Family businesses have a poor reputation. Many issues can arise, such as non-family leaders clashing with the family, family politics, job undermining, entitled or inept successors, and inconsistent messages about direction. Conversely, family business owners take a long-term view, reinvest in the business, and are loyal and respectful to customers, suppliers, and employees– even treating them like quasi-family members. So, before you work for a family business, consider these questions: which kind of family business is reaching out to me? How can you assess which type of family they are?
Working for a large, successful, long-lived family business can be wonderful. They are largely free of pressure for quarterly results and do not have to be on the watch for minute fluctuations of their stock price. Family businesses are also willing to invest in the business and develop to work toward long-term goals. They are loyal to their employees, and once leaders have proven themselves, they get respect and job security. Families can create great working environments, thus placing family businesses on the “great places to work” list.
The role of a non-family leader in a family business is different than leader of a public company because you are not dealing with disconnected groups of shareholders who want immediate results. You cannot consolidate power and stack the board with your supporters. Instead, you must deal with family owners who can be deeply aligned or have serious disagreements and reach out to you and expect you to attend to them, no matter what degree of ownership they have. The job is highly personal and can be political, so you might be needed as a mediator or a buffer between family members, which requires you to be in agreement with, or aware of, the family’s values and aspirations.
It is widely assumed that there is no room at the top in a family business because the family intends to install a next generation in leadership, and non-family executives are expected to defer to them, coach them, or even cover up for their deficiencies. The reality, especially in larger family businesses that have been around for two or more generations, is frequently the opposite. The family is aware that their personal gene pool does not always provide professional leaders with the best vision or skills to take the business forward. The business may have outgrown the family, and by the third generation, many large family businesses turn to a non-family CEO. Non-family CEOs can professionalize business operations, recruit further talent, and move the business into new markets while developing new products.
Then where do the old and new family leaders go when they decide to recruit an outside CEO? The family owners exercise oversight through their Board of Directors. This means that a young family member does not seek to become CEO, but rather aspires to join the board, and become a steward of the business rather than an operator. Next generation family members take on roles in philanthropy, take the company in new directions, start other ventures, and enter public service.
The board contains a family Chairperson, and several other family members, that represent both the older and younger generations. By the time that the family considers a non-family CEO, their boards usually include independent non-directors. These are business leaders who have broad experience in business which enables them to challenge and inform the family leaders about best practices to help the company succeed. Young family members are often mentored and coached by these board members, who teach them how to be a helpful but not interfering board member and owner. Many times, independent directors are the advocates for hiring a non-family CEO.
When a person is considering taking a leadership role in a family business, they should conduct extensive due diligence. In addition to learning about the business, the candidate should also learn about the family, its culture, values, and goals. There are several key points to look for when a non-family executive considers joining a family business.
Who Will You Work For?
This is not a simple question. A candidate should look into whether individual family owners (and young people who expect to become owners) consider their CEO to be their employee or will listen and defer to the non-family CEO. The proper arrangement is that a CEO works for the Board, which is the one voice that represents all the owners. A family should not be hiring an outside leader to then not listen to or draw on the CEO’s expertise. There may be give-and-take about major policies and initiatives, but discussions should be conducted in a professional manner. If this mutual respect of authority is not clear and explicit, a candidate should be wary. The job description and authority of a non-family CEO should involve working with the Board and the family should be prepared to have the agreement evolve and be amended over time.
What Are the Wishes and Values of the Family, and How Do They Do Business?
The family owns the business, and they know what they want from their business and the way they are going to do it. As a result of their goals and business methods, every family business has a culture—their style and way of doing things—and core values for the business. Even though the new CEO may change operations, the non-family leader should understand the values and culture and be comfortable with them to avoid upsetting the foundation of the company.
To learn the family culture and values, the prospective leader cannot just listen to one person, even if that person is the Chairperson of the Board of Directors. The candidate should meet a cross-section of family members, from several generations to achieve a more full understanding of the company. A family may have what they call a family council, where family members take care of activities and information that has to do with the family. They have family documents, policies, and agreements, and the business leader should know as much as possible about that information. The leader may have great authority, but in the end, they serve the family and an awareness of the family’s history and values will strengthen their leadership.
A candidate should meet with the family council as well as the board, to learn what their job expectations are and what is expected from the business under their leadership. A family has legacy goals for their business, that need to be learned and applied. A candidate should develop a relationship with the key non-business family leader, who communicates the wishes, concerns, and goals of the family.
How Will Family Elders Interact with the CEO?
The family often has elders who have served previously as CEOs and board members of the company. Unlike a public company, they do not disappear when a new leader comes in. How will former leaders, and other key family members, interact with the business? Family employees may feel deep loyalty to the leadership of their family members, so how can a new leader assemble the credibility to exercise authority over these employees? If the candidate accepts a position, they should work closely with family members to orchestrate and soften their entry. There should be individual and group meetings, that go into detail about the CEO’s role, authority, and influence, and the family leaders should exercise their influence openly through visible partnership with the CEO.
Families looking to hire a non-family CEO want candidates who are a good fit with the family culture. But even a candidate that seems to meet the business’ needs, can fail to earn the trust of the family. One way families can guard against this is to have the new CEO work for a trial period in another role with the understanding, clear to everyone, that they are expected to ascend to the leadership role. A period of overlapping duties with the departing leadership will enable the new CEO to develop their own relationships and gradually take the reins. The culture fit and comfortable partnership can only be discovered through practice because it can’t be anticipated in advance.
Define the Role of the CEO with the Leadership Team
The non-family CEO is often expected to work with an existing, and often long-standing, team. The family has been loyal to them and they are loyal to the family. A new CEO can’t expect to have them leave and bring in a new team. Terminating or changing the role of someone who has worked for the family business is difficult. A new leader in a public company can usually expect to bring in folks who have worked with him or her previously and develop a leadership group working in a familiar leadership style. Entering a family business is different, because the outside leader cannot expect to make wholesale changes. The authority to terminate or bring in new executives may be limited or have to be negotiated. The new leader has to cultivate the team that exists, and this can be a challenge.
Clarify the Role of Family Politics
A family can contain several branches, who are also interest groups with conflicting views of what they want from the business. These views are influenced by the perks that each branch of the family receives from the business, such as internships for their young people, employment, and favors like the use of business property and services. What will happen if one family member asks for a favor and wants the CEO to keep it a secret? When a family has an informal structure that conflicts with the business, this is a problem that can be discovered in advance and should raise some questions from the candidate.
The role of a non-family business leader is different in some ways from a leader of a public company (though many large family businesses are public, but with effective control by the family owners). The job description can include mentoring and even preparing family members for future leadership. A non-family CEO can sometimes be selected as a bridge leader, expected to develop the business and prepare young family members for leadership, so the role may be time-limited with a bonus for good performance.
While the family might want to keep ownership within their family and not provide the non-family CEO with ownership, they may share profits and be generous. If this is the case, then compensation should certainly include sizeable bonuses for performance and reaching milestones, as there are many ways to have profit-sharing that do not involve ownership.
Becoming a leader of a family business can be a wonderful opportunity that offers a path to undertaking the long-term development of a large business. In family business, many of the frustrating pressures of leadership of a public company may not exist, but in their place, there is the challenge of working for a flesh-and-blood family with tensions, differences, and personal needs. It’s a trade-off, and a candidate considering the job position should conduct extensive research to assess whether the role will offer the opportunity it seems to promise.