Category Archives: Non-Family Employess

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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Help new executives avoid landmines…

Anne Hargrave
Anne Hargrave

When you start the process to hire an executive from the corporate world to work in your family business, be proactive in setting the stage for the person to be successful.  Explore cultural and job fit deeply, and reveal sacred cows early on.

Before starting the recruitment process, create a job description that clearly defines reality and highlights decision-making scope and areas of authority.  And, do the hard work of getting buy-in from all key family and non-family stakeholders.

Cultural fit is much more than a buzzword; it often exceeds the importance of skill level.  In order to use cultural fit as a screening mechanism, step back and have multiple people participate in a process to define the current culture, or the culture you desire, and then create a robust methodology for assessing cultural fit in candidates.

When you have found the right person, encourage them to stay within the scope of their area of responsibility and authority so they don’t loose focus and credibility.  Often people fail in their roles because they loose perspective on the nature of the relationship between the family and the business; setting the stage for accountability early on supports their ability to succeed. 

Any executive worth their salt is going to challenge the status quo – that’s what you want.  The sacred cows often found within a family businesses come as a surprise to a person from the corporate world.  By laying out the realities of projects or initiatives that are important to the family or the business, and are not up for discussion, there will be less chance of creating unnecessary waves.  Evaluating fit effectively and being transparent helps new executives avoid landmines.

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Building the Long-Term Orientation

by John L. Ward

In a previous blog I wrote of recent research by Professors Lupkin and Brigham that offered clues to what Long-Term Orientation (LTO) means and how to see it in key prospective hires. Their three ingredients to LTO are:

I have aspirations for others. (Futurity)
I have respect for the lessons of tradition. (Continuity)
I believe sacrifice is rewarded. (Perseverance)

I now go on with my interpretations of their counsel on how to foster the LTO.

They propose three ways to facilitate an organization to think long-term rather than take a decision that only maximizes short-term economic gains.

1.         Emphasize attractive, vivid, compelling, non-economic outcomes for the benefit of other stakeholders. (Framing)

– “Let’s look forward to celebrating our 100th anniversary in
2020.”
–  “Successful succession is the final test of greatness.”
–  “This decision will really make a difference for our
community.”

2.         Develop self-control – avoiding the natural emotional temptations of instant gratification. (Self-Control)

–  Establish accountability systems – boards, councils, frequent reporting.
–  Be public with commitments.

3.         Provide positive reinforcement on the journey to the long-term goal. (Anticipation)

–  “We’re doing something special” (rather than “Somehow this will all work out”).
–  “Let’s celebrate what we’ve accomplished so far!” (rather than highlight the unfortunate negative surprises).
–  “The journey is great for us” (rather than “we’re unresolved on some of the tactics”).

Human nature is to seek instant gratification and to avoid the anxiety of uncertainty. Maintaining the commitment to long-term aspirations, continuing the legacy, and “doing the right thing” requires conscious leadership attention. Otherwise the short-term will win out.

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Managing as if the Future Mattered: What to Look for in Non-Family Executives and Board Members

by John L. Ward

It’s generally believed that “the long-term view” is the most valuable and most emphasized competitive advantage of family firms. If so, it seems critical that board members and executives share that perspective – otherwise there could be a troublesome cultural misfit. But how does one see the long-term view trait when evaluating prospects?

A paper by two highly respected academics provides excellent clues (and deeper insight) into what “long-term orientation” really means.[1]

They propose there are three dimensions to “long-term orientation.” Thinking particularly of each of these provides ways to gain more insight on critical hires. Doing so also offers ideas on what to emphasize in employee orientation and training.

Futurity

“I’m excited about the future. By planning ahead we can achieve some things that are important to me. I have some socio-emotional goals (i.e., benefits for non-economic stakeholders, such as the community, employees, suppliers) that I believe it’s important to realize.”

Continuity

“I want to steward and pass on our proud legacy and reputation. I believe in pursuing an enduring mission. I have great respect for the past and see the past as a bridge to the future.

Perseverance

“Doing the ‘right thing’ today will make the future plans possible. Though it takes time, thrift, persistence, patience and hard work are redeeming values.”

In short, a definition of long-term orientation is

  • I have aspirations for others;
  • I have respect for the lessons of tradition;
  • I believe sacrifice is rewarded.

If so, it’s natural to embrace the long-term thinking that’s so fundamental to family business identity and success.

[1] Tom Lumpkin of Syracuse University and Keith Brigham of Texas Tech University (2011)

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The Princess and the Peon

JoAnne Norton

“You just don’t know how hard it is to work with the princess,” the frustrated executive began as she anxiously played with her pearls. “She comes into work late, if at all, leaves early, and doesn’t abide by the rules. I am beside myself because her father sees her as the future leader of the company. Those of us who have to work with her just see her as a spoiled brat, and if she is chosen as the next leader, we’ll all walk.”

Because the executive was a well-respected, long-standing non-family leader in the company, I asked her if she had ever tried to approach “the princess” to discuss the situation with her diplomatically. “Yes!” she cried, “but it completely backfired. When I finally broached the subject, she responded by placing her hand on her hip and asking me condescendingly: ‘Do you know whose name is on the front door?’ With that, I was dismissed and shown the way out of her palatial office. I felt as if I were a peon, that I was just an irritant to her majesty, and yet I truly want what is best for her, her family, and the employees.”

