Welcome to the family

By Alan George

Recruiting key non-family managers for your family firm is a delicate process that involves cultural alignment -- and issues of power and control.

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. (www.penfoldexecutivesearch.com). 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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Autumn 2011

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