I was recently distracted midway through conversation over lunch with the former CEO of a Single Family Office (SFO) – we’ll call him Bill. Bill had remarked how lonely the role could be and that caused me to wonder, who mentors the family mentor?
Bill remarked that during his career, he had sometimes picked up the phone to call friends of the family informally to run issues by them, but no formal framework existed, and yet the family would look to Bill to lead, mitigate, agitate, and pacify as the circumstances dictated. They would also be the first to notice a decline in their relative value.
There is some research that has been applied to understanding the relationship of agency theory and stewardship theory to the management of private enterprises, particularly “Towards a stewardship theory of management” by Davis, Shoorman, and Donaldson in the Academy of Management Review, 1997. A common finding has been that those family firms that have managed to align owners and agents as stewards have thrived over the long term.
The research proposes a model, where an executive operates by reference to their relationship to their surroundings, which are created by the principals themselves:
“Managers choose to behave as stewards or agents. Their choice is contingent on their psychological motivations and their perceptions of the situation. Principals also choose to create an agency or stewardship relationship based on their perceptions of the situation or the manager.”
The executive of a family business either as an outside non-family appointee, or a member of the family ‘groomed’ as the natural successor, carries a responsibility for dealing with the business issues in a way which is empathetic to the family culture. It is a role which has advantages and benefits to that of counterparts working in the public sector. For the competent, trustworthy executive, it offers a great sense of security and tenure as family businesses typically operate to longer time frames. It potentially offers greater freedom to management to initiate change as family businesses may not operate with the same level of bureaucracy as more process-orientated publicly-owned organisations. However, caution is needed here lest one act without the imprimatur of the family.
It is a role which can provide its own unique challenges, often defined by the dynamics of the relationship within the family and their relationship to the business itself. It may be frustrating in the absence of clearly defined accountabilities and responsibilities. The family business may have an inbuilt management succession mechanism which is inflexible, and may not always be meritocratic. The role typically does not offer the same opportunity to participate as an owner of equity, and can limit the amount of monetary recognition available as compared to peers working for more widely owned enterprises.
It is a role where there is a danger of being “caught in the middle” and as such may require the diplomatic skills of an ambassador and the capacity to maintain evenhandedness in dealings with and across family groups as owners. Faced with the responsibility of being notionally in charge of the family’s wealth and future, and yet spending large amounts of their time offering a subtle and nuanced view in their dealings with the family members, what are the key characteristics of the non-family CEO?
In dealing with this complexity are non-family executives necessarily more focused on broader goals and values?
What motivates the non-family executive and what defines success in the eyes of the principals?