“Success of a non-family CEO depends highly on managing expectations," concluded a family business leader to the presentation given by Vanessa Strike, Assistant Professor of Strategy and Scientific Director of the Erasmus Centre for Family Business (ECFB) when she presented results of her research into family business leaders at a round-table meeting on 28 November 2013. The ECFB is a leading research centre in the development of research into the intellectual capital of family businesses, based at the Erasmus Research Institute of Management (ERIM).
Assistant Professor Vanessa Strike initiated her research three years ago, intrigued by a family business leader who invested in China at the end of his career, just before passing on the torch to the next leader. Other research showed that non-family CEOs would not typically do this; it could harm the results of the business at the end of their careers. Dr Strike’s research among family firms in the USA shows that non-family CEOs make different strategic decisions to those made by family CEOs. Decisions by a family CEO can be driven by socio-emotional wealth, related to the family’s roots. The research does not state whether these decisions are good or bad, only that they are different. That in itself is reason to consider the composition of the board in a family firm, said Dr Strike.
Dr Strike's presentation was followed by an animated discussion between the 20 attendees – current and future leaders of family businesses in the Netherlands as well as non-family CEOs. The discussion was led by Hans van Oosterhout, Professor of Corporate Governance and Responsibility at ERIM. One of the general conclusions was that there is no fixed recipe for successful family governance and composition of the board; this was illustrated by the variety in governance structures of participants at the round table session. "Every time I go to a meeting like this to share experiences with other family members, I am surprised by the uniqueness of each family business; its unique family background and structure, family culture, business and governance structure,” said one participant. Those present were unanimous in endorsing the importance of discussing topics like this amongst peer family businesses on a regular basis. "Having the right governance is continuously adapting your governance to changes in the family and the business, and therefore we need best practices from other family businesses."
A family business leader found proof in Strike's research that a CEO model does not work. "We combine family and non-family executives in our board that decides by consensus. Thus, we combine the strengths of family and non-family perspectives."
Another participant, who is currently preparing to take over the family business from her father, added to the discussion by stating that "people still see my father as the family business leader but part of my preparation as a successor is that we jointly decide on important matters." Dr Strike is currently collecting data to further investigate how this co-operation between current and future leaders in family businesses, or the lack of it, might influence strategic decision-making, so this discussion will be continued.
Those taking part in the session indicated that they found these types of discussions highly useful. “Sound research on these subjects keeps us sharp. At the same time, we can contribute to the research by giving our experience and practical input. We thereby keep researchers on the right track," said one.
The Erasmus Centre for Family Business contributes to the development and long-term viability of family businesses around the world through the provision of research on family business, development of family business leaders, and outreach activities.
Family businesses invited to ECFB dinner discussion
What is the difference between having a family versus a non-family executive in the family firm? Family businesses are warmly invited to attend a round-table dinner meeting on Thursday, 28 November to probe this question. The dinner is hosted by the Erasmus Centre for Family Business (ECFB).
The ECFB, based at Rotterdam School of Management, Erasmus University (RSM) specializes in research, ideas and information concerning topics that really matter to family-run firms in the Netherlands and elsewhere. Each round-table meeting presents recent research that is discussed by researchers and their guests in an interactive manner. Guests are those who are currently leading family businesses, and those expecting to lead them in the future. November’s meeting will focus on the change of course in family businesses after the company manager has stepped down.
"Bringing non-family executives into the family firm provides both risks and rewards", says Dr. Vanessa Strike who will present research on this topic. "For example, owners may feel they lose the family culture and values, compensation issues may arise or they may lose personal and financial privacy. Yet, external executives may bring in expertise, networks, growth opportunities, and leadership transition skills that may not otherwise be available to the family. Emerging research looking at the differences between family and non-family CEOs suggests that non-family CEOs may make strategic decisions differently than their family counterparts, especially when looking at long-term decisions that may affect the family firm beyond the current generation". These issues will be explored in more detail during the interactive round table dinner.
A limited number of places are available for family business members wishing to join the dinner and debate, to be held Thursday, 28 November. The introduction will be given by Professor Vanessa Strike, (Scientific Director ECFB), and the discussion during dinner will be led by Professor Hans van Oosterhout (Professor of Corporate Governance & Responsibility), both from RSM.
If you would like to attend, please contact Ms. Janneke Suijker, ECFB Secretariat at +31 (0)10 ‐4081405 or email email@example.com.
What happens in a family business during the risky period when the manager steps down? Family businesses were warmly invited to attend a round-table dinner meeting on Tuesday, 28 May to discuss the question. The dinner was hosted by the Erasmus Centre for Family Business (ECFB).
The ECFB, based at Rotterdam School of Management, Erasmus University (RSM) specialises in research, ideas and information about subjects that really matter to family-run businesses in the Netherlands and elsewhere. Each round-table meeting presents recent research which is discussed by researchers and their guests. Guests are those who currently leading family businesses, and those expecting to lead them in the future. May’s meeting focussed on the change of course in family businesses after the company manager has stepped down.
“Within family businesses, the period surrounding management successorship can be a turbulent one,” says ECFB director Dr Vanessa Strike. “After this ‘changing of the guard’, existing family businesses often lose their independence, run a greater risk of bankruptcy, and often experience reduced profitability. Earlier research attributed these worrying outcomes to intergenerational and interpersonal conflicts.
“But recent research by the ECFB shows that these types of problems often result from more fundamental reasons, namely changes of course in strategy and governance.”
Strategy-wise, many family firms become conservative in their approach, for example, cutting down on research and development, or showing less inclination to fund higher-risk projects using borrowed money. This risk-averse attitude can also be found in corporate governance as a protective wall is built up around the company to keep out external influences. The ‘tools’ used are preference shares and the appointment of co-opted associates to the Supervisory Board.
“This gives us lots to talk about over dinner,” says Dr Strike. “For example, how should family firms pick the new company manager? Is it a good time to create a more challenging and less protective environment? How can a family firm retain the entrepreneurial spirit shown by earlier generations and further encourage that ‘can do’ mindset?”