Tag Archives: CEO

The Benefits of Women Leaders in Family Firms

David Ransburg
David Ransburg

Recently, the “Management Science” journal published a research paper about the impact of female leadership on the performance of family firms. Specifically, this article — “Gender Interactions Within the Family Firm” by Amore, Garofalo, and Minichilli – examined (1) the impact of replacing a male CEO with a female CEO and (2) the impact of increasing the percentage of female directors on a company’s Board.

According to the authors, replacing a male CEO with a female CEO slightly improves a family firm’s performance, and this slight improvement is magnified when the proportion of females on a company’s Board increases as well. They caution, though, that this magnification is less pronounced when (1) the firm is larger in size and (2) when the firm is located in geographic areas characterized by gender prejudices.

The authors suggest that the significant positive impact comes from the interaction between multiple females in prominent leadership positions of the same firm.

So, for those family businesses that are smaller in size and located in geographic areas that are free of gender prejudices, keep this in mind the next time you are making a change of CEO: a female candidate might lead your company to better performance than would a male…. especially if that female CEO is supported with some female Board members.

What do you think about this research? Is it consistent with your own personal experiences?

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Slothful, Indeed

David Ransburg
David Ransburg

The December 18, 2013 blog post on Freakonomics discusses recent research on family firms and draws the conclusion that non-family CEOs drive better performance for their companies for the simple reason that they work more hours than do family CEOs. Strikingly, the term they use to describe these family CEOs is “sloth.” While you’ll find no bigger fan of Freakonomics than me, their use of this term misses the mark by a wide margin.

My quarrel is not with the underlying research – it does come from Harvard, after all – but instead with the simplistic conclusion drawn from this academic paper. While the number of hours worked by a CEO may be one useful indicator of a CEO’s effectiveness, there is much more to consider when evaluating their performance. For starters, the old adage about “working smarter rather than harder” comes to mind. It is too often the case that activity is mistaken for productivity… and that seems to be part of the problem here.

I would also like to point out an often-overlooked element when considering the performance of any CEO, whether a family member or not: Do they understand the culture of the business. Culture is key. Perhaps the greatest authority on management practices, Peter Drucker, once said, “Culture eats strategy for breakfast.”

And, when it comes to a family business’s culture, who will understand it better, a family member who has grown up from childhood within that very culture, living it every single day… or a non-family CEO who has joined the family business from the outside?

Clearly, even a family member who “gets” the culture must also possess strong management skills… but, to look at two candidates for the CEO position – one who is a member of the family, and one who is not – and to assume that the non-family candidate is superior just because they might log more hours at the office would be not only simplistic and short-sighted, but it would also be potentially damaging to the family business long term. This is what the authors of the Freakonomics blog would seemingly have us believe, and there’s a term for that kind of thinking: sloth.

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Information and Communication: The Challenge of Data Overload

Drew Mendoza
Drew Mendoza

A keynote speaker I heard twenty years ago, who promoted himself as a ‘futurist’, made the point: “don’t worry about the trash, we’ll find a way to deal with all the trash as better recycling technologies arise.  The thing you’ve got to worry about is the data.  We’re all going to be drowning in information.” 

Turns out he was spot-on.

In enterprising families, attention to information flow seems to be on the rise.  So too are family meetings, family councils and boards of directors are becoming more disciplined and more thoughtfully and strategically comprised.  *

The challenge for leaders of families and family firms is building the processes by which family members are educated and enlightened so that they can understand the data they’re receiving and apply it to metrics which indicate the degree to which the family and its enterprise(s) are reaching its goals.  Doing so results in more fully aligned shareholder groups and, as any CEO with multiple family shareholders will tell you, an aligned shareholder group makes the CEO’s job much easier.  In my experience, these are the same families that are more likely to achieve their business goals.

We’d love to hear from you – what steps are you taking to keep family shareholders both aligned and informed?

*For a great read on family enterprise boards read Building A Successful Family Business Board: A Guide for Leaders, Directors and Families

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Merry “Charisma Wrist”???

David Ransburg

During the winter holidays, I heard a young child mispronounce “Christmas” as “Charisma Wrist,” so I now have charisma on my mind. As one who’s been fortunate to work with many effective leaders of family businesses, I’ve been thinking more specifically about charisma and whether or not it’s important for leaders.

