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Rules for the Family-Managed Business

The controlling word in “family-managed business” is not “family.” It has to be “business.”

The first rule is that family members do not work in the business unless they are at least as able as any nonfamily employee, and work at least as hard. The second rule is equally simple: No matter how many family members are in the company’s management, and how effective they are, one top job is always filled by an outsider who is not a member of the family. Typically, this is either the financial executive or the head of research—the two positions in which technical qualifications are most important. Rule three is that family-managed businesses, except perhaps for the very smallest ones, increasingly need to staff key positions with nonfamily professionals. The knowledge and expertise needed, whether in manufacturing or in marketing, in finance, in research, in human resource management, have become far too great to be satisfied by any but the most competent family member.

Even the family-managed business that faithfully observes the preceding three rules tends to get into trouble—and often breaks up—over management succession. Then what the business needs and what the family wants tend to collide. There is only one solution: Entrust the succession decision to an outsider who is neither part of the family nor part of the business.

ACTION POINT: Get to know the top management of a family-owned business. Ask members how they plan to handle the problem of management succession “into the next generation.” Determine whether the plans are being driven by business issues or family issues, or by a combination of the two.

Managing in a Time of Great Change

* Source: The Daily Drucker by Peter F. Drucker

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