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An ‘outsider’ running a family business faces 4 classic obstacles: here’s how to overcome

An ‘outsider’ running a family business faces 4 classic obstacles: here’s how to overcome

Gus, the father of one of us (Rob), found his dream job. After being head of sales in a large sporting goods company for over a decade, he was ready to move up to a CEO role. A good friend ran a sizable sports cap company, a family business, and he wanted to step down. Gus took the position and relocated his family. Eighteen months later he was out of a job.

What happened?

A son may not always be unbiased about a parent, but Gus was a smart businessman. The problem was that he had stepped unknowingly into a family business system in which the patriarch wasn’t ready to step aside.

Should Gus have turned down the job? Not necessarily. In our experience, the majority of family owners sincerely support the idea of bringing in a competent outside executive. But every leader should expect to manage intricate family dynamics if he or she hopes to be successful in such a position. Often, these dynamics are evident in predictable patterns, which we describe below using four archetypes :

GENERAL MACARTHUR. Often the company’s founder, General MacArthur retires with the idea, usually unconscious, that “I shall return.” Given that he’s usually the controlling owner you can’t actually stop him from returning – but you can turn the situation to your advantage. Considering that the founder has invaluable expertise, ask yourself whether there’s someplace else in the business where he could add real value – e.g., as board chairman or head of the family foundation.

THE HISTORIAN. Just as the boy in the fairy tale was always crying “wolf,” the historians of the family business are always crying “family values.” Don’t get us wrong: Values often give family businesses a competitive edge over publicly traded companies. But sometimes all the talk about the past is a cover for something else, typically deep-seated resistance to change. When you encounter this person, try to separate the talk of values from the family’s business legacy. Values may be immutable, but legacies can be redefined to allow for necessary changes in strategy and policy.

THE SQUEAKY WHEEL. Not uncommonly, there is a second- or third-generation family member who has inherited some shares but who has no direct experience in the business. Typically these people have a core of advisers, mostly lawyers or tax people, who help them maximize the value of their holdings, not the company’s overall value. If you encounter a squeaky wheel, work with the board or shareholder council to provide basic financial education for all the owners. You also need to read the shareholder agreement and familiarise yourself with the capitalisation table, which shows how much the equity owners of a company have, and often how much money they’ve invested in the company. A dissenting minority shareholder is an annoyance – a majority shareholder, on the other hand, can cause serious trouble.

HAMLET. Sometimes the patriarch or matriarch will bring in a nonfamily CEO to serve as regent until a son or daughter is experienced enough to take over the business. In some cases, typically when there’s tension between the parent and the next generation, an heir apparent will try to undermine the outside executive. If you find yourself in this position as CEO, accept that you’re little more than a bridge to the firm’s future. Try your best to educate the company’s Hamlet – and make sure going in that you have a good exit package.

If a leader, however well qualified, doesn’t know what he’s up against when he joins a family business, he will be unlikely to win. And then everybody loses.


*Original Article by Josh Baron:

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