HR & Management

Why family business CEOs pursue different strategies

3 min read

11 December 2015

According to new research from the Robert Smith School of Business at the University of Maryland, family business CEOs not only see the world differently to non-family firm bosses, but also pursue different strategies.

Findings from a survey of more than 800 CEOs of the largest firms in 22 emerging-market nations found that “family” CEOs take a more hands-on management role and put a lower value on hiring top managers to whom they can delegate. It was also suggested that the more family-oriented the firm, the more of a “stakeholder” focus it had. And faced with a choice between continuing to pay dividends and laying off workers, founders and CEOs related to the firm’s founder would lean toward protecting workers. 

On the other hand, non-family form bosses prioritised payouts to shareholders, and were more inclined to use as banks over shareholders.

William Mullins, an assistant professor of finance at the Robert Smith School of Business, said that previous research suggested that family-run firms on average had weaker financial performance, adopted technology more slowly, and were slower to institute “best practices” in management. 

“The literature shows us already that there are performance and behaviour differences between family and non-family firms,” Mullins said. “We’re trying to go a level deeper and try to understand why. Is it because of how CEOs perceive their role, or because they have less power? Or is it a combination?”

No datasets based on objective performance can answer that question. “The only way to do that,” he explained, “is to ask the CEOs.” 

The research broke down the CEOs into four groups: founder-CEOs; CEOs related to the founder; professional, non-family CEOs in family-run companies; and professional CEOs in non-family firms. In contrast to the family CEOs, professional CEOs at both family and non-family firms leaned toward the shareholder approach, but there were noted differences in their experiences.

Chiefly, at family firms, professional CEOs had less power – measured by their likelihood of being on the company’s board, how much equity they held, their history of firing top managers and other factors.

“Being a professional CEO in a family firm looks like an uncomfortable position, based on their responses,” Mullins said. “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.”

That is a dynamic that family firms should keep in mind when making the transition to a professional CEO. The retirement of the founder-CEO is a crucial turning point for many companies. The research suggested that “if you don’t give the professional CEOs the tools to change the firm, you are going to keep the company, to some extent, frozen in place.”