Governance

Four reasons to love non-family managers

Lego's non-family CEO, Jørgen Vig Knudstorp. 
Lego’s non-family CEO, Jørgen Vig Knudstorp. 

In many ways, the non-family manager in a family business can never compete with family members. An outsider will never have the same feel for a company as the son who went to the factory floor after church every Sunday, or the daughter who decided at the age of 10 that she wanted to one day take over from her parent.

But despite that, there are plenty of reasons that non-family managers are good for a family firm. Here are four:

1: They work harder than family CEOs

A study of 365 CEOs of family-owned Indian businesses by the World Management Survey found that founder and next-generation CEOs respectively worked 8 percent and 6.6 percent fewer hours than professional CEOs. Family CEOs were especially lax on the days of big cricket matches (and unlike their non-family peers, they didn’t make up the time). The researchers then studied 800 more businesses in Brazil, France, Germany, the United Kingdom and the United States and discovered that professional CEOs worked 11% more hours in Brazil, and 8% in the other countries. Are family members just more efficient? No. The firms of CEOs who clocked more hours had higher productivity and sales.

2: They can bind the family together

A paper recently published in the Harvard Business School Review by Josh Baron and Rob Lachenauer, partners at Banyan Family Business Advisers, said that “the non-family executives who survive the longest are those who know instinctively how to deflect credit from themselves to the family.” The value of a CEO who does this is clear. “Make a son look important in front of his father – a battle that child may have been waging all his life – and you will win the loyalty of that adult family member for life,” they write. Non-family CEOs are also perfectly placed to neutralise family disagreements by telling the members to “remember their family’s greatness”.

3: They manage better than family members

A study of nearly 9,000 middle-sized firms in 20 countries found that the best-run ones were those owned by dispersed shareholders. Next came private equity and, in third place, family firms with non-family CEOs. The research looked at productivity, profitability, sales growth and longevity, and found that firms where the founder or a family member was CEO were the worst-run, even below government-controlled ones. As the researchers pointed out, this could be because “sons who become CEOs usually have poorer college results and are much younger than other CEOs”. Share-prices decrease when an eldest son takes over a business.

4: They can improve HR procedures

Giving honest feedback to family members can be tricky, especially if the person you need to criticise could one day be your boss. Bringing in outside evaluations is the perfect way to deal with the problem – and also leads to the professionalisation of staff evaluations. Having outsiders deal with discipline can also help with situations like one Baron and Lachenauer mention in their article, where the son was making sexual comments to female staff. “In this case, the power of the non-family executive to put an end to the situation was very limited; it took an outside advisor to step in, expose, and stop the harassment,” they say. Making such procedures standard improves the HR function across the firm.

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