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Family Matters - Recruiting Executives for a Family-Owned Company

Family Matters -
Recruiting Executives for a Family-Owned Company

Family businesses are one of the fastest growing sectors of the economy and merit serious consideration for executives at large publicly traded companies. This represents an amazing turnaround from 30 years ago when nobody wanted to work for a family-owned business based on perceptions, such as:
•“The only people that matter in a family business are family.”
•“Family businesses are out of touch and behind the times.”
•“There are too many family members in the company who are unqualified, unproductive and unmotivated.”
•“I don’t want to baby-sit sons, daughters and cousins until they are old enough to take my job.”
•“An outsider never has a true voice in determining the strategic direction of the business.”
•“Family-owned businesses are self perpetuating, with no outside influence or governance.”
•“There is a high level of risk aversion in family businesses and decision making is painfully slow.”
•“A non-family executive will never run the business or own a piece of the action.”
New technology, global competition, international supply chains, and rapidly rising costs have combined to force family owned businesses into change mode, and change they have. Today family-controlled businesses can be among the strongest in their industries, successfully recruiting some of America’s best leadership talent.

In recent times, many executives have adjusted their views of family-owned businesses. Career-oriented business people are increasingly disillusioned with the prevalent culture in many publicly traded companies. They’ve grown weary of the month-to-month mindset and carefully orchestrated quarterly conference calls. They initially decided on business careers because they wanted to grow a business, make money and leave a legacy of leadership. However, they are increasingly unable to accomplish those goals within the world of publicly traded companies. Instead, their days are filled with Sarbanes Oxley requirements, internal meetings, operational reviews and strategy sessions on how to best position the company on Wall Street.

Before succeeding Tim Leatherman as CEO of Leatherman Tool, Jake Nichol spent 15 years running businesses at Danaher and Stanley Tools, both public companies.

“During my many years on the public side,” Nichol says, “I found myself having to focus my strategies and tactics not on what was necessarily right for my operating business but what may have been right for the corporation. Often I would be told that ‘the Street’ was looking for a specific performance improvement from the corporation, like ‘margin expansion.’ This would require me to adjust my business plans to satisfy analysts’ ‘requirements’ for stock price or multiple expansion. Other times, ‘the Street’ may have been looking for organic growth, so we would have to abandon margin expansion strategies and pursue growth. While these may have been the right tactics for the corporation as a whole, often times they were not the right shifts for the operating units.”

Although the leaders of public companies feel a strong responsibility to serve shareholders, they don’t really know the shareholders. Many senior executives have little interaction with their Boards. Their input is filtered, factored and often forgotten in the limited time these Boards really spend thinking about the business.

In public companies, decision making has become painfully slow. New proposals and capital spending projects crawl through an endless maze awaiting final approval or rejection. Delays relating to SEC regulations, shareholder considerations and corporate bureaucracy drain energy and excitement for game changing initiatives. Important decisions often appear arbitrary and executives cannot shake the feeling that they have little impact on the strategic direction of the organization.

When these same business leaders learn how work gets done today in many family-held businesses, many of them respond with excitement and enthusiasm.

Family-owned businesses in the 21st Century are more often than not smart, strategic and very nimble. They know who they are, why they’re in business and they make decisions accordingly. Recommendations made on a Friday morning probably have answers by Friday afternoon. If market conditions change overnight, these companies turn on a dime and quickly adapt.

Chuck Peters, CEO of The Gazette Company, a family-controlled ESOP in Cedar Rapids, Iowa, joined the organization after top management positions with two Fortune 500 companies. He remembers thinking, and telling the family representative Chairman, that moves like this seldom work out. Ten years later, he is leading transformative change at the company and says, “I don’t think I could have been better supported by the family in these very interesting times.”

John Walker worked for two Fortune 100 companies and is now vice president of human resources for family-owned Camcraft Corporation. Two things surprised John in that transition. “The first was the refreshing amount of autonomy and freedom I’ve experienced,” Walker says. “Our CEO is particularly good at allowing his senior team the freedom to make an impact where they believe it is most needed. Secondly, I’ve been impressed with the degree to which one can make significant contributions to the company. In fact, I had to be a little careful at first. I would make a recommendation and the next thing I knew, it was being approved and implemented.”

