Small businesses continue to be a major economic force for the U.S. economy. From the number of people employed to the fact that single family members contribute to the world’s GDP, entrepreneurs, times, grapple with longer-term stability, leadership and succession planning in challenging times.
With the spotlight continuing to shine brightly on small businesses, a key issue is succession planning and whether a business is positioned for future growth. With this in mind, there are many evolving leadership trends for financial and operational leaders for privately-held Companies in Michigan.
What are these trends and how can a business effectively plan and position itself for longer-term growth, sustainability and profitability?
To better understand these challenges, I talked to Jim Lionas, co-founder of The Hunter Group , a Bloomfield Hills, Michigan-based executive recruiting firm, for his perspective.
Lee: How and why did you co-founded The Hunter Group 21 years ago?
Lionas: I was fortunate to be responsible for the Executive Search Practice Group at PlanteMoran, Michigan’s largest CPA firm. After some time, we decided to spin off the business due to accounting rule conflicts and in 1995 my partner, Sherry Muir Irwin and I launched The Hunter Group.
Lee: I understand you work with some of Michigan’s longstanding family-owned businesses as their trusted talent advisor.
Lionas: Yes indeed! Today I’m pleased to focus on the leadership impact on family-owned businesses in Michigan and across the U.S. Since I began executive search work 35 years ago, I have seen firsthand the impact of these companies in our region in terms of job growth, philanthropy and stability challenges during difficult times.
A majority of the world’s wealth is created by family owned businesses. Estimates suggest businesses that are majority owned by single family’s members contribute to 70-90 percent of the world’s GDP. New business is fueled by family involvement. Eighty-five percent of start-ups worldwide are established with family money. And, family firms outperform nonfamily firms – universally.
At the Hunter Group, we have recruited leaders for Michigan family-owned businesses for more than 20 years and we are keeping a close eye on emerging trends as we recruit for top leaders across Michigan and the U.S.
Lee: Jim, what are the key shifts that may significantly impact the family-owned business community in 2017?
Lionas: Let’s focus on some of the key ones today starting with the lack of succession planning that continues to threaten the longevity of many Michigan family owned businesses.
Many family businesses struggle to survive into future generations. According to the Family Business Institute, only 30% of these organizations last into a second generation, 12% remain viable into a third, and 3% operate into the fourth generation or beyond. Even those that do continue often see their value decline significantly when power changes hands at the top.
Eighty percent of family businesses surveyed in Michigan stated that they intend for the business to be passed on to the succeeding generation. Still, only 19 percent report that they have begun planning for succession.
Lee: These generational transitions will certainly create opportunity and signification core competency shifts. What else do you see?
Lionas: Let’s look our second trend: Family businesses must also balance the needs of the business and the family. A recent study conducted by Kennesaw State University and Ernst & Young, found that the largest and longest lasting family businesses globally became and remain successful by optimizing both family cohesion and profitable business growth.
When recruiting for CFO’s for family-owned businesses, for example, we look for that financial leader that can walk the fine line between the company’s strategic goals and the owners’ personal interests. Most times, these goals are in alignment, but it takes a savvy financial leader to be able to negotiate the differences and build solutions that will meet both agendas.
Lee: What do you find to be the optimal method of building leadership around generational shirts?
Lionas: As trusted talent advisors, it’s our role to assess the family business culture, and leadership strengths and areas that need reinforcement and maximize family cohesion. We look for leaders who can navigate generational family dynamics and serve as mentors to the next generation.
We also evaluate whether there is high turnover of non-family members. This problem may arise when employees feel that the family “gang” will always advance over outsiders and when employees realize that management is incompetent. Outside management leaders can really help reduce this perception by building clear roles and responsibility and sponsoring non-family talent for additional leadership opportunities.
Lee: How can a board also help in that generational transition?
Lionas: Mark, it is especially important for family-owned businesses to develop a formal or informal advisory board that can serve to add outside leadership experience and relationships to support the legacy of the family business, but yet support innovation and changing competitive pressures. To avoid tunnel vision, we look for sector and functional experience and especially cultural fit when we recommend board advisors for our clients.
Also, each family member may have a different vision of the business and different goals. These outside advisors and other outside leadership members can assist in harmonizing these different visions into one clear vision. There may be too much informality with family members and these advisors can help build a formal strategy and clear policies of business norms Lastly, when a family member is not performing up to expectations, outside trusted advisors can help navigate a more productive solution in terms of roles and responsibilities or other outside opportunities.
Lee: Jim, it seems like family-owned businesses often aren’t successful in recruiting outside talent-what do you find?
Lionas: Well first, In a survey conducted by the Harvard Business School, directors of family business boards gave themselves much lower performance ratings than members of nonfamily boards, especially in the area of talent management. Fewer than 10% said their companies were effective at attracting, hiring, retaining, or firing employees or at leveraging diversity in the workforce.
We are often brought in when family leaders are unsuccessful in hiring and retaining top leadership in their companies. Once, we have worked with them, they really appreciate the role of an independent trusted talent advisor to execute their growth vision to take their companies to the next generation. There is so much pressure on the next generation to succeed and our goal is to be by their side to keep their company growing and profitable for all stakeholders.
There are many companies out there seeking assistance…perhaps they should look closely at what The Hunter Group calls the “real winners” like PVS Chemicals, a great example of a successful family owned business or PlanteMoran, a company though not quite so small any more, treats all their employees as if they were family.