The role of non-family members in the family business

Strategy & Innovation

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It is generally acknowledged that family businesses are extensively represented in our economy. In Belgium, almost 8 out of 10 businesses that employ staff are family businesses. Therefore, they are an important employer that covers more than 1.7 million jobs, 45% of all employment. Many of these workers are, evidently, family members. That makes sense, considering the strong tendency for family entrepreneurs to seek for a job within family ranks first. However, the human capital there is soon depleted, which means that the ordinary family business depends heavily on non-family employees and managers.

Attracting employees and keeping them motivated is a daunting task for every organization, and thus for family businesses as well. According to the 2016 European Family Business Barometer, the war for talent presents the biggest challenge for family businesses, that have to distinguishing themselves on the labor market. But what distinguishes a family business from other organizations, and what does this mean concretely for non-family members who are employed in the company? A recent international study offers interesting insights based on scientific research results from the last 30 years.

Informal and stable working environment

First of all, family businesses appear to be very attractive employers for many non-family members because of their informal and less bureaucratic structure. Furthermore, their culture is often characterized by a pleasant work environment in which employees are taken care of. Family businesses really care for their people and non-family members are even considered family. These are also businesses that offer employees a stable work environment, in which dismissals and reorganizations are restricted. These factors may provide them with an advantage in terms of attracting and motivating employees who greatly value a meaningful working environment that is characterized by safety and stability.

Others might feel less attracted to the family business, mainly due to the complexity that can arise from the links between the business and the family. This combination may give rise to ambiguous communication and decisions and even to conflicts within the organization. This sometimes makes family businesses hard to understand, a factor that discourages potential employees. The study also shows that family businesses sometimes focus too little on the training and continued growth of their employees.

In addition, the remuneration is generally somewhat lower compared to other organizations, although it seems that this is mainly the case in smaller family businesses. Medium-sized and bigger family businesses, which are run professionally, do not appear to be different from other organizations in terms of total remuneration of employees. At management level, non-family CEOs and managers in family businesses appear to be paid better than managers and business leaders who stem from the family. Moreover, the remuneration of non-family CEOs would be similar to the wage of CEOs in non-family businesses.

Non-family managers

Furthermore, it is positive for family businesses to bring non-family managers on board, considering this generally benefits the performance of the company. The financial director is often the first position to be filled by a non-family member. This supports the professionalization of the family business, in which financial management plays a leading role. According to the study, family businesses ideally aim for a healthy balance between family and non-family managers, and want to improve the company’s performance.

As for attracting a non-family CEO, the study also shows that bigger family businesses, or family businesses that are characterized by widespread shareholdership, benefit from a non-family business leader. However, its success appears to rely only partly on the company’s performance; family members only consider that cooperation with external CEOs is successful when, besides financial performance, a close emotional relationship between both parties is present.

In short, family members have quite some assets to make the difference as an employer compared to other organizations. As long as they pay sufficient attention to the development and training of their employees and restrict ambiguous communication and decision-making by focusing on the further professionalization of the family business, they are able to maximally play out the features and culture that are inherent to a family business on the labor market.