Bringing outside talent into a family business succession debate?

Dear Ms. Allison: My family is fighting over where to go next with our mid-sized company. We want to grow and some of us think we should bring in executives from outside the family to get a better perspective and add to our current skills. Others are afraid that letting in “outsiders” will lose control for the family and even make it no longer a family business. Everyone is on board for a succession plan, it’s just that we can‘t agree on how that looks. So, we’re fighting over a non-plan. The arguments get pretty ugly. Is this something we could mediate even if we don’t already have a business succession plan? What are your thoughts about bringing in outside talent with an eye toward ownership? RL from Western Oklahoma.

Dear RL:

You certainly can mediate a business succession plan or any other issue – even when it’s not reduced to paper yet. In fact, I highly recommend it to save time, money, stress, confusion, confrontation, and relationships. Mediating your outsiders in business succession issues can help you build a plan you can all agree to support. You’ll go forward living in peace with each other and your decisions.

Your mediator does not take sides in the debate. As a mediator, I can’t support you or others, but must remain neutral while facilitating agreement between the parties. Still, my creative ideas often help coalesce solutions not previously considered by the parties. My job is to work toward the best interests of ALL parties.

Now, you asked for input regarding bringing outsiders in the business succession plan. I will not give you my opinion, but will offer some things to consider and other resources to research. (The mediator’s opinions are not part of the process. The mediator can only offer ideas to bring harmony and solutions all the parties can embrace.)

Regarding improving a company’s profitability with outsiders, “new blood” may position a firm well for its future in the ever-increasing global economy, as was recently reconfirmed in a 2019 PwC report. As you noted in your question, a business can use that method to add contacts, expertise, and skill sets to its capabilities to attract or prepare to serve new markets. As an example, the report shows strong movement toward export markets among family businesses. The survey on which the report is based showed that 68% of family businesses are exporting; 75% expect to be doing so in the next five years. Some families might have a broad enough talent pool to do that easily. Others might confront considerable challenges to expand into those new markets or product lines without outside expertise.

Working with non-family managers will be quite an adjustment for many family firms. The authors of the PwC survey suggest that a company “becomes less like a private entrepreneurial venture, and more like a public company” when outside managers are hired. This is at least partly attributable to an outside manager’s ability to pursue business goals, such as global expansion and increased profitability, without being hindered by the “soft”—and often contentious—issues that are an inevitable part of family meetings. While this may bode well for a company’s balance sheet, families should take steps to ensure that hiring professional management does not reintroduce conflict into the business structure and diminish the long-term return on having invested in such individuals.

Nevertheless, it is a growing trend to bring in non-family talent for business succession goals. The referenced PwC report says the proportion of survey respondents expecting to pass company ownership to the next generation (and bring in professional management) rose from 25% in 2012 to 32% in 2014. But like Mama always said, “If everyone else is jumping off the roof that doesn’t mean it’s a good idea for you.” (You know you heard her as a teen!) The report recommends having a strong governance structure for the family firm to ease the many concerns for “outsiders” and family management/investors. That is something that can be negotiated in business succession mediation as well as the terms of bringing in outsiders as management (or not).

If I can help your company by mediating bringing in outsiders in business succession issues, please contact me. I’m glad to help.

That’s your question, Asked and Answered, Gale Allison, Mediator

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