iQ MAGAZINE

Family businesses are the engine of the world's economy.

• Globally, 80% of businesses are family-owned, according to a 2004 study by the International Family Enterprise Research Academy.
• In the United States, they account for 62% of total employment and 78% of all new jobs, according to the Cox Family Enterprise Center at Kennesaw State University in Georgia.

Outside leadership of family businesses isn't a widespread trend, yet. Only 14% of family businesses had hired a CEO from outside the family, according to the 2002 American Family Business (AFB) Survey, still considered the most definitive study of U.S. family businesses.

Businesses that did hire from outside were pleased with the result: 71% of them rated their experience as either "extremely successful" or "very successful."

Filling Big Shoes

There are many reasons to bring outsiders into a family business, including:

• No single family member has all the skills and management aptitude to lead the company.
• When family members disagree about who should lead the company, an outsider may be a good compromise.
• If you have ambitions to grow the company to the next level, it may require someone with fresh ideas and different qualifications than a family member.
• If you're growing quickly, according to Ira Bryck, director of the UMass Family Business Center: "You need to look outside and see what talent is going to make you better, faster, and cheaper."

The AFB study found that 55% of family-business CEOs older than 60 who expected to retire in the next five years had not yet picked a successor. "Such lack of planning sets the stage for stressful transitions that may divert precious resources needed to run the business effectively," says Joe Astrachan, director of the Cox Family Enterprise Center.

Looking Outside

Hiring from the outside is a new frontier for many family-owned companies. Not only might the family lack experience in looking for and working with outside leadership, but executives might be reluctant to join a close-knit family operation. The following are some tips from experts:

• Conduct a professional search. Be as specific as you can in the job description, and include company cultural elements. "The big difference between a family business and a nonfamily business is that the cultural fit of the person is paramount," says Cynthia Scherr, principal of Scherr Management Consulting.
• Use the Internet to help define the job responsibilities, scope, and background required. Nick Parham, career coach and principal of Zitron Parham Career Services, recommends studying online job postings from similar companies. "You start to see that some challenges are universal," he says. "You also discover what's different about your business, so you can better describe what you need."
• Be honest about the connection between family and business. The family and the business are inextricable. "The one critical success factor, above all others, is that the outside CEO views the family as part of their job," says Astrachan. This includes management of emotions, expectations, and nonfinancial rewards.

Attracting Top Candidates

Family-owned companies may need to make changes to attract well-qualified candidates. Family businesses that are secretive may have to become more open. "Financial information, productivity metrics, and communication about where the company is going all have to be available," says Scherr.

Outsiders, says Bryck, often fear that family businesses are saddled with outdated, inefficient technology and personality-driven procedures: "The more a company can use technology to perform systematically, the more appealing the company is to capable new leaders."

When a Leader Is Made, Not Born

Parham advises family companies to approach a leadership transition with an open mind. "You'll have your traditions, processes, and thinking challenged," he says. "You may not be convinced that a new approach will work, but you should be open to testing it."

Specific, measurable goals can lessen the emotional component of evaluating a new leader's performance, Bryck notes.

Finally, clear, honest, two-way communication is the primary factor in making new leadership successful. Parham says, "An open dialogue can build a relationship with the candidate that causes them to say, 'I want to work with these people.'"

About the Author

iQ Magazine contributor Fred Sandsmark is among the 70% of children of family business owners who chose not to follow in their parents' footsteps.

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iQ Magazine, Third Quarter 2006