The differing perspectives of founders

family-ceo-successionIn a previous post I looked at a study that was exploring the key role founders played in the success of their business.  It found that employee satisfaction is highest at companies that are run by their founder, or the family of the founder.

Interestingly however, not only is employee engagement higher, but corporate performance also appeared to be higher, as engaged employees produce better outcomes for the founders.

“We found that employees at firms like Amazon—large, founder-run, publicly traded—are, on average, more satisfied with their company,” the authors suggest.

Thinking differently

This may be because such firms think fundamentally differently to companies where the founders are no-longer present.  A recent study found that founder-CEOs have a very different world view to the CEOs of non-family firms.

The analysis revealed that the more family orientated the company was, the greater focus it had on its stakeholders.  So, for instance, if it was a choice between paying a dividend to shareholders or making employees redundant, they would generally choose to protect the jobs.

Interestingly, the ‘family’ CEO is also much more likely to take a hands on role in the business and is therefore less likely to delegate responsibility to someone else.

The influence of the CEO

The study aimed to discover the role the CEO had on the way the company behaved.  It hoped to distinguish the influence of the boss from factors such as the location of the firm, the wealth of that area, corruption levels and the institutional and legal framework the company operated in.

It’s a valuable insight as there are various perceptions attached to family run firms that aren’t always true.  For instance, that they may be more traditional and less innovative, which translates into weaker financial performance.

For the analysis, the CEOs were split into four groups:

  1. Founder CEOs
  2. CEOs that are related to the founder
  3. Non-family CEOs in family firms
  4. Non-family CEOs in non-family firms

Whilst it was common to have the shareholder at the heart of what they did, there were a number of differences.  For instance, in family firms, a professional CEO generally had minimal power compared to their peers in other companies.

“Being a professional CEO in a family firm looks like an uncomfortable position, based on their responses” the authors say. “The kind of management they want to impose is not something they appear to have the power to impose. The family still controls the levers.”

It’s something that perhaps family firms should be aware of if they’re considering recruiting a professional CEO.  When a family CEO retires it represents a huge turning point in the fortunes of the company, and this study shed some fresh light into just why this is.

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