Survival tips for CEOs at a family-owned business
December 6, 2018
In Mario Puzo’s The Godfather, Michael Corleone, having narrowly escaped an assassination attempt, names the mafia family’s loyal No. 2, Tom Hagen, as acting don—or interim non-family CEO, if you will—and Hagen takes the assignment with impressive calm. The organization faced some fairly significant challenges, including lethal external competition, damaged morale, infighting among senior-level staff, and, of course, the strong tendency for anyone in charge to meet the business end of a Smith & Wesson. In Puzo’s corporate climate, a single wrong move could land an executive on a one-way trip to the bottom of Lake Tahoe.
While more traditional family businesses might not be as fraught with quite so much peril, they do share some of the challenges of the Corleone’s: loyalty is highly prized, but not always guaranteed in return; competition is fierce; expectations are high; and just about every family has its Fredo—or at the very least, its share of drama and dysfunction. Just ask Porsche’s ex-CEO Wendelin Wiedeking, who landed on the wrong side of a feud between third cousins Wolfgang Porsche and Fredinand Piech, who headed Porsche and Volkswagen respectively. When the warring cousins finally came to a merger agreement in 2009, it was Wiedeking who got the boot.
But for CEOs looking for new leadership opportunities, it’s only logical to include family-owned companies in the scope of search. They account for 90 percent of American businesses, according to the U.S. Bureau of the Census, and collectively contribute 57 percent of the U.S. GDP and employ 63 percent of the workforce, per Family Enterprise USA figures. While many are small companies, mid-size and larger comprise a significant number of family-owned operations, including some of the country’s largest businesses. Think Cargill, Bechtel and Albertsons.
Leading one of these family-run business comes with some advantages, including greater longevity. “If you look at turnover in public companies it gets higher and higher every year,” says Shawn Cooper, member of the global board and CEO practice at Russell Reynolds Associates. “In a family-owned company, unless there is tissue rejection when you first join, there is a greater likelihood you can call this a longer-term career for yourself.”
You might also get a greater breadth of experience earlier on, says Steve Miller, who served as vice chairman of the executive committee of the Biltmore in Ashville, North Carolina. (the rules of the family were such that only family members could hold the CEO title) and who at various times, held responsibilities of both COO and CEO. “A lot of my friends went to work for bigger companies that were probably more prestigious, but those guys were still running the Xerox machines and I was able to execute strategy,” says Miller, who, thanks to the annual cash payouts that he received for good performance, retired in 2011 to start a second career in teaching.
Paul Leone, CEO of The Breakers, an opulent 122-year-old resort in Palm Beach, points to another intangible benefit as the reason he turns down recruiters come knocking with sometimes better-paying opportunities. “There is a sense of contribution here,” he says. “I’m not in some corporate office somewhere where I’m removed from the operation, or with a non-family board that doesn’t bring any emotional connection to the business. I’m not saying [non-family] boards don’t care, but by bloodline, they don’t own it. Here, there is this incredible feeling of contribution and doing something that is making a huge difference.”
That said, family-owned companies offer CEOs some unique territory to navigate—and for those who fail to go in eyes open, the landscape can quickly become a minefield. Consider the following advice from family business veterans on how to make the assignment a success.
Know the ground rules. Before you accept an offer, you need to know the long-term game plan. Are you being brought in as a gap measure while the younger generation matures and learns to take the reins, or does the family expect to stay in an advisory role indefinitely? Will the founder be retiring or “retiring”? “It’s very hard for a family CEO to let go,” says JoAnne Norton of the Family Business Consulting Group. “There should be very clear transparent plans for what the founder or family member who has been leading the family business is actually going to do.”
Also, what is the family’s definition of success? In a public company, the goal is clear, says Randall Herrel, CEO of Catalina Island Company: “You want to grow shareholder value or EPS or EBITDA, and everyone knows that. But in family companies, that may or may not be the overarching goal.” While financial targets will undoubtedly be part of measurement, other personalized ambitions, such as helping the community or being an outstanding employer, could be equally important. “The CEO coming in needs to understand it’s not just a traditional set of goals that you learn in business school.”
