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

http://mashable.com/2015/08/04/darley-firetrucks-drones/#p194MpHJSZqM

http://www.darley.com/inside-darley/entry/Business-Families-Foundation-Interview

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.