At least in Western culture, there is an archetype of leadership where charisma is one of the first qualities that come to mind. Think George Patton, John F. Kennedy, or Martin Luther King, Jr. In business terms, leaders like Lee Iacocca, Jack Welch, or Steve Jobs fit the bill. These leaders were all forceful, dynamic, charming, and magnetic. In a word: charismatic.

Recent business thinking has turned that thinking on its head… or, at least it’s begun to. Most widely known is Jim Collins’ concept of a “Level 5 Leader” from his book, Good to Great. Briefly, Mr. Collins’ extensive research into those few companies that demonstrated years of above-average performance after years of below-average results showed that these companies’ “Level 5 Leaders” were described with words such as humble, timid, modest, and shy. In other words, un-charismatic.

Even more compelling evidence in support of the “un-charismatic” leader, in my mind, is research conducted in 2004 by Tosi, et. al. They studied Fortune 500 companies and found that CEO charisma did not predict company performance. The one thing that was influenced by CEO charisma? CEO pay.

Merry “Charisma Wrist,” indeed (at least if you’re a charismatic CEO!).

What are the key traits that you see in the leaders of family businesses?

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The Pygmalion Effect on Responsible Management

Otis Baskin

 

As Henry Higgins expectations of Liza Doolittle transformed her image of herself, our expectations of those in top management positions may explain their behavior.  

The ongoing revelations about the failures of chief executives to manage the companies they serve in the best interests of shareholders and society has caused many to pronounce greed as the driving force of business itself.  Yet, those of us who work closely with family businesses see a different picture.  We see executives, both family and non-family, who are loyal to the organization, its mission, the communities in which they operate, their employees and the owners.  Great leaders whose concern for others is demonstrated in everything they do.   

Of course, it is overgeneralization to say that all family business CEOs are somehow better and nobler than their public company counterparts.  There are truly excellent managers in all types of companies regardless of industry, size, or ownership structure.  But it has been my observation that family companies are better at spawning these “servant leaders”.  

One explanation may lie in the expectations that are communicated to executives when they accept positions and as they work their way into roles of greater responsibility.  As modern organization theory developed the problem of agency theory emerged as a chief tenent taught in every business school and economics course.  Agency theory depicts top managers in the modern corporation as “agents” whose interests may be different from those of shareholders because both are attempting to maximize their own personal gain.   

If executives understand their role as maximizing their own personal gain it is no surprise when they take unreasonable risks with the capital of shareholders to increase the potential of their own bonus plans.  Therefore, complex compensation schemes and onerous accountability mechanisms have been devised to assure that executives manage with the interests of their shareholders in mind.  However, these mechanisms only serve to highlight the underlying theme that “agents” are not expected serve the interests of shareholders.  Thus, the more “protections” we put in place the more we may be contributing to the cause of the problem.  

Why the difference in family business?  I propose that, at least one reason is the generally accepted concept of stewardship.  In successful family businesses executives assume their roles as heirs of a great tradition and understand that their primary responsibility is continuity.  The same is true for good owners of family businesses.  They understand that this is not “my business” but rather ours to nurture, grow, and deliver to another generation.  The expectations communicated in a successful family business are shared values and a common future that serve to align the interests of executives and owners.

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Encouragement for Board Chair’s and CEO’s

Craig Aronoff

The Chairmen’s Forum, a group of experienced chairman from major corporations, has stepped up its effort to encourage the separation of the roles of board chair and CEO.  The group endorses the appointment of  independent chairmen .  Companies in the S&P 500 which divide the roles have almost doubled in the past five years.  While the practices of public companies do not necessarily provide models to family businesses, in this instance we agree with William E. McCracken, head of the Chairman’s Forum, that “boards function much more effectively” with responsibilities split between the chair, who manages the board, and the CEO, who manages the company.

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What it takes to be the company’s next leader – Part 2 of 3

Drew Mendoza

Ascending to the CEO role of a family enterprise is not usually a walk in the park.  However, leadership has its benefits and, I have yet to meet a successful second or later generation leader of any family enterprise who, after totaling up all the battle wounds and joys of the job, didn’t look back on it as having been a worthwhile career decision.  Of course the key word here is successful.

These successful leaders tend to have had a common experience:  their rise to the CEO role was well thought out, well executed and a planned event.  In addition, these successful successors tend to be passionate about wanting to lead, and conduct themselves in honorable ways that built trust among the other family shareholders and company stakeholders.