Once that is clear, the CEO can ensure that bonus targets align with what’s truly important to the family, says Norton. If, for example, the bonus is tied to how much money the CEO brings in, but he or she is limited in who can be fired—and hired—that wouldn’t be a fair goal. “One of the things the family has to do is make sure the non-family CEO gets a bonus based on how well he or she trains the members of the next generation,” she notes.
Don Fox, who left a 17-year career at Burger King to join Firehouse Subs and has been CEO of the franchise company since 2009, says CEOs also need to know which areas the owners want to have control over and what, if anything, is untouchable. “You need to have alignment on goals at the outset and you need to know the ground rules,” he notes.
Check your ego at the door. “That will get whacked around quite a bit, and you have to handle the criticism, whether it’s founded or not,” says Herrel. “A family member may not have any financial expertise or business knowledge, but boy, they have an opinion and you’re going to hear it.” Early on, Herrel spent hours with family members, listening to their dreams and plans for the business, as well as with employees on the front line and other stakeholders. That effort earned him the trust and confidence of even those who were skeptical about bringing in an outsider for the job.
“It does take a lot of time, but my recommendation as CEO is, take the time, listen, ask a lot of questions and don’t talk,” says Herrel. Because of the trust he earned, he was able to convince the family to invest $15 million to revitalize the property in 2008, at a time when most companies were hunkered down.
In some cases, you will be training the next generation of family owners, one of whom may eventually become your boss. That would be tough to swallow for some CEOs. But Miller says he didn’t mind. “The compensation was fine and the job was challenging and to me, and that was more important than the title.” It helps to care about the mission of the company, adds Miller, who grew up in Ashville. “I felt honored to be part of this mission that was bigger than me, bigger than the family, bigger than money. It was preserving this fabulous property, which benefits our whole community. If you don’t really believe in the mission and don’t share the family’s values, it’s never going to work.”
Stay as neutral as you can. Dozens of legendary family business battles that have played out in the press—e.g., Sumner Redstone and his children, the Koch brothers’ family feud spanning the ’90s, the soap opera-worthy Gucci family squabbles—should serve as cautionary tales on how toxic a family-owned situation can become. Non-family executives have to do their best to play it cool. This is especially challenging because the external CEO is often brought in by the board because the family isn’t getting along. “So they immediately try to grab the ear of the new CEO,” says Norton. “You might have one faction saying, ‘We want you to get this company fattened up and ready to sell,’ and the other one saying, ‘We have this long legacy and we want it to last forever so run this in a way that my children can take over someday.’ How in the world can that CEO possibly be successful?”
Even on smaller matters, two family members will bring their dispute to the CEO, each hoping to win him or her over. “You can’t allow triangulation with any family members, because eventually they’ll make up and you’ll lose,” says Miller. “Instead, explain that you can be sympathetic, but the only people who are able to solve it are the two people having the issue.”
Herrel recalls several occasions when he felt caught between warring family members. “I felt like it was my job to try and mediate the disagreement and find some common ground,” he says, adding that it was similar to his experience as CEO and chairman of apparel company Ashworth, where he often had to moderate heated discussions between dissenting board members. “It’s really incumbent upon the CEO to have everybody take a deep breath and listen to one another and try to understand and then look at what our common vision is for the company. If not, board meetings can get very dysfunctional.” In an effort to avoid conflict, Herrel did much of his legwork before board meetings, hearing people out and sewing up support to gain consensus. “Never sit down at the board table unless you have the votes to move forward,” he says.
Miller also warns non-family CEOs to remember their place. “You will hopefully become friendly with the family owners—but you’re not family and you still have to keep a professional distance.” He formed close and trusting bonds with multiple generations of Cecil family members, but was careful to remember his place. “I was friendly with all of them,” he recalls, “but blood is still thicker than water.”
By C.J. Prince
Source: Chief Executive