Chapter 6

The Critical Role of Nonfamily Managers

Family Business,

First Edition, by Ernesto J. Poza Copyright © 2004 South-Western/Thomson Learning

Nonfamily Managers . . .

 Provide critical skills to the business  Establish benchmarks for managerial performance  Help govern the relationship between family and management  Are essential to the health and continuity of family-owned businesses 7-2

Consider Nonfamily CEO When. . .

 There are no qualified successors  Potential successors need training from interim manager  Nonfamily manager can be both bridging president and mentor of next generation   May sometimes serve as bridge across entire generation of owners Family can’t agree on succession  Business needs a dramatic change 7-3

Value of Other Nonfamily Managers

 Entrepreneurs often poor trainers of successors  They bring unique and complementary skills to firm management  Children may lack dedication and commitment to business   Sibling rivalries lead to power struggles Founder/CEO can’t choose between children 7-4

Other Nonfamily Managers, continued

 They create a benchmark for merit-based compensation  Co-CEOs, management by committee of family members may lead to paralysis  Family successors may not be trusted by nonfamily employees or other family members 7-5

Perspective of Nonfamily Managers

 Nonfamily managers tend to regard their firms positively  Perceptions of business differ from those of family members in areas of  Management and governance  Capacity of firm for innovation and change  Qualifications of potential successors  Their own positions in company 7-6

Compensation Issues

 Nonfamily managers less satisfied than family managers with compensation and benefits  Nonfamily managers generally paid less than counterparts in public corporations  Other issues include benefits, inflexibility, and lack of career opportunities  Drawbacks may be offset by rewards and advantages of working in family business 7-7

Motivation and Retention

 How can you  Motivate top-flight executives who realize leadership positions may go to family members with fewer qualifications?

 Retain top-flight executives who could earn more in other companies?

 Motivate them without their involvement in setting the direction for the business?

 Keep them committed in the absence of equity participation? 7-8

Sources of Motivation

  Active involvement in planning Performance measures —scorecards—such as P & L, revenues, profit margins, market share, etc.

 Clear understanding about succession issues  Compensation and benefit plans bench marked to others in industry 7-9

Other Actions to Take

 Provide active leadership during transition  Involve nonfamily managers in business plans, succession plans, and strategy  Build family/nonfamily management teams  Hold meetings between nonfamily managers and shareholders to build understanding  Provide opportunities for nonfamily managers to assume important responsibilities 7-10

Other Actions to Take, continued

 Recognize level of maturity, self-confidence necessary to be nonfamily manager  Review goals vs. results in managerial performance and reward performance  Provide flexible benefits, work schedules, and vacation policies  Educate family in management principles 7-11