The idea of a family business, of course, is that a family should be running the business. But how can a business succeed with that approach? Can the goal of running an effective, innovative, professional organisation ever be compatible with an obligation to hire any niece or nephew who needs a job? Popular culture loves stories of family business relationships going awry, whether that’s the Roy family’s multi-billion media empire in Succession or the Kim family’s grocery store in Kim’s Convenience.
It might come as a surprise, but recent research suggests family participation can have positive effects on businesses, in ways that seem to hold up internationally. One study of family businesses in Germany found that consumers are more willing to trust brands when they believe family are involved in the management. Meanwhile, research on both Chinese and American family firms suggests that family norms like loyalty, cooperation, and intergenerational continuity can lead to higher productivity by managers selected from within the family.
In one of our recent posts, we discussed the skills that executives need in order to transfer successfully from a corporate environment to a family business. Over the coming months, we will be posting a series of blogs looking at evidence based solutions to some of the critical problems of family business management. We’ll start with the question of resilience.
Changing Markets and Technologies
As a family business grows, acquiring hundreds of employees, operations in new regions and countries, and revenues in the tens or hundreds of millions, it is no longer realistic to keep everything within the family. Hiring executives from outside is necessary. But there’s a lot of scope to shape how that happens. It can be a moment for the family to step aside, but it can also be a way to strengthen family members’ skills by letting them develop elsewhere. Research insights from Herbert Kormann and Birgit Suberg’s book Topics in Family Business Governance offer some insights into how you might approach these challenges.
The most common reason for a family business to fail, according to Kormann and Suberg’s research, is that it shows “inflexibility in the adjustment to changing markets and technologies.” These situations arise when family members have little experience elsewhere, and miss out on key trends in industry and society. Just like in other companies, a narrow or one-dimensional CEO is a risky choice. The evidence from Kormann and Suberg suggests that family members who spend their whole career at the family firm show weaker management skills than those who have experience elsewhere.
Successful performance relies on showing family members that there is not an either/or choice between staying at the family business and building a career elsewhere. While it may be hard to find work at a similarly sized family business, especially if they see you as a competitor, large corporations usually have no problem taking on management talent from family business backgrounds. There’s a lot family members can learn in a corporate environment.
The Learning Curve
A family member working outside the family business will pick up elements of both substance and style. Of course, they will learn the latest tools and techniques for management. But they will also learn to lead in more complex stakeholder fields, and build authority for themselves instead of relying on their name. A few years at a top employer will let the family’s in-coming generation of leaders observe industry best practices, meet leaders in the field, and get to grips with what good looks like. In terms of style, it is a tougher and better kind of leadership training to take the lead in an environment where you stand or fall based on your own performance, than in an environment where your name is on the product and over the door.
External experience gives family members deeper industry expertise, sharper management skills, and more resilience. With that in mind, family businesses shouldn’t be afraid to let younger generations explore and come back later. They shouldn’t fixate on getting one specific family member in one specific position, but they should put the family’s skills to use in the right places. “In order to be sustainable, the business activities cannot be dependent on a sole individual,” write Kormann and Suberg “an organisation rather than an individual has to be the foundation of the business.”