In our latest edition of Leadership and The Private Enterprise, we approached Tim Lorge to discuss the crucial differences between family operated and publicly run firms. With leadership roles at Field Container, Charter Steel and Crown Holdings, Tim has valuable insight into what it takes to succeed in drastically different corporate cultures.
In your experience, what are the key differences in leadership that you have seen in family business vs publicly traded business?
In a publicly traded company, we have the mindset of running a 24-hour fiscal year. Every day is a tightly controlled operation. A private enterprise can operate within this mindset but can also be more flexible in the balance of the short term and long-term thinking. Publicly traded companies are forced into strategic decisions that can demonstrate early and consistent growth. Family controlled companies, by comparison, are willing to let investments pay back over a longer period.
However, the flexibility inherent in the long-view of family-held leadership is often underutilized.
Many family businesses are led by tactical leaders that excel in managing day to day operational details, but despite their hopes of generational transition, lack leadership development with a long-term view.
For example, they have a tendency to prefer entrepreneurial practices over sustainable business processes. Family-held businesses can hold a bias for their instinct and can succumb to group think as a result. In many respects, the role of the non-family executive (NFE) is to provide a counterpoint to the family’s instinct to ensure the best decisions are being made.
In your experience, what are the big challenges of a non-family executive, and how are they overcome?
Business owners can simultaneously be open to new ideas while being entrenched in old ones. This creates a cycle where changes and opportunities are observed and discussed but status quo is maintained. Non-family executives are often hired as a change agent to move the needle from discussion to action but are often caught off guard when the family is unwilling to break from tradition.
In your experience, what are the big challenges of a non-family executive?
It is an odd feeling to be hired to achieve an agenda and then be resisted. Overcoming that feeling is an exercise in consensus building. As a non-family executive, I need to honor the history of the family and the business. Yes, I have been hired to bring change to an organization, but that requires meeting the business and its people where they are.
To overcome early challenges, clarify on the front end:
First, what is it that ownership wants when bringing an NFE in?
Second, how does the NFE build the credibility necessary to achieve those goals? Be clear on the objectives.
Many companies hire change agents and then resist their leadership. How do you address this dynamic?
“Communication, Communication, Communication. Patience, Patience, Patience.”
The family needs to align on what is important to the family and focus on getting the family comfortable with change and what the change may bring. Fostering a culture of clear communication and expectations will set the stage for successful change. But it’s also important to acknowledge that meaningful change is a difficult process for all parties.
When hiring a senior leader from the outside, a Family Controlled business should consider the operational culture their NFE is coming from. A new CEO hired from a publicly traded company will need to adapt to the culture of the family business. This can only be done with a team mindset. The Family must embrace the CEO, and the CEO must embrace the Family.
Coming from a public business, how do you adapt to a culture where personal and professional relationships overlap?
Start by getting comfortable with yourself. There will be ambiguity and there will be a strong social network that exists outside of the org chart. In a family business, you never know who has influential relationships or how deep those relationships are.
Take your time to meet the people of your business, family members and employees alike. Learn the culture of the business, and do not make assumptions on the flow of information. As you map the organization, the dynamics of personal and professional relationships will reveal themselves and become a lever you can use to guide the business.
It is also common to be dealing with owners who have some form of withdrawal—after a lifetime of work in the business, retirement can be difficult, and they end up back at the office.
Family businesses are not used to hierarchy, so you need to be comfortable with everyone going to the owner directly.
How do relationship dynamics and hierarchies differ between a family business and a publicly traded company?
In a publicly traded company, there are distinct realms of authority headed up by executives. By comparison, in family-controlled company, the family will tightly hold onto decision authority. Organizational structure rarely means family ownership when it comes to action. This can quickly lead to distrust.
If the owner steps around the executive and intervenes in their organization, it establishes a precedent that can erode the relationship over time.
When a family-controlled company shifts operational leadership to an NFE, employees will have the tendency to go directly to the owners with concerns. This can be viewed as an expected vestigial practice. To overcome this, the owner and the NFE should establish regular meetings to ensure that they are seeing the same data and hearing the same stories from the organization.
How do you deal with the unique idiosyncrasies that exist in family business cultures?
I’ve found that there is a simple three-step process that can be broadly be applied to many family businesses.
First, establish your own mantra. Make it simple and repeatable. Remember that your operation has a deep history, maybe it has been this way for 100 years. It is not going to change overnight.
Second, think about coalition building: how do you build a coalition of influencers to make sure that people get behind organizational/operational change? In operations, make time to meet everyone and understand the systems of influence in the business. As you build these relationships, you hear stories about the business and its people.
Third, frequently check in with the family to make sure they are comfortable with your path and let them know they can tell you when they have concerns.
What is your mantra, and how does it guide you?
“Honor the past, Eyes on the future, Lead for today.”
It helps me to slow down and remember the rich history that built the business to this point. It reminds me to build a strategy to keep the business viable for generations to come, then to lead/act today to get one step closer to the future vision.
If a friend or colleague was about to join a family business, what would you advise them?
Any person considering a non-family executive position needs to probe the family’s relationship with the business. I would push them to examine the following questions:
How well do you know the owner?
How many family members are involved in the operation, and what does the succession plan look like?
How did you get introduced?
What do you find compelling about joining a Family Business?
What is the family’s vision for the future, and how does your role fit into that vision?
How will your role interact with the family in the reporting structure?
What level of influence do you expect to have over the business?
I would discuss the need for patience, to build your circle of influencers. Build a circle of trust with a goal of making that circle bigger every day. Listen to the way the owner and leadership team talk—how they speak gives you a good indication of the business’s culture.
Conversely, if you were advising a family on hiring a senior executive, what would you advise?
Successfully hiring an NFE is all about shared vision and clarity. These are some of the questions that I would ask:
How clear is your vision of the role you are for?
What level of influence over your business legacy are you prepared to give an NFE?
How well are you prepared to let that leader coach/advise you and your family?
How are you going to feed this leader?
Are you willing to allow things to be done differently—are you prepared to hear new ideas?
Are you prepared to have straight talk with the new leader so that the NFE clearly understands what you want, what you will allow him/her to do?
Are there any changes that are off limits?
How will success be measured?
I would want to have a hard conversation with them to make sure they are ready for what they think they want. I call it structural empowerment. Many people are waiting to be told.
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About Tim Lorge
Tim Lorge is a passionate business leader that focuses on building sustainable organizations by developing and implementing long term growth strategies, building high performing teams, aligning the organization to the growth strategies, and empowering the team to be gap fillers. His leadership brand delivered record results for multi-billion multi-national companies while building cultures of accountability and high engagement. Lorge has a high energy approach and built a reputation of being a team builder capable of managing through complicated objectives. Tim has a passion for safety and continuous improvement. Tim specializes in capital intensive mature markets creating growth strategies that deliver bottom line profits and high levels of employee involvement.