, but faces limits on his/her ability to make changes to operations or key personnel
Source: Spencer Stuart, “Beyond the Family Tree: Succession Planning for Family Businesses”








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Beyond the family

Many entrepreneurial families who have big dreams for their companies understand that non-family employees can help them make those dreams come true. A smaller percentage of family business owners have taken this logic a step further —they’ve hired non-family employees to run the place.


Some family business owners may be slow to embrace the idea of an outsider in the CEO’s chair. For instance, it took Wm. Wrigley Jr. Co. 115 years to hire its first non-family CEO. The gum giant, founded in 1891, was struggling amid competition from Cadbury Adams USA, and its earnings per share had declined after it acquired Altoids and Life Savers from Kraft Foods. When it named William D. Perez—formerly of S.C. Johnson & Son and Nike—to replace Bill Wrigley Jr. as CEO last October, a Credit Suisse analyst wrote to investors, “The biggest positive here is that management now seems to recognize that it needed to change from a paternal culture to a professional one.”


In this issue, Family Business profiles several families who have chosen non-family members to lead their businesses, and offers a behind-the-scenes peek at the analyses behind their decisions to do so. Rich Products Corp. of Buffalo, N.Y., one of the largest U.S. frozen foods manufacturers with annual revenues of $2.4 billion, named William G. Gisel Jr. as president and CEO last August. “For me, a family business does not just mean those with the same last name that’s on the front door,” company chairman Robert E. Rich Jr. tells reporter Ellyn Saft.


At Houston-based Kanaly Trust Company, the quest for the right non-family CEO took more than a decade. In 2001, Family Business reported on the Kanaly family’s struggle with leadership decisions. On page 45 of this issue, David Doll, who in 2005 became the first non-family member to hold top post, offers a follow-up to the 2001 article, describing the lengthy succession plan journey. Fortunately, the Kanalys had their new leader in place when the firm’s legendary founder, E. Deane Kanaly, passed away last July.


The Muselman family, owners of Dynamic Resource Group, a publishing company in Berne, Ind., view themselves as investors in their company, which has been managed by non-family executives since the late 1990s. As Dave Donelson reports on page 50, the Muselmans established this management structure because they believed the business would become more successful if they divested themselves of direct control.


After you’ve recruited a non-family executive, you still have work to do. As a trio of family business advisers notes on page 54, you must provide a means of motivating and rewarding that person. Non-family executives must be made to feel like part of the extended family, not the hired help. Read the article for advice on how to ensure their success.

Tips for recruiting veterans of large corporations

Today’s challenging economic times have given smaller organizations an unprecedented opportunity to recruit corporate executives, according to recent news reports. In the past, few employees of large corporations would have considered working for a smaller firm. Now, with economic chaos the norm, displaced corporate executives are looking for opportunities with smaller firms.

Family businesses could certainly use talented, seasoned veterans, as many lack an outside perspective or professional management experience. What’s more, corporate executives often possess their own network of other outside professionals, which they can tap into for needed expertise.

Unfortunately, anecdotal evidence suggests serious potential problems exist when a family-run business hires an outside executive. There isn’t necessarily anything wrong with the candidates themselves; rather, the problem lies with the processes family businesses use to recruit and integrate outside employees into their companies. Here are some tips for family business owners to consider when interviewing and hiring alumni of large corporations.

Take your time. Nelson Jacobsen, third-generation family owner and CEO of JSJ Corp., a designer and manufacturer of durable goods in Grand Haven, Mich., notes that his company was well acquainted with its non-family senior executives before it brought them aboard.

“We didn’t realize it at first, but our best professional managers have been people we’ve known in some capacity elsewhere,” Jacobsen says. “Our CFO came from our outside audit team. Our COO was someone we’ve literally known for decades.”

Plan well in advance. Jacobsen’s management team determines what new positions need to be filled in the months, and even the years, ahead. “We think carefully about who is an ideal candidate,” Jacobsen explains. “We start to identify who would be a good fit well before we need to fill the position.” Any family business hiring for a management position should draw up a formal job description, Jacobsen suggests.

Compensation should be part of the job description. I.H. “Chip” Clothier, managing director of HFC Executive Search of Rosemont, Pa., and a former employee of a family-owned specialty retailer, says developing an enticing compensation package is important. “Many corporate executives are used to earning stock options or grants as part of their compensation, yet for family businesses, the idea of giving up equity is a difficult choice,” says Clothier.