And these future leaders benefited from the presence of an appropriate governance body that played a critical role overseeing full transition of executive responsibility from one generation’s CEO to the next.

The ‘alternate reality’ we see in cases where there is no appropriate governance body is that the transfer of responsibility and authority seems to often stall, stumble or worse.  Stresses from these mishaps ooze out into the family and, well, things can become pretty messy.

What have you seen?  How often does the big-dog gracefully relinquish the CEO role without placing oversight of the process in the hands of an appropriate board of directors?

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The Value of Business Books?

Stephanie Brun de Pontet
Stephanie Brun de Pontet

A recent piece by Dave Logan in “Tribal Leadership” made a compelling argument about why most business books are ‘bad for you’ – and while I am not sure that many are actually dangerous, I do agree with his premise that most offer painfully simple advice OR read like stories about ‘hero-figures’ that can mislead the reader into thinking that an individual’s personality is what leads to business success.  To quote Logan:

“Most business books use stories to cover over their complete lack of insight. This week, I read a galley of a book that I hope will never come out.  After some catchy anecdotes about hero CEOs, it advised, among other things, that leaders figure out what’s really important, then do those things. It went way out on a limb by saying that great leaders are remarkable at forming relationships.  And (are you sitting down?) the best leaders are honest when a strategy isn’t working.

Are you kidding me? How about we add that true leaders can dress themselves, use full sentences, and bathe before work.

Business success isn’t a checklist, and that’s the implied message from many business books: do these things and you’ll be the hero. Business success is a dance: with the market, employees, investors, customers, landlords, and creditors — not to mention spouses and kids.

Business leaders need a reboot on the ideas that make organizations run. Is your time best spent reading business books, or talking with people with radically different ideas? Put down the business book and go interact with ideas that challenge you, frighten you, or piss you off.”

He then went on to suggest some useful non-business books that aspiring leaders should actually invest time in reading, such as the Odyssey and Atlas Shrugged.  While these are certainly classics that are thought-provoking, I would add Stewardship by Peter Block, Flowby Csikszentmihalyi, and Predictably Irrationalby Dan Ariely to a recommended reading list for thoughtful business leaders.  Would love to hear about other books that have pushed your thinking and excited your imagination.

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CEO parents are usually NOT best suited for making the tough call.

Drew Mendoza
Drew Mendoza

Family firm CEO founders often make really bad decisions when given the opportunity to select their successor.  They’re terrific at running the company, unequaled in closing deals and driving a hard bargain but ask them to name their successor and watch them lose their ability for human reason and corporate leadership.  “After much thought, (I decree that) my successor will be insert-first-name-here

“Much though” is often the son, daughter, niece or nephew s/he thinks will upset as few people as possible or the one with the longest tenure.   No matter – the real kicker is this:  selection of successor CEOs, by all rights, belongs in the sandbox of the Board of Directors.  If the board consists of family and inside managers only, it’s a safe bet they’ll do whatever it is the senior leader – usually parent to many – decides.  No open debate among qualified, experienced business people.  No obvious linkage between next generation shareholder vision, corporate strategic objectives and successor skill sets.  Simply the decree.

Then estate plans are drawn up, control willed to the successor at the death of the second parent to die (if a first to second generation transfer) and, “by golly – I sure handled that well.  No arguments among the kids and no room for arguments later on because control is in the hand of the anointed one”  the founder assures himself.

Nothing could be farther, father, from the truth!  Instead, what may likely happen is the siblings or cousins not given any control will find ways to express their wishes.  They will argue during holiday dinners on matters of compensation and reward.  They will try to gang up on the new CEO.  They may even punish you and your spouse during the waning years of your life by withholding visitation with grandchildren. 

Estate plans and bifurcated stock do not equal family harmony.  Family and shareholder harmony in family enterprise is achieved through robust governance, perceived procedural justice and healthy debate with unbiased input from serious-minded, experienced business people with no stake in the outcome.

And – here’s another reason to abdicate the decision to a more impartial process and jury.  Life is hard enough.  You’ve built a terrific enterprise,  the source of employment and financial security to all those families.  You’ve bested the competition in tough times.  You have earned the right to dodge this bullet and avoid being the source of future family discord.   Over the long haul – you’ll stand a much better chance of being remembered as a great leader and terrific parent.

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