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Bringing an Outside Executive into the Family Business

Guess who’s coming to dinner: bringing the outside executive into the family business

When it comes to keeping the family business growing, operating family members sometimes realize that they are ill-equipped to take the company to its next level of organizational and operational sophistication. When that happens, bringing non-family executives into the system may be the right answer.  The family’s need certainly doesn’t stem from lack of intelligence. Rather, it is most likely a matter of lack of leadership experience in a larger corporate environment.

In family businesses run from within, its executives have probably spent the bulk of their careers immersed in their chosen industry.  The family member at the helm may be the founder or at least one influenced by the founder. There is essential magic that founding entrepreneurs possess that enable them to create something from nothing. But applying this same ‘magic’ to an organization with sizeable revenues, activity, and personnel can come at great cost.

Smart families eventually understand that it will take something different than what has worked in the past for the business to continue to grow. That’s when the company will often seek non-family executives who hail from larger, more organizationally mature environments in an effort to supplement the family’s home-grown executive talent with a different set of skills and experience.

Value and Motivations of the Outside Executive

Unlike the family executive whose career has been devoted to one company, in one industry, with little outside professional mentorship, the non-family executive will typically have traveled a different path.

He or she will likely have been impressively educated, often including a relevant post-graduate degree.  The candidate’s resume will show a track record of progressively responsible experience as well as a myriad of accomplishments.  Notions of organizational governance, budgetary control, strategic planning, management by objective, and financial analysis will all be second nature.

Non-family executives often find the opportunity to join a family-run business environment alluring for a number of reasons:

  • they see the move as a sure opportunity to make use of prior skills and experience in a leadership position;
  • it may be a chance to avoid the political and time risks of staying on the career-advancement track in the larger institution, and perhaps never getting selected for a position of leadership;
  • moving from a more institutional environment to a more humane one, without the constant threat of geographic transfer, may offer appeal on a personal level.

With such mutually complementary objectives, one would think that the decision for both family and non-family executives to join forces would be an easy one.  Yet, it rarely is.

Each party has had strikingly different formative professional experiences.  Fear and misunderstanding often factor into the equation. The irony is that it is precise because of their cultural differences that each has come to hold allure for the other.

If the union is to be a healthy and productive one, the family enterprise will need to muster the patience and tolerance to learn the advanced ideas and language of contemporary business from the non-family executive. Similarly, the new executive will need to exhibit those same qualities to master the dialect and cultural norms of the family controlling the enterprise.

Getting to Know Each Other, With or Without Help

It takes time for each party to come to know the other; certainly, more time than the interview process allows.  The unavoidable tension, therefore, requires a period of “living together” before either party can truly recognize how culture influences, informs and animates the other.

Despite the work and emotional energy leading to the new executive’s hire, the hard part – as in marriage – is not the ceremony of union; it is that which follows. Ultimately, systems of governance, for both business and family, will provide the long-term solution to mediating the diverse interests of the family, business, and the non-family executive.

Some family businesses make this transition successfully without assistance.  But a far greater number embark on this journey alone and end up experiencing problems such as repeated false starts, bad endings, unwanted industry publicity, waning corporate morale, poor operational performance, and wasted opportunity.

Just as a marriage can be enhanced with the help of a capable marital counselor, the process of introducing the non-family executive into the family business can be facilitated by an intermediary with the neutrality, experience, and skills to assist the family-run enterprise as it assumes its new orbit of ascent. Such intermediaries, or facilitators, may serve as a catalyst until systems of governance emerge and become as familiar to the family as to the non-family executive; and, until the non-family executive learns that some of those familial energies can be embraced as a competitive advantage.

Having the foresight, courage, and fortitude to go outside of the family as a way of expanding the company’s circle of competence can be a worthy growth strategy. Adopting proper systems of governance will be essential to moving the family-run business from its informal entrepreneurial roots to greater levels of operational sophistication.

Achieving such a transition may serve as the basis for the business continuing to support the family for generations to come.

Author: George P. Bukuras, Esq., CPA – Guest Author

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