Family companies' unsung heroes

By Sam Davis, Linda C. Mack and Denise Pare-Julien

Experienced, talented non-family executives are among a family firm’s most valuable assets. But if family business owners don’t work to strengthen the relationship with these key managers, the non-family executives will become discouraged and leave the company. Family business consultants offer their insights on working with these essential members of your team.

Every family business that grows beyond the “mom and pop shop” stage faces the need for experienced, highly talented professionals from outside the family. Some of the most successful family enterprises have found their non-family executives to be among their most valuable assets. But the contributions of key managers at family firms rarely are touted in the media. Not only is the general public unaware of the value these professionals provide, but also many families fail to recognize how important attracting and retaining non-family professionals is to the future success of their enterprises. Non-family executives are truly the “unsung heroes” of family companies.

Families turn to non-family executives for a variety of reasons, but the principal factor is the lack of sufficient family talent to lead the family enterprise—a situation that inevitably occurs as the business grows. Family companies may also seek non-family executives to contribute specific skills or add diversity in their organizations, or to offer new ideas or creative, strategic thinking. Some families seek non-family professionals to prepare succeeding generations for leadership.

Non-family executives take a variety of roles but are most prominently featured in key leadership positions, such as chief financial officer, chief operating officer or general manager, chief technology officer and vice president of human resources. Evidence points to a recent trend to engage non-family members as chief executive officers in family enterprises.

The dynamics between non-family executives and family members vary according to the size and nature of the enterprise. In some organizations, family control of ownership is less centralized, so the executives must answer to multiple family members. In other companies, the ownership structure is simpler, making the ownership dynamics more consistent and clear. Large family enterprises tend to have more formal governance structures that provide clarity for non-family executives.

In some companies, family dynamics are more overt; in others, non-family executives are insulated from most family issues. In some family enterprises that are unclear about leadership succession and business continuation issues, key non-family managers are faced with addressing both family dynamics and business issues when making decisions. While some family enterprises have ample human resources staff, processes and benefits to clearly define the roles, advancement opportunities and rewards for non-family executives, others lack the resources to address professional development and long-term rewards for these essential personnel.

Key issues

Because these “unsung heroes” are often taken for granted, family enterprises would benefit from understanding the issues non-family executives face. Successful non-family managers are willing to take on great responsibilities without opportunities to participate in the ownership of the enterprises they help to sustain. Often they face a slow pace of change in the senior management ranks and may even have to step aside as family members rise to key leadership positions. In some family enterprises, family membership and loyalty trump experience and performance. In these cases, non-family executives can be left behind, even treated unfairly, while working long hours and performing admirably.

Perhaps the most confounding issue for non-family executives is the intrusion of family dynamics into the business. Non-family managers often find themselves engaged in what family systems professionals refer to as “triangulation.” In other words, they are frequently thrust into third-party roles in family relationships: forced to mediate between siblings, between generations, between genders or between working and non-working family members.

A non-family executive who must resolve differences between a retiring CEO and a next-generation family member must understand the implication of his or her interactions with each family member and how his or her role affects the parent-child dynamics. It behooves family members and non-family executives to gain an understanding of such dynamics so that the executive does not unintentionally contribute to misunderstandings, conflicting interests or family rivalries.

In one large family business, for example, the father retained the title of chairman and brought in a non-family member to serve as CEO; four second-generation family members reported to the experienced non-family professional. The father continued to give direction to his children working in the business, and many business decisions were made at the family’s weekly dinner together. The father gave little guidance to the non-family CEO and isolated him from the company’s board. The non-family executive lacked the authority he needed to manage the company effectively or to provide leadership direction for the family members reporting to him. Recognizing that the father had failed to acknowledge his contributions to the company’s success and provide him with the authority commensurate with his responsibilities, the CEO accepted an offer from a public company and left the family-owned business.

Many non-family executives are forced to contend with issues such as family conflict, favoritism, avoidance of responsibility, lack of access to information and inadequate succession planning. They often find themselves in the middle of family situations without the ability to understand the dynamics or respond in a helpful manner. As in the example above, non-family executives can be deprived of information critical to business operations when such discussions take place at family gatherings rather than in senior management team meetings. Healthy family dynamics can make non-family executives’ lives quite comfortable, but negative family patterns can induce excess stress.

Insights from family business consultants

In October 2006 at the annual conference of the Family Firm Institute, an interdisciplinary association of professionals serving business-owning families, we presented an interactive workshop on non-family executives’ importance to family enterprises. Workshop participants formed focus groups and shared insights based on their experiences in serving hundreds of family enterprises. The following points, which emerged from participants’ discussion of case studies, may help family members and non-family executives to understand each other’s concerns.

What attracts non-family executives to family enterprises? According to the focus groups, the most important factor in attracting non-family executives to a family enterprise is the role being offered and clarity about the responsibilities to be assumed. In addition, non-family executives are attracted to businesses in which family members are held accountable for their own performance. Furthermore, experienced, highly capable individuals seek family enterprises with effective governance structures for both the business and the family. In the experience of the family business consultants who participated in the workshop, non-family executives are drawn to professionally managed organizations in which their contributions—and those of others—are objectively assessed.

What do non-family executives need from family companies in order to be successful? Non-family executives need clarity not only about their professional roles but also regarding expectations for their relationships with family members. Clear and effective family and business governance structures can help non-family professionals to better understand and manage these relationships. Although non-family executives rarely have opportunities to receive equity positions in family enterprises, they require compensation and professional development plans that clearly link financial rewards to their long-term performance. These professionals are best served when succession plans for senior family members and executive management are made clear to everyone.

Why do non-family executives leave family enterprises? Family business consultants in the focus groups cited a lack of trust as the primary reason non-family executives leave family businesses. When the trust relationship is broken between the non-family executive and senior family executives, the non-family member is likely to seek an exit. Contributing factors include being sandwiched between family management and family shareholders and situations in which the non-family executive’s hands are tied by family control and family dynamics. Other factors that cause non-family executives to leave family enterprises are a lack of authority commensurate with management responsibilities, unrealistic expectations of their ability to clean up management or family dysfunction, and a lack of appreciation by family members. Focus group participants also pointed out that some non-family executives leave because they simply lack the skills to manage both business and family objectives.

Non-family executives should remain “unsung heroes” no longer. Every family business that grows and moves beyond the first generation of ownership will require the services of experienced, highly talented professionals from outside the family. Acknowledging the importance of attracting and retaining non-family professionals, learning to manage family and business dynamics, and providing these essential personnel with the recognition and compensation they deserve will be essential to the future success of every family enterprise.

Sam Davis, based in Richmond, Va., is a principal with Relative Solutions, a family business consulting firm (sdavis@relative-solutions.com). Linda C. Mack is president of Mack International LLC, a Chicago firm that provides executive search and human capital consulting services (lmack@mackinternational.com). Denise Paré-Julien is a family business adviser and educator based in Montreal (parejulien@sympatico.ca).

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Spring 2007

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