When a family taps an outsider to take over its business, the risks can be and often are daunting-for both parties.
In fact, 88 percent of executives at family-owned businesses say relatives will stay in control of their firms over the next five years, according to a study co-sponsored by MassMutual Financial Group and the George and Robin Raymond Family Business Institute.
Fred Thimm had some trepidation when he took the job in 1990 as chief operating officer of Washington, D.C.-based Palm Management Corp., which operates the Palm Restaurants-two of which are in the Chicago area. He was promoted to president and chief operating officer in 1999. Mr. Thimm, who started his career at Arthur Andersen L.L.P., became Palm's first non-blood-related president and the first person ever to be both president and COO at the same time.
``I was torn because I had a great career and loved what I did (at Arthur Andersen),'' Mr. Thimm said. ``At that point, the (owners') children were all young, so I wondered if, after killing myself for years, would I just be a regent for the heir apparent?''
Palm is controlled by two families, led by Wally Ganzi and Bruce Bozzi, grandsons of the company's founders. They had their concerns about hiring outside the family. Mr. Thimm had to convince them he wasn't going to kill the goose that had been laying their golden eggs, he said. In turn, Messrs. Ganzi and Bozzi had to promise that Mr. Thimm would have real control over day-to-day operations.
``The only agreement or contingency they placed on me was I couldn't fire a GM of a restaurant without a board vote,'' he said. ``You have to have clearly defined levels of support and responsibility and authority.''
Ownership trump card
The question of responsibility is a common one for non-family managers, said Timothy Habbershon, director of the Institute for Family Enterprising at Babson College in Wellesley, Mass. Owners have a tendency to micromanage because they feel doubly responsible for their company's success.
``One of the things we talk about a lot is the ownership trump card in the realm of decision-making,'' Mr. Habbershon said. ``When management knows at the end of the day that ownership is going to throw the trump card, they are hesitant to engage. That can kill the enterprise.''
To avoid the problem, lay out clear rules from the get-go, preferably in writing, experts suggest. Still, if you're a lone outsider, this can be easier said than done.
Wagner Printing Co., a 151-year-old Freeport, Ill.-based business owned by Freeport's Wagner family, avoids management-employee conflicts by dividing the company's four family-member employees between its Freeport and Chicago offices, according to Gerry Burkhalter, the production manager. He also is on the board of directors.
``I have friends who work at competitors that are family-owned, and they talk about family members in sales and management constantly overriding each other,'' Mr. Burkhalter said. ``I don't feel like that because instead of working for four or five family members I only feel like I am working for one.''
With fewer bosses there's less opportunity for internal conflict and a greater feeling of equality inside each office. But that doesn't mean there won't be problems.
``When you have a situation where a non-family member is managing third and fourth generations, that creates an instant conflict because those generations feel like the business is their home turf,'' said Jordan Klear, managing partner at the Gutman Group L.L.C., an investment banking firm based in Washington, D.C.
Another major point of contention for non-family members: compensation. Eugene Muscat of the Family Business Center at the University of San Francisco said there's an inherent suspicion that employees are being undercompensated.
``Because there is money going to the family that's not going to the business, there's more than a little truth to this,'' he said.
To lessen mistrust, Mr. Muscat suggests disclosing salaries publicly and creating a special bonus for non-family members.
Des Plaines-based Wheels Inc., a vehicle-fleet management company owned by the family of chief executive James Frank, solves this problem by creating job scales based on industry averages and paying everyone-regardless of their lineage-similar salaries, according to Joan Richards, Wheels' vice-president of human resources.
Stratford Dick, Wheels' marketing chief, said family ownership can prompt certain questions from people interviewing for jobs.
``Candidates come in and ask things about the business: `Is it going to be around in five years? What's the infrastructure like? Is there a fair working process? How are strategic decisions made? Are they made in the boardroom or around the (owners') dining room table?' ''