Post on 16-Apr-2017
Talent in the Family Business: the role of non-family members
Dr Eric Clinton
AGENDA • Managing Talent
• Case Study: Darley Family
• Supportive Non-Family
Environment
• Non-Family CEO
• Non-Family Director
• Compensation and Benefits
Something to Think about….
• How can owner-managers motivate top executives who realise that the firm’s prime leadership position are likely to go to family members?
• How can family companies retain such executives, who could go to another company where they could likely earn more and have a more clearly structured job in which achievement itself is a key motivator?
• How can family-business leaders motivate nonfamily managers without allowing them to participate in setting the direction for the business?
• How can owner managers ensure the loyalty of nonfamily employees in the absence of equity participation?
So what do we know? Owning Families
– Family Relationships
– Successor Development
– Estate Planning
– Succession
– Wealth Transfer
Little Known – Managing relationships between family and nonfamily
managers
Non-Family Managers
Advantages to working in a family business:
• Organisational Culture
• Personal relationships with owner/family
• Job security- long term investment outlook
• Speed of decision making
• Levels of bureauacy
A unique set of Challenges
• Glass Ceiling on Nonfamily Professionals
• Dealing with the Old Guard
• Integrating New Hires and Long-Serving Employees
• Respecting Processes Versus Intervening at Will
• Managing Family Talent
• Managing Talent During Transitions
• Finding Talent in Order to Pursue Growth Ambitions
Managing Family/Business Dynamics
‘The third generation of owner-managers is in the wings, and my affiliation is with the second generation. In less that 10 years, I may have to let go, if the second generation retires or lessens his role. You see, I am having to ‘discipline’ or be the bad guy, by supervising two of the next-generation family members. And what if I end up having to work for them? I would still need to work; I have two young kids’
Can both family and nonfamily managers enjoy the prospect of career opportunities in the future?
THEY MUST
What’s the Risk…..
• High turnover
• Low morale
• Inability to recruit top notch managers
• Inability to set benchmarks for family managers
Merit based and professionally run family-business culture is essential……
Ways to Create a Beneficial Environment for Non-Family Managers (1/2)
• Build family/nonfamily management teams with complementary skills at the top and set clear benchmarks
• Discuss career opportunities- and the impact of succession
• Involve nonfamily managers in business planning and succession planning
• Offer compensation and benefits benchmarked to others in the industry- equity ownership or a phantom stock
• Use performance measures-scorecards-to build motivation – Revenues, profit margins, market share, other financial information all
great motivations
• Hold meetings regularly between key nonfamily managers and shareholders- mutual understanding
Ways to Create a Beneficial Environment for Non-Family Managers (2/2)
• Educate the entire family, whether active or inactive in the company, about business and management in order to create common ground between family and nonfamily members.
• Survey nonfamily employees periodically- work climate- healthy or requires attention.
• Emphasise nonfamily contributions to the family business. Making nonfamily employees part of a successful family in business builds a culture in which people truly are a competitive resource.
• Treat family members like employees at work. e.g Call by professional names, require they follow employee policies and rules, expect just as much from them as you would a nonfamily manager.
• Use advisory boards or boards of directors with independent outsiders. – Business run with merit and not blood
• Develop a family constitution- spells out policy on family employment and family business relations
• Hire high- caliber key nonfamily employees to be bridging presidents or full-term CEO’s of the corporation and business mentors of the family shareholders.
CEO-parents provide the next generation with little or no feedback on their
performance because they find it difficult to stop wearing the ‘parent hat’….
Non-Family CEO Reasons to consider a nonfamily CEO:
• Choosing among children
• No successors are qualified to carry out the chosen strategy (e.g. global).
• Potential successors are too young or are not quite ready for job.
• Future focused CEO, not the past.
• Business needs dramatic change. Emotional attached (-)
• Family sees need for change- but desire a transformational nonfamily CEO to an outright sale of the company.
Non-Executive Director
4 Key Areas of responsibility:
1. Strategy
2. Performance • Meeting set goals, monitor performance reporting
3. Risk • Financial information is accurate
• Risk management is defensible
4. People • Remuneration
• Prime role in appointing senior management
• Developing succession plans
Non-Executive Director
• International experience – FB’s low staff turnover
• Independent objectivity
• Source of innovative ideas
• Specialists expertise (e.g. networks)
• Industry wide connections
• Objective guidance- strategic issues
• Family disputes
• Succession planning
• Moving meetings from informal to formal
• Corporate governance standards
Incentive Arrangements • Only the Family- outsider will not share our aspirations,
values and familiness
• Rewards- Cash bonuses or Equity
• Share options – Share based rewards (e.g. 3-5 years)
– Pre-emption rights
– Drag along rights
– Tag along rights
– Non-voting status
– Forfeiture provisions
– Vesting
– Liquidity
Conclusion
• Talent Management in the Family Business unique set of challenges
• Darley Family Business
• Ways to Create a Beneficial Environment for Non-Family Managers
• Reasons to Consider a (i) Non-Family CEO, (ii) Non-Family Director
• Compensation and Benefits to Non-Family Managers
National Conference
Title: Talent in Family Business- attracting, nurturing and retaining family and non-family employees Date: Tuesday 12th April 2016 Times: 7.30am - 2pm (including lunch) Venue: The Helix, DCU Keynote: Mr Jim Ethier, 3rd generation family member of Bush Brothers & Co (USA) Conference topics: • Attracting and retaining best talent in your business; • Staffing family businesses: the complexities and challenges; • Options for family members’ involvement; • Best practices on how and when to get non-family involved as
management and executives; • Building a business culture based on family values.
Thank You
+353 1 700 6921
Get involved with the
DCU Centre for Family Business:
www.dcu.ie/centreforfamilybusiness
familybusiness@dcu.ie
@DCUCFB
References
Glynn, N. (2011). Planning for Family Business Succession. The Varsity Press.
Poza, E. (2013). Family Business. Cengage Learning.
Schuman, A.M. (2011). Nurturing the talent to nurture the legacy: career development in the family business. Palgrave Macmillan.