It is understandable why family businesses aim to keep things within the bloodline, the Hiltons and Murdochs have thrived with such an approach. However, researchers at Concordia University’s John Molson School of Business have demonstrated in a study that it might not necessarily be the best method of management, especially in industries where innovation is a top priority.
Peter Jaskiewicz, a CIBC Distinguished Professor of Family Business, and colleagues published their study in the journal Entrepreneurship Theory and Practice which found that in family businesses which are part of a traditional industry built on reputation and quality, family members are ideal CEOs (chief executive officers).
However, for family businesses that operate in industries that value innovation, the company needs to stay on the cutting edge and should look elsewhere for leadership.
Innovative family businesses should recruit from outside
Jaskiewicz says that in industries where pushing boundaries matters much more than preserving tradition, an aggressive approach in the marketplace is a vital component of leadership.
“Because family CEOs tend to focus more on family values, while non-family CEOs seek to innovate, that means a CEO from outside the family circle might be a better choice.”
“In traditional industries, it’s all about preserving tradition. But that doesn’t work in newer industries where it’s all about constant innovation in rapidly changing environments.”
The authors emphasize that their study did not show that family CEOs cannot succeed in the more innovative industries. “But families that promote from within need to hold their CEOs to a standard that’s at least as high as the industry average. They also have to make sure the CEOs are competent enough to handle industry pressures and to balance family advice with outsider feedback and industry savvy.”
Wine makers, food producers, service providers and other traditional businesses can benefit from recruiting within the bloodline – businesses whose core values are quality and reputation.
Information technology, pharmaceuticals and cellular communications businesses, or the more innovative businesses, are better off hiring from outside.
The role of culture in business, Jaskiewicz notes, merits further investigation:
“In collectivistic cultures such as those found in Asia, South America and Southern Europe, where a high value is placed on family, outsider appointments might not go down well with stakeholders like customers or employees. But in North America, where success, wealth and independence are the priority, the origins of the CEO shouldn’t be as significant.”
Top ten family businesses in the USA
1. Wal-Mart. The world’s largest retail company. Owned by the Walton family.
2. Ford Motor Co. Vehicle maker. Owned by the Ford family.
3. Cargill. Agriculture business. Owned by the Cargill and MacMillan families.
4. Koch. An energy conglomerate. Owned by the Koch family.
5. Carlson companies. A multipurpose company that today concentrates on the travel industry. Owned by the Carlson family.
6. Comcast. The biggest mass media and communications company in the world by revenue. Owned by the Roberts family.
7. News Corp. A multinational mass media corporation. Owned by the Murdoch family.
8. HCA Holdings. The world’s largest for-profit operator of health care facilities. Owned by the Frist family.
9. Bechtel Group. America’s largest construction and engineering company. Owned by the Bechtel Family.
10. Mars. A major food manufacturer known for its chocolates & candy, pet care, and drink products. Owned by the Mars family.