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Published 02 August 2012 05:01
When miscast or incompetent chief executives lead publicly listed companies, their poor results eventually will catch up with them – ideally before too much damage is done. It’s different for a family business, where the person in charge is likely to remain in that position, for better or worse, until ready to move on.
The average tenure of a chief executive in a family business is 17 years, Family Business Australia says. Contrast that with 3½ to 4 years for the chief executives of big public companies and it’s clear that the heads of family businesses are in a unique position to exert enormous influence on their organisations.
That’s a big responsibility but also a high risk for family businesses. Long-time, all-powerful bosses of family businesses usually are set in their ways and notoriously bad at succession planning. The challenge for family businesses, FBA chief executive Philippa Taylor says, often comes when the “benevolent dictator” decides to retire and no one has been trained to take over. “Children working in the business need to be allowed to make decisions and gradually take on the responsibilities of running the business,” she suggests.
Family businesses can be very insular, which can result in ineffective or damaging management practices becoming ingrained. Taylor urges family businesses to welcome outside opinion and expertise, including when filling key positions. “While employing family members has many advantages … many family businesses fall into the trap of giving family members key positions in their business without the proper training or experience,” she says. Some successful family businesses require family members to have suitable qualifications or several years of experience outside the family business before they can join the firm.
Another strategy for introducing positive external influences into a family business is to appoint an independent board. The transition to a formal governance structure can be difficult for the heads of family businesses because they won’t be used to having their leadership challenged and performance critically evaluated. Other family members might also resist what they perceive as interference by outsiders. Taylor recognises that having an independent board will be “a major leadership test” for many family businesses but “good governance is essential for family business continuity across generations”.