There are many reasons why family business succession is difficult, but one of the most common problems involves the lack of a qualified successor. Often next-generation family members are not prepared for the job or are simply not interested, so the business must seek candidates outside of the family. These outside executives must not only be experienced but also share the family’s values and fit in with the family business culture.
Before a family begins to recruit an outside successor, they must analyze their business situation. Family members must examine their own roles within the company so they can determine what the new reporting structure will be, as well as the responsibilities of the person they bring on board. For example, if family members decide to stay active on the board of directors, the non-family CEO candidate must understand how the relationship will work in terms of management structure, autonomy and decision-making power. Often, matters such as this have not been solidified by the time a company engages a search firm.
The family should also identify any problems within the business that they are looking to solve and have a clear picture of the company’s growth potential, goals and business prospects for the next several years. This will facilitate the CEO search because it will help them to determine whether a candidate’s experience and abilities are a good match for their business.
The candidate’s perspective
While identifying what the family business needs from outside CEO candidates is important, it is also imperative for business owners to look at the job from the candidate’s perspective so they will be able to communicate the benefits and opportunities the company has to offer. Traditionally, the biggest concern among candidates for employment in a family business is that there will be a permanent glass ceiling. For professionals at all levels, it’s important to clearly define the position’s role and provide a realistic description of growth opportunities.
In many cases, C-level candidates will be considering a couple of employment options. Because positions at family businesses often demand a longer-term commitment with less equity (or none at all), other incentives are necessary. A competitive salary must be offered. Family business owners should also be aware that phantom incentive programs appeal to candidates’ entrepreneurial instincts and will help instill a sense of personal investment in company’s future success.
Another concern that candidates frequently express about family businesses is that emotions can run high, at times hampering the ability to make tough decisions. A potential successor must be aware of sensitive family issues, but he or she must have the skills to communicate the pros and cons of various options to the family members so that the decisions ultimately made are the best ones for the health of the company.
Fortunately, for many candidates the benefits of working for a family business outweigh the concerns. One key incentive is the tight-knit culture. Many executives are tired of bureaucratic environments in larger or publicly traded companies and are seeking the camaraderie a family business affords.
In addition, family businesses customarily provide a strong sense of security and stability. Smaller companies often have a longer-term strategic vision for growth, which can be appealing to some candidates. Public companies, pressured by shareholders and Wall Street, focus on short-term and quarterly targets; privately held family businesses generally have longer-term goals. Without as much public scrutiny given to the company’s earnings and financial practices, family business executives rarely are pressured to make snap decisions about layoffs, buyouts, mergers and acquisitions.
In family companies, the entrepreneurial environment can provide a welcome change for talented executives of all ages. The flexibility affords younger workers the opportunity to explore different areas and try new things, ultimately aiding in career development. For more seasoned professionals, the same environment can provide the creative freedom needed to expand on their skills and ideas, while also allowing them to learn new tricks.
Finding qualified candidates
Where do recruiters find C-level family business candidates? In a lot of the same places they find professionals for non-family companies. Most of the time, the best candidates come from other private companies. Qualified candidates may also come from private-equity-owned businesses. Those from the private equity arena are most likely great at problem solving and turnaround management, but these candidates often require a big incentive to make a long-term commitment. Fewer strong candidates tend to come from public companies, because the environment in these firms generally does not foster the level of risk taking, passion and innovation often desired by a family business.
Candidates usually want to meet individually with each family member they will be working with. This gives family members a chance to screen the candidate and allows the applicant to learn each person’s values, goals and perspective.
Candidates should be aware that in a family-owned company, the family values reign supreme and provide the foundation for the company policies and management decisions. If the company and the candidate do not share the same beliefs, the pairing will not be productive. For that reason, candidates vying for a top spot should be prepared to undergo a psychometric test. These tools are used primarily by large public companies but are being embraced by more family businesses seeking the perfect match. There are many types of assessments, designed to provide insight on a candidate’s personality traits, operating style and performance drivers. When used in combination, these tools can uncover much more information than can be gleaned from a résumé, including insights into future performance. The tests offer a benefit for candidates, as well: the opportunity to build awareness of their own motivations, goals and core values. Such assessments can help uncover hidden drivers of success.
The most important thing to remember is that a good match between applicant and employer is never solely a matter of the candidate’s skills. The right applicant shares the business owners’ ethics and values and understands how these principles influence the company’s business plan and outlook.
Jo Bennett is a partner with Battalia Winston International, a leading executive search firm based in New York. Dale Winston is the chairwoman and chief executive officer of Battalia Winston (www.battaliawinston.com).