It’s a key question facing many family businesses as they wrestle with ownership and leadership: when do family members run family-owned companies best, and when should they have an outside executive run the business?

The seemingly difficult decision facing family business leaders is whether or not to keep leadership in the family, or to seek outside professionals to enter executive roles within the company.  The key concern here is whether or not family executive positions are awarded on merit or simply as a birthright.  The Financial Times writes: a business that limits senior roles to a single family risks fishing in a small pond, which may not create the breadth of talent required to master the complexities of a modern business. 

Alternatively, finding an outside professional requires seeking both a capable businessperson as well as someone who shares the family’s values and is comfortable working in a family environment. 

In their piece When is an Outsider Right for a Family Business, the Financial Times provides two different viewpoints from experts who work with family businesses.  The “Family Business Expert”, Peter Leach, advocates the need for a professional manager to run the business for a good reason.  Though this thought sounds simple in principle, it can often be difficult for family members to divide emotions towards their other family members from the logical and professional approach to running a business.

Leach advocates a robust process to verify the candidate is appropriate – the need for a more refined process derives from the delicate nature of dividing family and business.  Lastly, Leach cautions the family business to the fact that once a professional has run the business it can be hard for the family to take back control.  As a means of avoiding this concern, Leach suggests that any prospective candidates have full unanimous support of all key stakeholders.

Contrasting Leach’s point of view is Randle Carlock, an academic focusing on the psychological and professional dynamics inherent in family businesses.  Carlock advocates a simple and logical solution: Who is best qualified to lead and motivate an organization with a sound strategy and family culture?  Asking this question focusing the discussion in the direction of “what’s best for our family business” and thereby avoiding the entitlement complex that can ruin a family firm.

Carlock looks for three key characteristics in a potential CEO tasked with leading a family-owned firm: (1) proven experience in management; (2) a capable board of directors and their chemistry with the candidate; and (3) the buy-in of family owners.  By focusing on the individuals capability and merit as key characteristics, the family business selects the right person for the executive role – whether that person is a family member or not.

As a takeaway from both perspectives, when it comes to leadership – family businesses are just like other businesses.  Though there is an additional psychological/emotional element present by interlacing family and business, the way to achieve long term success is to focus on merit and a logical assessment of the candidates ability – family relationships aside.  Like much of the advice on this topic, this process is easier “said” than “done” – but to insure financial success for generations to come, family business owners must look at management candidates objectively, with the understanding that what’s best for the business is may be best for the family as well.

 

For further reading on this topic, please consult the Financial Times article at the link below:

http://www.ft.com/intl/cms/s/0/de6b8ff4-f607-11e1-bf76-00144feabdc0.html#axzz25iWHjAfF