The Nonfamily Manager Dilemma

To hire or not to hire, that is but one of the questions facing family-run businesses considering the addition of nonfamily managers.

The above situation has been played out countless times in family-run scrap recycling operations. Some companies find the process to be a rejuvenating look into the business and what the future holds. But many--perhaps most--find the process difficult.

It is common for family businesses to experience turmoil when considering hiring family members outside the immediate family, such as sons-in-law and cousins. In fact, some might say that it’s even more difficult than accepting an unrelated outside. That might be true initially due to a lack of emotional attachment to the outsider. However, hiring a nonfamily manager is tied to the larger scope of an organization’s business plan and, therefore, can have a greater impact.

When discussing this issue, family business owners in the scrap industry often emphasize the negatives rather than the positives of including nonfamily managers. The same attitude holds true with nonfamily managers in the industry. They may recognize the many positive aspects of working for a closely held corporation, but tend to reflect on problems that, at times, compel them to assess their career goals.

Because problems can occur when nonfamily members fill important management slots, family-owned companies considering such hires should decide whether an investment in nonfamily members is a prudent course of action. If the decision is affirmative, they must be ready to and overcome potential conflicts.

Why Look Outside of the Family

Following the industry's recession of the early 1980s, fewer family members were choosing scrap recycling as a career. This, combined with the recent resurgence of the industry, which has created a demand for additional talent at the mid-to-upper levels of management, has forced many closely held firms to turn to professional staff outside the family. Today, many individuals speak of the need to attract bright talent to their businesses for the future. Based on the industry's growth and evolution, this talent is likely to come from outside the family structure. If that's the case, firms must ensure that creating a nonfamily management team will be a positive and successful move, one lasting beyond initial needs.

Where should a company start? In the last few years, scrap recycling firms have heard over and over again about the necessity of a strategic business plan. This need still holds and is even more important if a company plans to involve nonfamily members in its vision for the future.

A strategic plan should define a business's goals, addressing such issues as:

Will the company grow?

In what direction(s) will it develop?

Will current resources be sufficient?

Will the company remain a closely held business?

Will it contract its services?

Will its focus be broader or narrower?

Is a market niche needed?

How stable is the consumer base?

Who is the competition?

Included in the plan should be an evaluation of current management resources, which in most scrap recycling businesses reflects family members. Do they have the skills and business acumen to keep the company on its current path (if it's positive) or change directions (if needed)? If the plan calls for new directions, will the necessary guidance be available from current managers?

What to Consider Before Hiring

A company's plan and evaluations might determine that there is no current or future need for nonfamily-member resources in a top management position. If, however, the plan determines a need for such talent, the firm might need to examine its present philosophy on how the business operates and what changes it can make without shocking the established family/business system.

When a nonfamily member is considered for management, there might be limitations in the minds of family members that conflict with the expectations of the nonfamily manager. Therefore, companies should discuss parameters of responsibility with a potential nonfamily manager before he or she is hired.

The following questions also should be considered before hiring in order to make the final decision as meaningful, productive, and successful as possible.

Can a nonfamily member truly be integrated into the management system and decision process?

Could a nonfamily member acquire over time more responsibility than some family members?

How will the company handle family-member jealousy?

Could a nonfamily member ever be paid more (based on responsibilities and performance) than a family member?

Is the family willing to share detailed financial information with a nonfamily member? (In one real example, a son-in-law evaluating whether to join the family business asked to see the financial statements. His request was refused.)

Could a nonfamily member ever be president or chief operating officer of the company?

Is the company willing to offer stock or some other piece of the company to a nonfamily member?

Could a nonfamily management employee ever hold a seat on the board of directors?

If there has been a problem of mentoring or sharing information with a family member who has the potential to be the "boss," will it be any easier to initiate that process with a nonfamily member?

Would family members be comfortable allowing a nonfamily member to make financial decisions that could affect their lifestyles?

Could a nonfamily manager move beyond his or her current position, perhaps even supervise a family member?

Is there hope for young family members to enter the business in the future? What effect will their entrance have on a nonfamily manager who has served many years and hopes for greater responsibilities?

If the strategic business plan calls for new resources to make it work properly and a company wants to attract top talent, could it proceed affirmatively with many of the issues listed above? If not, would a highly skilled nonfamily manager stay, given the firm's current management and organizational status? Could the company rely merely on an attractive compensation package to ensure employment longevity?

How to Put It In Perspective

As family firms in the scrap recycling industry consider relying on more nonfamily management personnel, many divergent forces pull at their historical structure. How did the gutsy entrepreneurial spirit of the company develop? Was it passed down from generation to generation through a learning process over the dinner table, or through hours and hours of working with machinery and in the warehouse, learning about that little edge over the competition? Or was it based on a pressing desire to bring success to all the family members involved? No matter what the answer is, a company must consider if the motivation can be passed on with the same intensity to a nonfamily member.

In a changing industry, can the same factors that drove a business to success in the past see the company through to the next century? Or will fundamental changes be occurring within the family enterprise, requiring the business to adapt new g, planning, and structure?

If your company's strategic outlook points toward a need for resources outside the family sphere, include within your plan how you will go about incorporating these resources into a system that involves more emotional considerations than most business decisions.

Would your family business give a nonfamily manager the opportunity to make independent decisions on operational and financial matters that would be advantageous for the company and the manager? Or would you view that person's role as one in which his or her actions are designed to help the family reach its own goals?

