Examining non-family leadership of family businesses

March 22, 2010
| By Paul Mudde |
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For the first time in its 212-year history, the Rothschild banking dynasty has appointed a non-family member as chief executive. Although unusual for the Rothschild’s family business, non-family leadership is not uncommon within family owned companies. Recently, the Family Business Alliance hosted an event focused on this topic.

The FBA panel included non-family leaders of West Michigan family-owned businesses: Franco Bianchi, CEO of Haworth, and Robert Bockheim, president of Nucraft. It also included Jim Zawacki Jr., son of Jim Zawacki Sr., CEO and owner of Grand Rapids Spring and Stamping. Zawacki represented the family perspective, particularly that of “next generation” leadership within a family business reporting to a non-family president. The discussion was facilitated by Roger Jansen, CEO of Thinkwise and family business advisor, and focused on benefits and challenges associated with non-family leaders in family businesses.

This article will discuss issues related to non-family leadership in family-owned companies. Most previous writing on this topic provides advice to companies about recruiting the “right” leader and issues related to compensation. Very little has been written about the experience of non-family leaders within family businesses and their role in managing the company and reporting to the family owners.

When and why should a family business consider recruiting a non-family leader? The most basic answer to this question is when an existing family is ready to pass the active management of the company to the next generation but the next generation is not willing or ready for the added responsibility. Other reasons include adding new talent with experience in managing larger companies to guide the company through new challenges, such as growth, product diversification, or international expansion.

What are some of the unique challenges in leading a family business? According to Bob Bockheim and Franco Bianchi, a number of issues make leading family businesses challenging and rewarding.

First, the weight of responsibility of leading a company with a multi-generational history and the family’s name on the business is heavy. But it’s also a unique honor to receive the level of trust associated with leading a family-owned company.

Second, family businesses have added layers of complexity in decision making, involving emotional issues or family dynamics. Non-family leaders need to be attentive when business decisions intersect with family values or history. For example, difficult business decisions such as plant closings may impact a plant with a unique position in company history. The original plant where the company was started may be too small and less efficient than newer plants, which may have sufficient capacity to absorb the production of the closed plant without additional investment. The economic motives must be considered along with the emotional issues to determine the right decision. Related to this issue, an important part of leading a family business is working to keep family goals and business goals in alignment.

Third, non-family leaders often must interact with multiple generations of family, reporting to the owner generation while being the boss and mentor to the next generation. For example, Jim Zawacki Jr. reports to Merle Emery, president of Grand Rapids Spring and Stamping, while Merle reports to Jim Sr.

Identified as role ambiguity, the non-family manager can be perceived as both mentor and rival by the next-generation family leaders. Formal job descriptions with clearly defined responsibilities, written performance review processes and written personal development plans can help avoid misunderstandings in these types of relationships.

What is the role of the non-family leader in keeping business goals aligned with family goals and values? In small, less complex businesses with a simple family structure, non-family CEOs can maintain alignment informally using frequent communication and involving family leadership in strategic planning and decision making. In more complex businesses with extended family ownership, more formal structures and processes are needed to align family and business goals.

Family goals should be discussed within a family council, which clarify family priorities and values. The non-family leader should have a single point of contact in getting input on critical decisions or direction on strategy from the family. This keeps the non-family manager focused on business issues rather than getting embroiled in family dynamics. The non-family CEO should report and be accountable to a board of directors, which focuses on setting strategy for the business. This allows the non-family CEO to focus attention and energy on the challenges of managing the family business, the reason they were hired in the first place.

Family goals and values should be documented in a family charter. This document provides guidance to the board and senior management team of the family business during the annual strategic planning process.

With trust being essential to leading a family business, how is trust built and maintained in the relationship between family owners and non-family leaders? Each of the family businesses represented in the panel — Haworth, Nucraft, and Grand Rapids Spring and Stamping — had a long-term relationship with the individuals who became non-family leaders. They respected and trusted their non-family leader based on years of experience working together. Non-family CEOs need to bring the same level of dedication and passion to the business as family leaders, but they also need to know their role. Trust is built and maintained by understanding what types of decisions require input from family leadership.

It’s also important for family leadership to respect the authority that they have vested in their non-family CEO. This means not allowing managers to bypass the chain of command and get direction from family leaders, even if they had previously worked directly with the family leader who turned responsibility over to the non-family CEO. By respecting the delegated authority of the non-family CEO to manage the family business and signaling this trust to employees and managers, family leaders create the conditions for non-family leaders to succeed.

The bottom line is that trust needs to flow in both directions and be mutually reinforced by good chemistry between family and non-family leadership. In the words of Franco Bianchi, CEO of Haworth, if the chemistry breaks down, it’s time for the non-family manager to move on.

Paul Mudde is professor of strategic management at the Grand Valley State University Seidman College of Business and director of the Family Owned Business Institute (http://www.gvsu.edu/fobi). The Family Business Alliance hosts workshops and forums on a range of family business issues. More information can be found at www.fbagr.org

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