New to the family?
Family businesses account for thirty percent of jobs in the Netherlands, and more and more people are considering a career move towards family business. Their inspiring histories, strong corporate cultures, and (often) smaller scale are among the reasons that many candidates are seeking out managerial and executive roles at family firms.
Whether an externally recruited manager or director succeeds within a family firm, however, no sure thing. Family businesses are a major part of our practice at Career Openers, so I this blog we bring together our experience with the latest research to share some insights into where your focus should be if you want to succeed as an outsider in a family business.
What is a family business?
The Central Bureau for Statistics (CBS) defines family businesses as “businesses in which one family has majority control and is formally involved in the management.” But what difference does this make in practice? Are family businesses really unique? Management researchers have an answer: At the heart of decision-making in family businesses is socio-economic wealth. Socio-economic wealth is an important concept in the family business literature that brings together the financial concerns of any business, with non-financial aspects that give the family social and emotional satisfaction.
Decisions in Family Businesses
The importance of socio-economic wealth for family businesses means that decisions get made differently. They need to balance commercial and financial motivations with the social motivations of the family. Social considerations might include, the role of the family in their local community. In this regard, it is interesting to realize that most family businesses in the Netherlands are located outside the major cities.
The idea that the family are just another stakeholder understates the reality. In family businesses, family members “are” the company. When you are talking about the company, you are also talking about the family and vice versa. That being the case, you will find it is often not the traditional management wisdom of distinguishing the substantive from the personal.
A Game Played Differently
Relationships in family businesses often look more like relationships with in families than relationships in a corporate environment. They centre on many of the same issues as personal relationships, with all the pros and cons that might suggest. In comparison with other companies characteristics such as loyalty, trust, and selflessness play a more prominent role.
Embracing these family norms and values is intrinsic to a family business, and can be part of what creates trust in the company. Use this to your advantage! The different norms and relationship characteristics can reduce the need for formal frequent measurement and steering of performance.
The downside to the relationships in family businesses is that they can also cultivate free-riding and perpetuate a lack of key management competencies. This problem has been studied in depth by economists Nicolas Bloom (Stanford) and John van Reenen (LSE). They did research into the quality of management and discovered that relatively many family businesses are ‘badly managed’ and that the cause of this lies mainly in ‘primogeniture’, i.e. always appointing the eldest son as the next CEO. Another important theme in the research on poor management in family businesses is ‘daughter exclusion’ – structurally rejecting female family members as candidates for leadership roles.
Alongside the challenges and opportunities of the informal relationships, there are also formal relationships to consider. Family businesses often have overlaps between family, shareholder, and management roles, which can have a significant impact. Because owners can also be managers, for example, these businesses require fewer processes and systems of control.
This can provide a freedom that other businesses lack. However, the combination of formal and informal relationships can lead to conflicts of interest within the family, or between family and non-family members. For leaders, it is important to have a good understanding of both the formal structures and the social and emotional relationships.
Business across Generations
According to the most recent CBS figures, twelve percent of family businesses in the Netherlands have more than one generation of the family on the board. In these companies, developing “intergenerational leadership” can allow leaders to draw strength from these different generations. Research shows that knowledge sharing within family businesses is largely a result of the quality of relationships between family members.
Family business executives should consider how different generations of the family interact with each other, and how involved the incoming generation are with the incumbent generation. Emotional harmony and positive individual relationships are a striking examples of socioeconomic wealth.
Selecting Leaders for Family Business
We advise family businesses to select external leaders based on the following characteristics. For candidate looking to make the move into a family business, we also recommend trying to develop these skills.
- Understand of the company’s (and family’s) core values
- Act as a trusted advisor for family members
- Show social and emotional intelligence
- Apply a hands-on mentality, be decisive – don’t delegate everything
- Cultivate self-knowledge, self-reliance, and adaptability
- Be willing to steer a course between the social and commercial concerns that come with a family business
We’ve sketched plenty of skills you will need and challenges you will face if you want to succeed as a family business executive. For those who recognize themselves in these criteria, moving to a family business could be a wonderful step to develop their leadership skills. Moreover, that kind of career move can also provide opportunities for personal development. Helping the family behind one of these businesses to build their social-economic wealth might even provide the stimulus you need to think more about your own.