Family-owned Businesses

By Peter Leach, Partner, BDO Stoy Hayward, and Rupert Merson Partner, BDO Stoy Hayward

How smaller, owner-managed businesses can benefit from an outsider’s experience

"We have just put an interim executive into one of our acquired businesses, which means we’ll have a ‘heavyweight, hands-on’ manager on site. this is one of the advantages of interims. you get the benefit of an outsider with a lot of experience of handling change, at a cost that is roughly half that of a management consultant." Ian McKinnon, former Chief Executive, Luxfer Group (a £200m MBO from Alcan UK).

The management challenges faced by small and medium-sized enterprises (SMEs) are not so different from those faced by big businesses. Understanding the subtle differences helps both managers and interim managers appreciate the specific nature of the role interim management might play in such organisations.

Managing what you own is a very different experience from managing something essentially owned by someone else. We’re not counting as “owner-managed” here those businesses that choose to splash out on options for executives as a form of remuneration. Rather, we are referring to businesses in which ownership is controlled by the management. In formal terms, SMEs are also usually OMBs – “owner-managed businesses.” In such organisations, business executives face pressures and conflicts that executives in institutionally or publicly owned businesses are less subject to (and vice versa, of course). Key decision-makers in SMEs and OMBs are likely to find themselves simultaneously in the roles of owner, director and employee – and they probably play family roles, as well, if the company is a family business, which some 60 per cent are likely to be. Each of these roles will be played according to different agendas, and often, those agendas will conflict.

Furthermore, the nature of equity participation in a small business is different from that in a bigger business. The equity itself will be more preciously guarded. Owner-managers often don’t mind sharing the management – but they can be very reluctant to share ownership. A big business can shed options like confetti because they are not weighed down with the emotional baggage they carry in smaller businesses.

An interim executive must be sensitive to these conflicts. Indeed, before starting work, an interim executive should ensure that he has a proper mandate from the shareholders, and that the management understands that mandate. With one shareholder this can be easy – but when several shareholders are involved, it might well mean raising and addressing a conflict before starting work.

On the other hand, because the interim executive will not have equity in the business, he is often uniquely well placed to help the business. As he or she will be less subject to conflicts of interest, an interim can bring an objectivity not available to most permanent executives.

Management capacity

The barriers to growth in a business invariably can be reduced to the capability and capacity of management. Managers too often will look outward for forces on which to blame failure, but the reality is usually closer to home. And finding new management capacity is often very hard. Home-grown talent usually lacks the experience found in the bigger business that the smaller business is trying to turn itself into. On the other hand, managers already settled into big company pension schemes often find it difficult to seriously consider adventurous offers from smaller businesses. Once again, interim managers have something particular to offer here: precious experience. An interim manager can bring to a smaller business the experience of running the bigger business – and ideally what it was like to turn one into the other. A decent interim executive is likely to be challenging and frank and unafraid of rocking the boat when his experience shows that that is what is needed.

In the smaller, owner-managed business, the personality of the management team or the business founder has a far greater impact on the organisation than in the bigger business. Successful large companies replace personality with organisational culture – in effect, a personality is manufactured for the business. But culture – though difficult to manage – is easier to deal with than the personalities of people. Personality issues tend to be irrational issues. An interim manager must be adept at identifying where the real sources of change, influence and decision lie, because they won’t be documented for him in an induction pack. Again, this demands an interim manager who has experience of the often-studied informality and irrationality of the smaller business. But at the same time, he can provide a useful counter-balance to it.

What's New?

Interim executives in family-owned businesses

How smaller, owner-managed businesses can benefit from an outsider’s experience

Management capacity