To hire or not to hire, that is but one of the questions facing family-run businesses considering the addition of nonfamily managers.

The above situation has been played out countless times in family-run scrap recycling operations. Some companies find the process to be a rejuvenating look into the business and what the future holds. But many--perhaps most--find the process difficult.

It is common for family businesses to experience turmoil when considering hiring family members outside the immediate family, such as sons-in-law and cousins. In fact, some might say that it’s even more difficult than accepting an unrelated outside. That might be true initially due to a lack of emotional attachment to the outsider. However, hiring a nonfamily manager is tied to the larger scope of an organization’s business plan and, therefore, can have a greater impact.

When discussing this issue, family business owners in the scrap industry often emphasize the negatives rather than the positives of including nonfamily managers. The same attitude holds true with nonfamily managers in the industry. They may recognize the many positive aspects of working for a closely held corporation, but tend to reflect on problems that, at times, compel them to assess their career goals.

Because problems can occur when nonfamily members fill important management slots, family-owned companies considering such hires should decide whether an investment in nonfamily members is a prudent course of action. If the decision is affirmative, they must be ready to and overcome potential conflicts.

Why Look Outside of the Family

Following the industry's recession of the early 1980s, fewer family members were choosing scrap recycling as a career. This, combined with the recent resurgence of the industry, which has created a demand for additional talent at the mid-to-upper levels of management, has forced many closely held firms to turn to professional staff outside the family. Today, many individuals speak of the need to attract bright talent to their businesses for the future. Based on the industry's growth and evolution, this talent is likely to come from outside the family structure. If that's the case, firms must ensure that creating a nonfamily management team will be a positive and successful move, one lasting beyond initial needs.

Where should a company start? In the last few years, scrap recycling firms have heard over and over again about the necessity of a strategic business plan. This need still holds and is even more important if a company plans to involve nonfamily members in its vision for the future.

A strategic plan should define a business's goals, addressing such issues as:

Will the company grow?

In what direction(s) will it develop?

Will current resources be sufficient?

Will the company remain a closely held business?

Will it contract its services?

Will its focus be broader or narrower?

Is a market niche needed?

How stable is the consumer base?

Who is the competition?

Included in the plan should be an evaluation of current management resources, which in most scrap recycling businesses reflects family members. Do they have the skills and business acumen to keep the company on its current path (if it's positive) or change directions (if needed)? If the plan calls for new directions, will the necessary guidance be available from current managers?

What to Consider Before Hiring

A company's plan and evaluations might determine that there is no current or future need for nonfamily-member resources in a top management position. If, however, the plan determines a need for such talent, the firm might need to examine its present philosophy on how the business operates and what changes it can make without shocking the established family/business system.

When a nonfamily member is considered for management, there might be limitations in the minds of family members that conflict with the expectations of the nonfamily manager. Therefore, companies should discuss parameters of responsibility with a potential nonfamily manager before he or she is hired.

The following questions also should be considered before hiring in order to make the final decision as meaningful, productive, and successful as possible.

Can a nonfamily member truly be integrated into the management system and decision process?

Could a nonfamily member acquire over time more responsibility than some family members?

How will the company handle family-member jealousy?

Could a nonfamily member ever be paid more (based on responsibilities and performance) than a family member?

Is the family willing to share detailed financial information with a nonfamily member? (In one real example, a son-in-law evaluating whether to join the family business asked to see the financial statements. His request was refused.)

Could a nonfamily member ever be president or chief operating officer of the company?

Is the company willing to offer stock or some other piece of the company to a nonfamily member?

Could a nonfamily management employee ever hold a seat on the board of directors?

If there has been a problem of mentoring or sharing information with a family member who has the potential to be the "boss," will it be any easier to initiate that process with a nonfamily member?

Would family members be comfortable allowing a nonfamily member to make financial decisions that could affect their lifestyles?

Could a nonfamily manager move beyond his or her current position, perhaps even supervise a family member?

Is there hope for young family members to enter the business in the future? What effect will their entrance have on a nonfamily manager who has served many years and hopes for greater responsibilities?

If the strategic business plan calls for new resources to make it work properly and a company wants to attract top talent, could it proceed affirmatively with many of the issues listed above? If not, would a highly skilled nonfamily manager stay, given the firm's current management and organizational status? Could the company rely merely on an attractive compensation package to ensure employment longevity?

How to Put It In Perspective

As family firms in the scrap recycling industry consider relying on more nonfamily management personnel, many divergent forces pull at their historical structure. How did the gutsy entrepreneurial spirit of the company develop? Was it passed down from generation to generation through a learning process over the dinner table, or through hours and hours of working with machinery and in the warehouse, learning about that little edge over the competition? Or was it based on a pressing desire to bring success to all the family members involved? No matter what the answer is, a company must consider if the motivation can be passed on with the same intensity to a nonfamily member.

In a changing industry, can the same factors that drove a business to success in the past see the company through to the next century? Or will fundamental changes be occurring within the family enterprise, requiring the business to adapt new g, planning, and structure?

If your company's strategic outlook points toward a need for resources outside the family sphere, include within your plan how you will go about incorporating these resources into a system that involves more emotional considerations than most business decisions.

Would your family business give a nonfamily manager the opportunity to make independent decisions on operational and financial matters that would be advantageous for the company and the manager? Or would you view that person's role as one in which his or her actions are designed to help the family reach its own goals?