Survival Tips For CEOs At A Family-Owned Business

Don Fox, CEO of Firehouse Subs, a family-owned business
Don Fox, CEO of Firehouse Subs

In Mario Puzo’s The Godfather, Michael Corleone, having narrowly escaped an assassination attempt, names the mafia family’s loyal No. 2, Tom Hagen, as acting don—or interim non-family CEO, if you will—and Hagen takes the assignment with impressive calm. The organization faced some fairly significant challenges, including lethal external competition, damaged morale, infighting among senior-level staff, and, of course, the strong tendency for anyone in charge to meet the business end of a Smith & Wesson. In Puzo’s corporate climate, a single wrong move could land an executive on a one-way trip to the bottom of Lake Tahoe.

While more traditional family businesses might not be as fraught with quite so much peril, they do share some of the challenges of the Corleone’s: loyalty is highly prized, but not always guaranteed in return; competition is fierce; expectations are high; and just about every family has its Fredo—or at the very least, its share of drama and dysfunction. Just ask Porsche’s ex-CEO Wendelin Wiedeking, who landed on the wrong side of a feud between third cousins Wolfgang Porsche and Fredinand Piech, who headed Porsche and Volkswagen respectively. When the warring cousins finally came to a merger agreement in 2009, it was Wiedeking who got the boot.

But for CEOs looking for new leadership opportunities, it’s only logical to include family-owned companies in the scope of search. They account for 90 percent of American businesses, according to the U.S. Bureau of the Census, and collectively contribute 57 percent of the U.S. GDP and employ 63 percent of the workforce, per Family Enterprise USA figures. While many are small companies, mid-size and larger comprise a significant number of family-owned operations, including some of the country’s largest businesses. Think Cargill, Bechtel and Albertsons.

Leading one of these family-run business comes with some advantages, including greater longevity. “If you look at turnover in public companies it gets higher and higher every year,” says Shawn Cooper, member of the global board and CEO practice at Russell Reynolds Associates. “In a family-owned company, unless there is tissue rejection when you first join, there is a greater likelihood you can call this a longer-term career for yourself.”

You might also get a greater breadth of experience earlier on, says Steve Miller, who served as vice chairman of the executive committee of the Biltmore in Ashville, North Carolina. (the rules of the family were such that only family members could hold the CEO title) and who at various times, held responsibilities of both COO and CEO. “A lot of my friends went to work for bigger companies that were probably more prestigious, but those guys were still running the Xerox machines and I was able to execute strategy,” says Miller, who, thanks to the annual cash payouts that he received for good performance, retired in 2011 to start a second career in teaching.

Paul Leone, CEO of The Breakers, an opulent 122-year-old resort in Palm Beach, points to another intangible benefit as the reason he turns down recruiters come knocking with sometimes better-paying opportunities. “There is a sense of contribution here,” he says. “I’m not in some corporate office somewhere where I’m removed from the operation, or with a non-family board that doesn’t bring any emotional connection to the business. I’m not saying [non-family] boards don’t care, but by bloodline, they don’t own it. Here, there is this incredible feeling of contribution and doing something that is making a huge difference.”

That said, family-owned companies offer CEOs some unique territory to navigate—and for those who fail to go in eyes open, the landscape can quickly become a minefield. Consider the following advice from family business veterans on how to make the assignment a success.

Know the ground rules. Before you accept an offer, you need to know the long-term game plan. Are you being brought in as a gap measure while the younger generation matures and learns to take the reins, or does the family expect to stay in an advisory role indefinitely? Will the founder be retiring or “retiring”? “It’s very hard for a family CEO to let go,” says JoAnne Norton of the Family Business Consulting Group. “There should be very clear transparent plans for what the founder or family member who has been leading the family business is actually going to do.”

Also, what is the family’s definition of success? In a public company, the goal is clear, says Randall Herrel, CEO of Catalina Island Company: “You want to grow shareholder value or EPS or EBITDA, and everyone knows that. But in family companies, that may or may not be the overarching goal.” While financial targets will undoubtedly be part of measurement, other personalized ambitions, such as helping the community or being an outstanding employer, could be equally important. “The CEO coming in needs to understand it’s not just a traditional set of goals that you learn in business school.”