Family business owners should consider ways to substitute for equity in a compensation package, Clothier says. “I’ve seen family businesses create phantom stock or weigh more cash for bonuses than would be the standard in the industry,” he says. He suggests that family firms consider benefits that most major corporations can’t or don’t provide, like financial services planning and country club memberships.

Consider the level of control. In drafting a job description, think carefully about how much control you want to give up in your organization and what decisions your non-family employee will make. “Many corporate executives have been used to operating and making decisions independently without having family members looking over their shoulder,” says a non-family CFO at a $300 million family business.

Clothier feels strongly that family members must give some leeway to professional managers. “If you want to get results,” he says, “you have to be willing to give up some level of control.” Establishing an atmosphere of trust, he says, will make the transition much smoother for both parties.

Interview properly. Hiring the wrong candidate at a large company is disappointing, but for most family-run businesses, it can prove to be an unmitigated disaster. Yet because interviewing isn’t something family business owners do regularly, many of them don’t know how to conduct a proper interview. Owners can be easily charmed by an executive’s résumé that boasts of experience from Fortune 500 companies. To ensure that the right information is obtained during the interview process, many hiring professionals provide managers with a list of sample questions to ask.

At Jacobsen’s company, applicants interview with several managerial-level personnel. This provides an opportunity for managers and employees to become comfortable with the candidates and, conversely, for the candidates to truly assess whether the opportunity is right for them.

Just like on first dates, people tend to be on their best behavior early on in the interview process. Smart business leaders spend time with promising job applicants in informal settings, such as at a restaurant or at a sporting event. Eventually, the candidate’s true personality will emerge.

Be candid. Communication is a two-way street. A non-family CFO notes that business owners are often so accustomed to selling their organization that they forget to discuss the details of how a prospective employee would work with them. At his organization, “we’re honest and upfront about what to expect,” the CFO says. “There’s no sense in bringing on someone that will be a poor fit down the road. It’s disruptive and expensive to have to rehire for that position a year later.”

Part of the problem is that family business owners are often reluctant to admit to internal strife and challenges. “There is always some misfit family member that will cause problems down the road for a professional manager,” says Paul Karofsky, CEO of Transition Consulting Group and executive director emeritus of Northeastern University’s Center for Family Business. “As a family business owner, you have to be upfront about these challenges.”

Many corporate executives are accustomed to having support staff to handle secondary responsibilities. When they join a family company, they are often shocked to find they don’t have the same perks they’d enjoyed previously. Effective communication can help prevent future disappointment.

Steer clear of the “large company genius.” The “I know better than everyone else, just ask me” syndrome sometimes afflicts corporate executives who have spent much of their time in large organizations. Many such executives try to force their former employers’ methodologies into a family business, which can prove disastrous.

John Hazen White Jr., president and third-generation leader of Taco Inc., a manufacturer of HVAC equipment in Cranston, R.I., faced this issue many years ago when his company hired executives from large corporations. “It led to an inevitable clash,” he says. Today, White says, Taco prefers promoting long-term employees over hiring outsiders.

Hone your culture and core values. Jacobsen’s company lists its principles and mission statement on the company website so job candidates can quickly assess for themselves if they feel they are a good fit. “It’s not just about the money,” says Jacobsen. “It’s a life decision to work for a family-run business. Candidates have to authentically show that they want to work for us.”

Taco is steadfast about its core values, White says. “They govern how we treat employees, customers, suppliers and even banks,” he notes.

Get them onboard. Once an executive joins a family business, the first 100 days can be full of surprises and shocks. If conditions at the family company are different from what he or she expected, Clothier warns, the business owner must be prepared to keep the new employee motivated. Smaller companies are often too quick to make snap decisions that a new employee was a “bad hire,” Clothier says. With a little handholding and advance preparation at the hiring stage, he suggests, the newcomer can become a dedicated long-term contributor.

Hold family members to a higher standard. Nothing can frustrate a professional manager more than having to work with family members who aren’t held to the same level of scrutiny. At Jacobsen’s company, family members are expected to obtain suitable formal education and to prove themselves with outside work experience before joining the business. This levels the playing field and keeps resentment from building among non-family managers.

Bringing corporate executives into a family business is fraught with challenges and potential landmines. But family business owners often need the guidance that managers with large-company experience can provide. Especially in today’s economy, many talented people are seeking out smaller organizations for their next opportunity. If you take the time to ensure you are hiring the right candidate, you can lift your company to new heights of excellence.

Tim Howes ( is principal of Spyglass Strategies, a consultancy practice that works to improve individual and organizational performance. He is also an assistant professor of management at Johnson & Wales University.

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