Before you get hitched to a hired gun

When courting your key managers, be sure to discuss with them what it means to work in a family company.

By Léon Danco

When a family business owner hires a key manager, it’s a lot like tying the marriage knot. More so than in a public company, employment in a family firm should be thought of as “until death do us part.”

The company’s team of professional managers plays an essential role in assuring a smooth transfer of leadership to the next generation. Yet, when business owners are hiring their team, the discussions usually focus myopically on short-term operational goals and not on the long-term structure and needs of both the family and the business. The result is too often a disaster waiting to happen.

No matter how capable, no matter how loyal, the nonfamily manager in a family business must usually accept that his upward mobility will be limited by family considerations. A hired gun will, in most cases, always be a hired gun. As Phil Romano, founder of Fuddruckers, a restaurant chain, commented at a recent conference: “When should a founder bring professional management into a new business? Immediately. When should the founder turn over control of that business to a professional manager? Never.”

Whether or not you agree with Romano, his comment underlines that the professional manager can never set his sights on running the company when owners have competent heirs. Why, then, would any manager with brains and top credentials want to work in a family company at all?

For the right person, a well-managed, successful, and happy family business offers unique advantages and opportunities. The pay is often more than competitive, the perks are usually most generous, and, since managers in a family business can have more real influence on major decision-making than they usually do in larger public companies, they can more directly influence their own security. The feeling of making a truly important contribution is often the biggest reward of all.

I have long urged family businesses to accept one commitment: “This business shall continue forever.” That pledge, which I often see tacked up on bulletin boards in family firms, is the loyal manager’s best guarantee of long-term security and well-being. It says, in effect: “Together we are going to satisfy our mutual needs.”

In the best of possible worlds, the professional becomes a member of a family that appreciates loyalty and hard work, and shares the benefits of its success. Key managers in a family firm report directly to the owners. They are valued for their technical knowledge and skill, in marketing, finance, manufacturing—whatever. But personal chemistry is most important in a family firm. If a person can’t admire the family and its values, then he or she should have the integrity not to apply. It is imperative that nonfamily management share the business owner’s dream and basic values.

In many companies, some senior managers have been with the owner from the beginning; they have helped him build the business and have been very close to him. At some point in the growth of the company, however, the boss may become frustrated with these old-timers. Over time, the growing size and complexity of the business requires increasing professionalism. The company needs fresh ideas, new blood. Often, ownership has to go outside the company to find someone with the skills to manage the larger organization and lead the older management team.

Ideally, the owner will find someone in his mid- to late 40s or early 50s who has at least 20 years of experience with other companies and has 15 to 20 years or more to give to the company. Don’t pinch pennies. While the psychic rewards of working in a family company can be great, experienced managers will not willingly sacrifice their standard of living for the challenges offered. Too often, if they accept a cut in pay, they usually regret it later on, become unhappy, and eventually become unproductive.

The idea that you don’t have to pay competitively but can attract top people by giving them a “piece of the action” is a common delusion. What does it mean to own 10 percent of the stock in a company that pays no dividends? The manager eventually could hit the jackpot if the stock triples in value and the business is sold. But when the company is sold, he usually loses his job. Better to give him the incentive of salary increases, which he can invest himself.

 

Misperceptions about pay are only one cause of broken marriages. A more fundamental problem in the hiring process is that neither party is mind ful enough of what the future holds.

Sometimes when the aging owner has children who are too young or insufficiently trained to take over, the key manager may have to take on the role of regent. Under this scenario, he must lead the company as the head of a caretaker regime while preparing the heirs for their responsibilities. Unfortunately, the subject is rarely mentioned in interviews with managerial applicants. The coming of the crown prince or princess thus becomes a sudden, anxiety-ridden event. The key manager is forced to take on the role of mentor to sons and daughters whose arrival threatens his own position. Or the regent is suddenly thrust in the middle of a battle for control between warring siblings that he is not equipped to handle.

For all these reasons, business owners should tell applicants all they can about family goals and politics before offering the job. The candidates should meet not only the children who are potential heirs to the business and will one day be their bosses, but also children who are not active in the business.

The presence of competent successors in the business is any professional’s best security blanket. If there are no potential successors, the owners should talk frankly with applicants about the family’s future plans for the business.

But key managers will also be looking for other possible guarantors of their future security and opportunity to contribute within the company. For example, the existence of an independent board of outside directors can assure them of a forum in which their performance will be appraised objectively.

The business owner who wants to hire top people should marshal evidence of his commitment to his managers, to professionalism, to “continuing this business forever.” Does he have a succession plan? Does the company have a management development plan? A pension plan? Does he have an open accounting system? Does he pride himself on open communication, on not hiding anything from his key people? These are all points to emphasize in interviews with candidates.

Key managers are often the bridge between generations, providing the stability to get over the inevitable bumps in succession. As in many marriages, however, when the courtship is too short and the partners don’t think enough about their future together, the relationship may end up on the rocks.


Léon Danco is the founder of the Center for Family Business in Cleveland and the author of four books on family business.