• Non-family executives and the role of professional managers

The ever-increasing competitive demands of the business environment and divergent interests of next generation family members often result in family businesses turning to non-family executives to fill key leadership roles, such as that of the Chief Executive Officer and other strategic positions.

As the family business grows and the senior generation matures, it is unlikely that all the knowledge, experience and operational control will reside in one or two family members. Outside non-family employees are needed to fill the inevitable gaps that exist in the family skills and resource base to successfully organise, direct and control the business operations. The founder may, for example, be a good marketer and seller, but as the business grows a full time general manager is required to manage the production and distribution processes of the business. It is usually in the growth stages of the owner-manager phase that the gaps are identified, and ‘outsiders’ are appointed to key positions.

Families are discovering their roles as owners as being important to the success and legacy of their business, embracing the concept of ‘family-owned’ and ‘professionally-managed’ to enhance the success of both the family and the business. Clearly, attracting and retaining key non-family executives is a huge challenge that must receive priority.

One characteristic that is absolutely vital to the success of a family business is that the non-family executive understands and share the values of the family and be committed to the family and family business vision. Successful non-family executives need to be attentive to family dynamics, divisions and problems, striving to be consensus builders with the ability to maintain, preserve and strengthen family unity.

One of the concerns of non-family executives is the question of continuity of the family business after the existing family leaders exit and the next generation take over. It is important that the family communicate openly and share information with them, particularly in relation to their goals and objectives – for example growth, return on investment and risk profile.

There is often tension between the family and the non-family executive with regards to compensation in family businesses, particularly in relation to equity for the non-family executive – the family often wants to keep absolute ownership control in the family. Non-family executives can feel they have lost opportunities in regards to career advancement and compensation because of family ownership considerations.

The non-family executive should realise that certain opportunities may not be available due to the nature of family business. Nevertheless, they should receive market related remuneration which includes compensation for the lack of equity opportunities.

Owners of family controlled companies need to understand and accept the critical role of professional management, and undertake not, for any reason, to place unreasonable pressure on management for dividends, jobs or benefits inconsistent with the business’ objectives.

For more information about how a Family Advisory Board could help your business, read about our Family Office Services or contact Kim Batcheldor below.