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Why choose BIE?
What's New?Interim executives in family-owned businesses
When blood is thicker than water
Family businesses dominate the SME sector, as well as the OMB sector. Indeed, in some ways family businesses are the archetypal OMB. The most important interventions that an interim manager can make in such organisations are determined by all that is peculiar about family businesses, so some understanding is important.
The conflicting pressures mentioned above, which are typical of all OMBs, are more extreme in family businesses. Some executives find themselves playing roles in the family as well as in the business, whereas others, though not in the family, see supposedly otherwise rational decisions and strategies unduly influenced by family pressures. Such decisions and strategies include decisions about the remuneration and recruitment of younger family members, and above all, decisions about succession.
The influence of the family on the business is also a source of great strength (as well as frustration). A family business is one that tends to think far more long term than is the norm for a business driven merely by the dictates of reason and financial reporting. Family businesses tend to have developed and stable cultures – and an interim has to understand the source and power of this stability if he is to succeed.
Easily the most difficult time for the family business is the succession from one generation to another – and it is at times like these that an interim manager has the most to offer. Typically, the founder of a family business needs help realising his of her ultimate objectives – passing the management of the business down to a succeeding son or daughter, and transferring the wealth owned by the first generation to the second. These sets of issues are interrelated of course – but the interim manager can help most with the first. Identifying the correct person to run the business is exceptionally difficult at the best of times: it can be traumatic when family issues get in the way. An interim manager can provide objective advice and deliver and manage a process appropriate to the selection of the individual. An interim manager is also well placed to provide coaching and counsel to both the outgoing and the incoming executive. Lastly, an interim manager can fill the gap that is often created between generations. If the succeeding generation is not quite ready to succeed, interim management can play a critical stewardship role for the business in the intervening period.
Tight resources
Resources in a small business are tight. This may sound like a truism, but it is often misunderstood. Solutions, cures and interventions cost time and money, and compared to the bigger business, the typical SME or OMB is very short of both. Even a highly successful business can have problems with cash – indeed, a typical characteristic of the quickest growing businesses is their tendency to lurch from one cash crisis to another even while posting healthy profits.
As far as interim managers are concerned, this presents an enormous problem, because whichever way the cake is cut an interim executive can seem expensive. But when worried by the expense, the owner or manager of a small business should note that an interim manager is rarely interested in equity. In this sense, interim managers are cheap, because equity in the long term is very expensive.
If an OMB is lucky enough to be negotiating with a potential new full-time executive of high quality, then in many situations, we might advise that equity participation is a good thing – but with most interim management arrangements the question never arises. Equity should be used to reward commitment; services, knowledge and skills should be rewarded with cash. An interim manager by definition brings “knowledge and skills.” As an “interim,” he or she isn’t interested in the sort of commitment that is appropriately rewarded by equity.
The problems an interim manager should be asked to address should be some of the most important to the future of the business. The issues discussed in this chapter have all been “business-critical.” Using an interim manager to help address them might, on the face of it, seem expensive, but if it helps to ensure that the business survives, then it is money well spent.
Put another way, make sure that the task you assign to your interim manager warrants his or her attention. And make sure that the interim manager is carefully selected for the issue in mind. Make sure he has sorted out your sort of issue before. And make sure he has had experience with smaller businesses.
Peter Leach and Rupert Merson are partners in BDO Stoy Hayward, accountants and business advisers specialising in advising businesses with aspirations to grow. Peter is also chairman of the Stoy Centre for the Family Business, and Rupert teaches a course at London Business School on the Management of the 50 Growing Business.
To discuss your interim management requirements with BIE call +44(0)20 7222 1010