When family business leaders think about a successor to their position, they often think first of the next generation of family members. This is certainly understandable, since it represents one of the primary reasons for owning a family business. However, this line of reasoning is not always in the best interest of the business. There are three instances where we feel hiring a non-family member to lead the company can best serve the long-term interests of the family.
Lack of Sufficient Family Talent. The most obvious instance where family businesses seek an outside leader is when there is no family member with the talent or interest to assume the job. Non-family executives often fill key positions in successful family businesses – e.g., CEO or CFO. There is evidence to suggest an increasing trend in the hiring of non-family members as chief executive officers in family organizations.
Time Needed to Prepare Next Generation. In some instances there exists a pool of successor talent, but the family successors are too young and inexperienced to assume the rigorous demands of leading a successful and growing business. If the heir apparent is not yet ready but nonetheless assumes the position, the company’s future may be compromised. In these situations, some families recruit non-family professionals to prepare succeeding generations to ultimately assume the leadership role.
Specific Skills Lacking in Business. Every business leader – even the most successful – has their own unique strengths and weaknesses. A family might determine that the family successor has exceptional talent in sales & marketing, information technology or human resources, but not the critical skills required of the chief executive officer. It’s a hard decision for the family to make, but the right choice in the long run for the business, the family and the family successor.
It might appear that these non-family professionals are nothing more than hired guns. So what attracts them to accept positions in companies knowing that they will never ascend to ownership? Your first answer might be, “show me the money”; but money alone is seldom enough to attract these individuals.
So what are they looking for? They are likely looking for a family enterprise in which there is clarity about the role they are being offered and the responsibilities they are assuming. They are probably also looking for a business environment where family members are held accountable for their own performance, and an effective governance structure for both the business and the family. These non-family professionals also want to join an organization with a reputation for objectively assessing and valuing the contributions of all employees – not just the family members. If satisfied that these factors are in place, then these individuals will expect compensation and benefits that are directly linked to their long-term performance.
Acknowledging when the time is right to retain the services of an experienced, highly talented individual from outside the family might someday be essential to the success of your family business.
Do you have questions for us? Contact either Mark Ellsworth or Matt Heemstra at (712) 324-4614.