How to Make Sure Your Family Business Isn’t Self-Destructive

Many entrepreneurs seek to keep their business in the family. It’s a natural impulse. Your successor will be the steward of the business you built, and who better to care for your legacy than your own children? Plus, it appeals to the desire to provide for your family and help them succeed.

Unfortunately, recent research from Concordia University suggests that family CEOs can be detrimental to a company’s growth, depending on the industry involved. Researchers noted that family CEOs generally fare better in traditional industries that are built on quality and reputation, than they do in newer, rapidly-changing industries, such as technology, that reward innovation.

Familial Ties Prevent Innovation?

A family CEO might be inclined to have so much respect for their predecessor or their predecessor’s process, it inhibits their innovation. In the new economy, most companies have to be willing to constantly adapt and innovate. Hanging on to the practices of the prior generation can be a recipe for failure.

Anheuser Busch, for instance, was family-run for over 150 years before its declining fortunes led to its acquisition by the Belgian/Brazilian company, InBev. Anheuser Busch’s later CEOs were overly cautious about expansion and reluctant to embrace new products and marketing techniques.

Tensions between family members also exacerbated the company’s problems. Family management can cause personal issues to become entwined with business decisions, which is often not beneficial.

Consistency Prevails With Tradition

In more traditional industries, where quality and consistency are valued above innovation, a family CEO can be successful. For instance, an artisan food or wine producer might benefit from the consistency of a family CEO. Nevertheless, companies should have the same expectations of their CEOs as they do any executive in the industry, no matter what their last name.

Objective training protocols and performance criteria can help ensure that family members get the same qualifications and are held to the same standard as any other executive. Shareholders and a strong board of directors can help ensure these objective standards are upheld and avoid familial bias coming into play.

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