Today, we are finishing our article series! If you missed the previous episodes, check my account.
It is a weird topic to write about, but I did some research so... Anyways, we are here to broaden our vision! I am not limited to boring textbook info and can explain other things in a fun way if you want... I HIGHLY RECOMMEND YOU TO READ EARLY EPISODES!
---
Family businesses are a combination of two distinct social structures and interference of roles generates difficulties while managing a family company. How to manage the family business is a serious problem with multiple layers. “Who could” and “who should” manage the family company questions require a lot of attention, but the answers are worthy because they may catch a lot of insights about the conditions of family companies and may help firms to improve their performance by their managerial preferences. Some research supports the success of the family CEO, although some other highlights the advantages of a professional CEO. Both types of CEOs have their own advantage. A family CEO is more commitment to the family company and can understand the business more deeply as well as the success of family business in the long-term directly affects the CEO’s life. Yet, the professional CEO is usually more talented, highly educated, and immune to power games inside the family. On the other hand, both types of CEOs have their own disadvantages. The family CEO may have unfinancial motivations like gaining or preserving power in the family which decrease the financial performance of the company and threat the future of business. Then, the professional CEO is less commitment for the family business and the short-term success pressure on the non-family CEO decreases its efficiency on focusing long-term goals. Therefore, using the advantages of both type of CEOs in a combinational matter will be more appropriate for the interests of the family company. The three-dimensional diagram of Gersick could be beneficial to categorize the periods of the family business. When all dimensions are compared, it seems easier and scientific to use business dimension of the diagram to classify life period of the family firm and by analyzing the needs of the company at each period, the appropriate type of the CEO can be determined. In the establishment period of the company and after the start-up turned into a small firm, the needs of the family business are high level of labor, a fast-processing system with minimum procedure, strong communication, harmony, and commitment to the business. A family CEO has detailed knowledge of the family and the business as well as it is the cheaper option. Although a non-family CEO has a great potential with its industrial knowledge and experience, it is an expensive option and its commitment to the business cannot be guaranteed which may be a deadly mistake at the early life of the family company. It is also considered that the success of a family business always starts with strong family values and commitment. Therefore, a family CEO is a more appropriate candidate in the start-up period.
The needs of an expanding company are methods to manage its cash, creating strategic plans for future, reforming its organizational system, professionalization and considering the owner-manager roles in the company. A non-family CEO provides an advantage to the family company during professionalization period because of its relative advantage, managerial abilities, talent pool management and experience. A family CEO may tend to refuse change in management because it requires distribution of power. Therefore, a professional CEO will be a more appropriate candidate to answer the needs of the family firm while expanding and formalizing. A mature company should refocus its attention, search for reinvestment opportunities and modernize its organizational structure. In this period of the life cycle, owners’ and managers’ strong commitment to the company and the future of the company is the key requirement to escape from a collapse. It is showed that the family CEO is more successful in a mature business because of its commitment to family, deeper understanding on business, socioeconomical motivations and focus on long-term goals. To conclude, the CEO preference of a family company has impact on the performance of the company, and it is clear that the CEO should be selected according to current needs of the company. A prior research shows that a family CEO is more successful in the establishment of the company as well as in the maturity, but a professional CEO is required in the extension and formalization period of the family firm.
OK, let's stop here for now. Thank you for following me through the family business journey! When you are tired of the bad news about crypto, come here. There will be new things! :)
