New to the family?
In the Netherlands, family businesses account for thirty percent of jobs, and more and more people are considering a career move towards a family business. The inspiring history, the strong corporate culture, and the fact that they are often somewhat smaller companies are among the reasons that management and director roles are sought after within family businesses. However, the success of externally recruited managers and directors within family firms is certainly not a given. We reviewed the literature on this topic and draw on our own experience. Based on that, we share success factors to focus on in the selection.
A different game
Family businesses are “businesses in which one family has a majority of control and is formally involved in management” (CBS, 2020). What is really unique about family businesses? Management researchers have an answer to this: at the heart of decision-making is often the principle of socio-economic wealth. Socio-economic wealth is an important concept in the family business literature that stands for the non-financial aspects of the business that give the family emotional and social satisfaction. Decisions in family businesses are thus not made based on primarily economic motives, but also on social and emotional motives. Social motives might include, for example, the local role of the family business. In this regard, it is interesting to realize that the majority of family businesses in the Netherlands are concentrated outside the major cities. The proposition that the family is an important part and stakeholder of a family business does not do justice to the reality. In family businesses, family members “are” the business. That is, when one talks about the company, one talks about the family and vice versa. So the traditional management wisdom of distinguishing the substantive from the personal does not apply here.
The game is played differently
Relationships in family businesses often revolve around the same issues as relationships in families and therefore also the pros and cons. In comparison with other companies, for example, aspects such as loyalty, trust and selflessness play a central role. The intrinsic embracing of family norms and values creates trust in the company. Fine, this reduces the need for formal frequent measurement and steering of performance. The downside, however, is that it can also cultivate free riding and hiding behaviors and perpetuate the lack of key management competencies. With respect to the latter, the research of leading economists Bloom and van Reenen is relevant. 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. appointing the eldest son to the CEO succession. Also ‘daughter exclusion’ – structurally rejecting daughters as candidates for succession – is an important theme in research in this area.
In addition to informal relationships, formal relationships through structure overlap between family, shareholder, and management also have an important impact. Among other things, because owners can also be managers, there is much less need for processes and systems of control. This can be nice because it gives freedom. However, other issues may arise such as conflicts of interest between members of the family, or between family members and non-family members. For leaders, it is therefore important to have a good understanding of social relations and emotions. Twelve percent of family businesses in the Netherlands have more than one generation of the family on the board (according to the most recent CBS figures). Especially in these companies, connecting leadership and “intergenerational leadership” to draw the strength from these different generations is of great importance. Research shows that knowledge sharing within family businesses is largely a result of the quality of relationships between family members. In particular, think about how different generations of the family interact with each other, and how involved the new generation shows towards the incumbent generation. Emotional harmony and positive individual and generational family relationships are a striking example of socioeconomic wealth.