Non-Family Executives in Family Businesses
8th March 2017
For many family businesses, particularly those in the early generations, the idea of appointing a non-family member to the board as an executive or non-executive director is an alien concept where it may be perceived to the rest of the business and the outside world as a shout for help or a weakening of family control of the business.
However, those more mature family businesses, i.e. those that have moved on beyond the early generations where emotions are often raw and systems such as succession and strategy have not yet matured, realise the benefit to appointing non-family members to the board.
The most obvious benefits of doing so include adding a complimentary skill-set to the board perhaps plugging the gap where the family lack a certain skill-set or area of expertise which is now required given the family business has reached a certain stage in its life and needs to move forward beyond that, an external non-family pair of eyes to inject a dose of commercial realism and outside experience to board discussions perhaps to help cut through some of the emotional drivers that inevitable surface in family businesses, and non-family members can often provide a degree of stability during a succession process by being the constant and voice of experience as the business transitions from generation to generation.
Some of the longer established family businesses have even moved to a “family office” style of operation where they don’t even have any board representation at family level but retain ownership from a shareholding perspective. This is a model that requires structure and a clear and open communication strategy between the board and family owners, far more than a listed company for example would ever dream of interacting with its shareholders. This clean and open communication strategy allows the directors to be clear what the family shareholders want out of the business so they can continue to run that business with family values at the heart whilst delivering the return expected, and desired, by the family shareholders, often on a far more long-term view, perhaps 10 or 15 years, rather than a short term 2 or 5 year plan that many non-family business will operate on.
However, the key with any non-family executive, whether that be as an addition to the board of a first or second generation business as the first non-family executive or as part of a more enlightened “family office” type board is the recruitment of the right person for the job. Where family businesses are built on family values passed down the generations and an ethos that is instilled in the business and its employees from board down to the shop floor, the non-family executives recruited have to understand and fit those values and ethos.
Whilst a non-family executive may come highly rated as a result of their turn-around experience in a relatively short time frame or with a skill-set of gearing businesses up for a sale or private equity investment, does that experience and those skill-sets, often perhaps costs reduction, profit maximisation and short termism, fit in with the values and ethos of your family business – probably not! Instead the non-family executives have to understand the values and ethos of your family business and be able to work with the family members (whether as shareholders and/or fellow executives) to deliver the long term family plan as set out by the family shareholders. If they don’t fit the values and ethos of your family business or can’t work within those constraints then the family really have to question whether they really are the right person for the job.
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For further advice on shareholders’ agreements and the benefits for your business, please get in touch with Christian Mancier, Corporate/Commercial Partner via email@example.com or on 0343 507 5151.