IIC Partners

By IIC Partners
July 27, 2016

Written by: 
Todd Hohauser 
Harvey Hohauser & Associates

Family businesses are a unique dynamic when it comes to leadership and management challenges. My brother, Eric Hohauser, and I are the second generation, leading our family business, Harvey Hohauser & Associates, a strategic cultural executive search firm founded 30 years ago by our father Harvey Hohauser. Running a family business and handing down a business from generation to generation is a delicate process and something that many of our clients struggle with when it comes to assessing the right leadership.

The passion that initially founded many family businesses eventually can become a destructive force in terms of growth, leadership and retention. Power struggles emerge between past and current generations attempting to lead the company. It is at this point where a founder must recognize and accept his or her detriment to the future of the business succeeding. Family business education centers, such as the Harvard Business School, often state that nearly 30% of family-run organisations are successfully handed down to a second generation, 11% remain viable for a third generation and only 3% successfully operate into a fourth generation and beyond. Preparing for this generational hand-off is charged with emotional and financial pitfalls that few proactively address.

The appointment of new leadership in any company is always a challenge, however succession planning in a family-run organisation is different than most other companies. In some cases, future generations are ready to assume a leadership role while in other cases the right experience and skills are underdeveloped. A successful and smooth transition between generations is rooted in proactively establishing and defining a clear path years in advance. When I started at Harvey Hohauser & Associates in 1999, my father came to me on my third day of on the job and said, “Are you ready to takeover?”. He was of course joking, but his intention was to start mentally preparing me for my eventual role as CEO of the business. Over the next 10 years we implemented a plan to achieve this and gradually transfer leadership responsibilities from Harvey to me. I have also seen scenarios where this transition has taken much longer. It has taken some clients nearly 20 years for the next generation to assume a leadership role. It all depends on how ready and willing that next generation is.

Hiring For the Next Generation

Like any business, a family-owned operation, can also seek leadership beyond the family to run the business. When we work on a search for appointing an external CEO of a family-run organisation, the approach we take is very different than that of a privately owned or publically traded company. Throughout my career it is evident that family-owned businesses focus heavily on a long-term vision and emphasize long-term strategy when assessing new leadership. It is not uncommon for many family businesses to have the same leadership in place for 20 to 25 years. This tenure is nearly triple that of the lifecycle for a CEO at a publically traded company. A global study published by IIC Partners in 2014 revealed the average number of years a senior executive spent in their position at a publicly traded company was between 7 to 8 years.

Publications such as the Journal of Management Studies, have underscored this notion of long-term commitment. A recent study found that even when CEOs of a family-owned business are approaching retirement, they are willing to continue engaging in international acquisitions.

A publically traded company or private firm will think quarter to quarter, while a family business will think generation to generation. Will this CEO be able to train and develop the next generation of leaders in the business? Will this CEO be able to steer the company through the next recession or “dot com” bubble? Leadership shifts and selections for publicly traded firms are more transactional in nature and hire for the short term. Family businesses characteristically maintain a sense of loyalty and integrity to their employees and this is reflected in their hiring strategies as well.

Eliminating Power Struggles

Leading a family business has many unique dynamics at play when it comes to appointing the right talent in the C-suite. We are all born into families, functional and dysfunctional, we have an innate understanding of what it means to interact with family members - there is a behaviorally programed expectation of each relationship. Like any family dynamic, there will always be outside factors beyond business that influence decisions and motivations. If an older sibling picked on a younger sibling during childhood, those past behaviors can easily affect the business dynamic and halt and damage a company’s growth and trajectory. One client I worked with had 7 family members on their Board of Directors. They selected our firm to initiate a search and appoint a new CEO for their company. This was one of the longest searches I worked on and lasted nearly 20 months. The reason for this was not because we had a lack of interest or candidates - we had plenty of candidates! What stalled our progress was getting all of the siblings on the Board to agree and decide on one candidate. In order for a family business to succeed and move forward, all leadership involved must unanimously agree on key decisions. The delay in aligning this hiring decision presented significant challenges for us and the client’s business.

I often explain to clients the “Three Circle Model” of a family-run business. This model represents family relationships, ownership and the business operations as three separate circles that all partially overlap. If any one of these circles is unhealthy it will affect the other domains and will result in the business failing. If decisions are made out of order it will affect the business negatively. The values of the business must be created by the family and not the business operators. The key to successfully maintaining a healthy approach is to separate responsibilities for family members. This division and separation of labor is key for a family-run business to survive and thrive for future generations. This lessens the potential for future disagreements and limits the amount of arguments that can arise when working too closely together.

Todd Hohauser is the CEO of Harvey Hohauser & Associates, a retained executive search firm located in Troy, MI. Harvey Hohauser & Associates is a member of IIC Partners Executive Search Worldwide a top 10 global executive search organisation with 52 offices in 34 countries.

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