Being the child of a successful entrepreneur is both a blessing and a curse. On the one hand, there are many opportunities not afforded most. On the other hand entrepreneurs can frequently be absent from family life. Blinded by guilt for not having been there enough when their children were growing up, entrepreneurs are sometimes motivated to try to make up for lost time with their adult children. Some entrepreneurs try to do this by bringing their children into the business.  When they do this without providing needed guidance or limits, the risk to the company is serious as princes and princesses of privilege can quickly destroy a family business that took a generation to build.

Loyal non-family executives can be pivotal in solving the “Princess Problem” by identifying the issue and encouraging the family to seek outside help.  Of course, this only works if they are ‘heard’ by all sides.  Parental love and guilt are powerful forces that can blind an otherwise rational person to the hard reality of their offspring’s limited skills or destructive attitude.

Generally what makes entrepreneurs so successful is their hard work and self-discipline. Good family business coaches use those entrepreneurial strengths to design a program that will be effective for both generations. The present generation of leadership will need to be more disciplined in their approach to their children, and the children will need to be more disciplined in their approach to work.  This can represent a significant shift in how both have operated for a long time, but it is essential for the survival of the business.

Jim Rohn once wrote, “We must all suffer from one of two pains: the pain of discipline or the pain of regret. The difference is discipline weighs ounces while regret weighs tons.” Mature, well-meaning non-family leaders can make sure there are no regrets.

JoAnne Norton can be reached at norton@efamilybusiness.com or 714-273-9367.  Click here to read JoAnne’s biography.

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CFO Issues

We were recently with a forum of 10 non-family CFOs of large family businesses. When asked what are the “family business” issues most on their mind, they responded with the following (in no particular order):

  • Airplane use
  • Incentive compensation
  • Board effectiveness
  • Keeping family shareholders informed
  • Dividend levels
  • Assuring stock redemption funds
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NON-FAMILY EXECUTIVE FIT

Family business owners think a lot about how to determine the “fit” of a prospective non-family executive in a values-driven family company.  Some recommend visiting the candidate’s home; some suggest dinner with spouses.  Others find many interviews with both outside executive and with some family owners to be valuable.

A recently heard story comes to mind:

The evening after a first interview a family-owner is, unbeknownst, at the same theater as a candidate. Not yet having an opportunity to go greet the candidate, she observes him tipping the parking valet to get to the front of the line of those waiting.

Someone else was hired.

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Family Business Advisor March Issue

Craig Aronoff

The three questions that JoAnne Norton asks in this month’s Family Business Advisor brings to mind three questions that I often ask next generation principals of family business clients.  As they struggle with questions of mission and strategy for their businesses in the course of generational transitions, I ask three questions:  “What do you want to do?”   “What do your current customers want you to do?”  And “What will the market allow you to do?”  Thinking through those three questions, especially in terms of determining where they intersect, can open a door through which to view potential futures.  

Craig Aronoff

To read the March issue of the Family Business Advisor click here.

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A New Year’s Resolution For Your Family Business

JoAnne Norton
JoAnne Norton

Happy New Year!

About half of us will make New Year’s resolutions this year, and they will be related to diet and exercise—activities that make us healthier and will help us live longer. Consider that good succession planning for our family business does the same thing: keeps the family business healthier and alive much longer than if we don’t have one.

Recently a non-family executive of a flourishing family business that has been around for many generations posed this hypothetical question to me: “Wouldn’t it be great if both the older and the younger generations made it their New Year’s resolutions to do succession planning and to communicate what their plans are to each other as well as to those of us who work with them?” It was a novel approach—both generations working on their own plans before coming to the table to work on a succession plan together. What I really liked was the idea that both generations would be planning for the future, devising strategies for keeping the business alive and the family involved for another generation regardless of how the discussion starts. Of course I agreed it would be a wonderful resolution.

You could argue that if you wanted to start to do something you could do it at any time, not an arbitrary time like the first of the year. And yet as human beings, there seem to be things we are hardwired to do. We clear things out at the end of the year and start new things at the beginning of a new year. Why not use this natural rhythm, this excuse of the New Year if you will, to start doing what you know you need to do?

Have you and your family been talking about creating a succession plan, but you just don’t get around to it? Perhaps you’ve been discussing meeting for the purpose of ensuring that your family business lasts well into the next generation for years, but you haven’t even set up the first meeting. Having no plan for the future becomes the elephant in the room, the problem everyone is aware of but no one wants to talk about. Statesman John Foster Dulles once said: “The measure of success is not whether you have a tough problem to deal with, but whether it is the same problem you had last year.” Is talking about the future of your family business the same problem you had last year?

If you haven’t begun serious conversations about plans for the next ten years as well as your wishes for the future of your family business, use the beginning of this new year as a good reason to set up a meeting with your family members soon. After all, you do not want to have the same problem again next year.

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Key Questions for Non-family Managers

by Chris Eckrich & Steve McClure

Chris Eckrich
Chris Eckrich
Steve McClure
Steve McClure

A key non family executive once shared that he could help the owning family make a lot of money or grow their business if they would just tell him what they wanted him to do for them.  Conversely, we at times hear from thoughtful family business owners that they very much appreciate their non family leaders, and need their help to achieve company goals.  Ironically, it is not uncommon to hear both of these sentiments shared by owners and non family leaders from the same business.

Business owning families can help by exploring several key questions with their most cherished non family managers, such as:

1.     What do our key non family leaders believe are the family’s goals and objectives?

2.     What can non family management do to help our family achieve excellence as family business owners?

3.     How will we let our key non family leaders know that we appreciate their efforts and commitment?

4.     Are key non family leaders able to accurately report how they are appreciated by the family?

While some of us have clear answers to the above, the inability to answer these offers an opportunity for ownership to gain clarity and implement plans to communicate and gain alignment with key personnel.

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