Although most family-owned companies are extremely ethical and law abiding, they are not shackled with many of the rules and regulations that encumber public companies. They don’t have to position the company each quarter for Wall Street analysts, robbing precious days from the business and often making irrelevant or short-sighted decisions.

Jake Nichol had this to say about the public vs. private company calendar, “The ability of private companies to somewhat toss away the calendar and build strategies that are not bordered by a month, a quarter or a year is an incredibly powerful advantage. Seldom in my career have I seen new product, channel or competitive strategies/opportunities fit nicely into a calendar. Opportunities and business process timelines have only a casual relationship to the calendar. This may cause your business to be somewhat choppy, with unsmoothed sales and earnings growth, but these results are real and not accelerated or suppressed by ‘unnatural’ business requirements.”

In a family-owned business, all of the executives know the shareholders. They have been in their homes; they have met their children; they go out to dinner and play golf together. When the executives are driving shareholder value, they have an intimate knowledge of the shareholders. In fact, a growing number of family-held companies are bringing key executives into equity or quasi-equity positions using a variety of shareholder instruments.

Gone are the days when family businesses are populated with unproductive relatives. These companies realize how difficult it is to make money and thrive in today’s business environment. If there are family members in the company, they deserve to be there and they are expected to do their jobs. An outside executive will often have the privilege of mentoring a bright, up-and-coming family member who might be the next CEO of the company some day. For mature business people who have already made their mark, this can be a rewarding role.

Today the majority of successful family-held businesses have outside Senior Advisory Boards that function like a Board in many ways. Many outside Boards insist on hiring the best external executives available and giving them a strong voice in the company. With the nation’s climbing unemployment rate, there are many executives from public companies who are available, experienced and attractive candidates for those recruiting for a family-owned business.

When considering hiring an executive for a position at a family owned company, HR managers should carefully weigh the skills and expertise of the executive to gain a better understanding of whether he or she will align with the family’s values and their mission for being in business.

HR managers should be sure to consider the following when identifying plausible candidates for a family-owned business:

Fitting with the Family DNA
An executive has to believe in the company’s mission and vision. It is more important to have a long courtship before committing to a family-held company. Organizational fit is absolutely imperative. He or she needs to be highly energized to make money for the family and to win the respect of the Board. That commitment will be reciprocated by the successful and highly principled family-owned companies.

Public Company Skills are Transferable and Valuable
Executives who come from a public company background bring with them several skills sets and traits that can really benefit a family-owned business. These executives typically are process and results oriented and understand the pressures of a public company, which translates into a strong sense of accountability. Additionally, executives from the public sector bring with them global perspective which can prove to be valuable to a family-owned business as they look to remain competitive in the marketplace.

Family-owned businesses make up the greatest part of America’s wealth. Family firms comprise 80 percent to 90 percent of all business enterprises in North America according to the article, “Family Businesses’ Contribution to the U.S. Economy: A Closer Look,” in the Family Business Review, September 2003.

Recruiting managers at family-owned businesses are in luck these days as executives begin to understand the possibilities at family-owned businesses. In a survey conducted in 2007 by MassMutual and the Family Firm Institute, found that more than one-third (37.6 percent) of family business owners expect the number of fulltime employees to increase. Additionally, the survey found that this positive outlook is well-substantiated, considering that they have performed well over the past three years with revenues that rose 74.4 percent.

As workforce demographics shift and the war for top-tier executive talent intensifies, the best family owned companies are becoming a compelling option for those executives who are looking for new challenges and career changes. Family businesses that understand and accentuate all their company has to offer will find themselves able to compete for and ultimately attract the kind of great leadership they once thought unattainable.

Dale Frank is CEO of New Directions Search of Chicago and a member of IIC Partners, the world’s eighth leading executive search group, by revenue.