Relationships to external CEOs determine the future of family businesses

What significance does building relations between an external CEO and the owners of Swedish family businesses have? In a new dissertation from Jönköping International Business School, Matthias Waldkirch shows how mismatched relationships can have major consequences for family firms.

“The owners often look primarily for formal qualifications when recruiting, but this often says little about how the new CEO performs within the family firm,” says Matthias Waldkirch.

While there is a lot of research on CEOs, most of the research is carried out in the context of large, publicly listed companies. In his thesis, Matthias Waldkirch focuses on medium-sized family owned businesses that have recruited a CEO from outside the owner family.

“When the company is owned but not driven by the family, relationships between board and CEO can be tricky. Many family businesses and non-family managers in Sweden struggle with how to handle this. I became curious as to why certain CEOs were dismissed after six months and why some stayed for many years,” explains Matthias Waldkirch.

When relationships run into trouble
In his thesis, “From Professional Interactions to Relational Work: Investigating Relationships around Non-Family CEOs in Family Firms”, Matthias Waldkirch followed a range of family businesses and carried out interviews with several owners, managers and employees within the organisations. He concluded that how relational work is viewed is extremely important.

“Relational work is not a small ‘add-on’ but a crucial part of the work of CEOs and the family. If you do not understand this as an owner or CEO, then you will run into problems. I have heard people saying, ‘We don’t get on well, but for the business it doesn’t matter.’ Of course, it does! Employees tend to pick up quickly whether the CEO and family are getting along with each other, and will treat the management accordingly.”

Too much of the good stuff
The thesis also focuses on the professionalisation of the family business. Often, professionalisation is still understood as taking out family members from the company, which. Matthias Waldkirch opposes strongly.

“Acting professionally has little to do with the family status of managers. I have seen both unprofessional family and non-family members. Instead, when a company hires a non-family CEO, it’s important to be clear to the CEO what the expectations are, how to work with each other and how to establish relationships.”

He also believes that family businesses can over-professionalise in their efforts to cooperate successfully with a CEO.

“Integrating professional practices, such as family councils or non-family board members, are generally a good thing for family firms. However, too much of a good thing can be bad as well. We followed a company that ‘professionalised’ many parts of the company, but did too much, too quickly. They built structures that were too complicated for their size, the employees no longer understood the culture, and the structures didn’t suit the family.”

The right relationships from the start
Where do these problems begin? It often originates in the recruitment process for the new CEO, explains Matthias Waldkirch. There are examples of good recruitment practice that can be carried out in the early stages.

“Family business owners often look for formal qualifications when recruiting, but this doesn’t predict how well a CEO will work within the business. One company I met that had been successful in their recruitment process had invited candidates to work in the company and with the family members for a day, so that they could find out how well they fit together. The last time I spoke to that company, the CEO was still there and was doing well.”

Relational work as an investment
A piece of advice for anyone who is applying for a CEO post in a family business is that if they invest in building relationships, it will help new ideas and changes to be implemented. Strained relationships will lead to the opposite happening.

“I have seen this in every case in my research. If you do something that is not anchored with the family, then you won’t last long in your position. However, if you work closely with the owners, then you have a lot of freedom to work in family firms. And to the owners, I want to say that they should not be afraid! Someone from outside the family can be just as passionate about the business as they are. Family values don’t need to be thrown out the window just because you have employed an external CEO. The important thing is to invest in relationships!”

Matthias Waldkirch (Foto: Patrik Svedberg)

Matthias Waldkirch successfully defended his thesis From Professional Interactions to Relational Work: Investigating Relationships around Non-Family CEOs in Family Firms External link, opens in new window. at Jönköping International Business School on Friday 19 October 2018.