Integrating Outside Executives into a Family Business

A trend article by Cook Associates Executive Search featuring Kevin Logterman, Managing Director of the Family & Industrial Practices

From Rockefeller to Michelin to Braun, the mere mention of a family name can bring to mind the image of a lucrative dynasty. According to Small Business Administration reports from 2009, a third of Fortune 500 firms are family-owned or controlled. Add to that the fact that 90% of U.S. businesses are family-owned and it would seem that the family-run enterprise has an advantage over their public counterparts. While that may be true in many ways, one of the major issues facing family businesses is the challenge of bringing outside executives into their organization and the high probability of failure that can follow.

Kevin Logterman of Cook Associates Executive Search specializes in executive level assignments for family-owned businesses and has surveyed opinion leaders in the field. He has identified some specific best practice measures for family harmony and business leadership when integrating a non-family executive into a family business.

From his Chicago office, Logterman spoke about these best practices, "While there are many important factors to consider when integrating non-family executives, we've determined three to be most critical."

The first best practice measure is to make certain the candidate‘s values match the values of the existing business. Recently, Logterman placed Mike Grasee, a former Senior V.P. with Lands' End, into the role of President at DEMCO, a division of the Wall Family Enterprise and a provider of supplies and solutions to libraries. Grasee became a candidate for the position through an introduction to Logterman, which was made by a mutual acquaintance.

As they began the recruitment process Grasee says, "What Kevin very quickly talked about, which really told me a lot about the company, was the values and the Wall Family Enterprise philosophy. So a lot of the conversation was around - here is what makes this company tick - not just, if you will, here are the sales or the market, but here is what the company stands for in terms of values, philosophy and approach."

When asked about the values at DEMCO, Grasee said, "The number one value that makes the company tick is: act with respect. The sub-bullets under there are foster trust, be honest, fair, and reliable."

Logterman adds, "If the candidates cannot understand and connect with the values of the organization, it's immaterial how talented or successful they've been elsewhere. When recruiting Mike, it was very clear that he understood, appreciated and grasped the values of the Wall family, the CEO and the DEMCO organization. A successful search comes down to matching values and fit between people and companies."

John L. Ward, a clinical professor of family enterprises at the Kellogg School of Management, also weighed in on the importance of synergistic values for an executive entering into a family enterprise, "I'd say they must believe in the values and visions shared by the family. They need a great appreciation and sensitivity for business culture, as business culture in a family business is both more subtle and more powerful."

Ward is a co-founding principal of the Family Business Consulting Group, which is a Chicago-based consultancy devoted to family enterprises. He is one of the icons in family business research and author of several noteworthy books on the topic. He suggests another best practice measure for an integrating executive, which is to understand a particular type of long-term strategy, coined as patient capital.

Best Practice: Understand Patient Capital

Ward explained the phenomenon, "Patient capital is a term that expresses the long-term point of view. Patient capital meaning, of course, that they [the family] put their capital into things and patiently await long-term success."

"Because their fundamental purpose is continuity, family businesses are very prudent in their risk taking. They are very mindful of perpetuation, so they work hard to protect and preserve the enterprise," Ward said.

Mike Grasee of DEMCO agrees with Ward about the importance of long-term strategic thinking when working within a family business, "Many public companies often focus on hitting the quarterly number versus the longer-term outlook."

Logterman adds that candidates from public companies will contact him to express interest in pursuing opportunities with family-owned businesses for various reasons, the primary reason being their belief that private companies aren't as aggressive as public. "This most oftentimes isn't the case," Logterman countered. "It's in the way they look at the future, being longer term in thinking, and understanding that time is important for good plans to come together."

Grasee commented that the long-term approach of thinking in 5 and 10 year increments, rather than 3 to 5 quarters in advance, was attractive to him as an executive. He also pointed out the importance of cultivating open communication with the founding family.

Best Practice: Communicate with Family

Grasee noted, "For example, I just had lunch with the Chairman Emeritus, the father of the first generation family owners of our business. One of the things I try to do is periodically get together with Mr. Wall and get his perspective."

Grasee added that it was critical "to hear the stories from Mr. Wall, so that I can use strategic storytelling to make points, to inspire and to lead our co-workers here."

Ward added that one of the big benefits of having a non-family executive as part of the executive team is, "bringing a different perspective that can complement the strengths and weaknesses of the family members who are part of the non-family team."

Logterman validated the views of Ward and Grasee, and said he has witnessed first-hand the value communication and a different perspective can provide, "I can tell very early on how effective the search process will be by the access - or lack of - granted by the family and any non-family executives. When beginning a search, being granted access at all levels is a huge benefit in the process."

Logterman said when asked further about communicating with the founding family. "It takes a lot of courage to allow this kind of access and communication, but it is critical to the long-term success of the family business, in that, it provides me an unfiltered view of the company and the ability to be very transparent with any interested candidates. It saves a lot of time and money in the long run to discuss possible issues prior to hiring a non-family executive."

Kevin Logterman is a Managing Director within the Industrial and Family Business practice areas, based in the firm's Chicago office.

Kevin's experience with Industrial companies includes assignments for private equity, family owned business and global companies. Positions filled include President / GM, all functional leadership roles and Board of Directors.

Of particular interest and area of expertise of Kevin's is in the area of Family Business. As the son of an entrepreneur and someone who has worked in family business his entire career, Kevin has a deep appreciation for the challenges and opportunities that family businesses face in today's world. Search experience includes CEO, President, functional leaders and Board of Director / Advisory Board members.

Prior to joining Cook Associates, Kevin served as a Managing Director for The Furst Search Group, a regional search firm focused on senior management searches for Industrial clients. While at Furst, Kevin successfully completed over 180 searches and led the firm's marketing and business development efforts, including the creation of an annual Board of Directors' Survey sponsored by Midwest CEO organization. Clients ranged from family-owned and private equity companies to the Fortune 1000.

Prior to his search career, Kevin held sales and management positions within the manufacturing and banking industries. With over 25 years of business and search experience, he has developed a strong understanding of the competitive challenges facing businesses today and how exceptional talent and cultural fit can impact an organization.