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All In The Family

The Challenges of Bringing in Outside Leadership in Private Closely Held Family Businesses

Private closely held family businesses are a unique and essential part of the global economy, often rooted in decades of tradition, loyalty, and a deep sense of ownership. These businesses are typically owned and operated by a family, and the business’s success and decisions are often intertwined with family dynamics, values, and long-term legacies. However, as these businesses grow and the market evolves, the question arises: how can family businesses successfully incorporate outside leadership without compromising the family values or losing accountability?

One of the most significant challenges faced by private family-owned businesses is the introduction of external leadership, particularly when family members, employees, or stakeholders are not accustomed to taking direction from individuals who are not part of the family. This situation can lead to tensions, a lack of accountability, and the potential for undermining the authority of external leaders. Let’s explore these challenges in more detail and offer some potential solutions.

Challenges of Bringing in Outside Leadership

1. Family Loyalty vs. External Authority

In family businesses, loyalty to the family and its values is a core pillar of the organization’s culture. This loyalty can create resistance when an outsider is brought in to take on a leadership role. Family employees may feel uncomfortable answering to someone who is not part of the family, perceiving them as an outsider who does not share the same vision or values. This dynamic often results in a subtle, but pervasive, undermining of the new leadership.

Family employees may view an outside leader as temporary or non-committed, simply because they don’t have the same long-term familial investment in the business. This can result in employees not fully embracing the authority of the new leader, affecting morale and organizational cohesion.

1. The “Appeals Court” Phenomenon

One of the most challenging dynamics in family-run businesses is the tendency of employees to bypass external leadership when they encounter conflicts, disagreements, or challenges. Instead of bringing issues directly to the outside leader, employees often turn to the family owners or other family members, bypassing the decision-making authority of the external leader. This is akin to creating an “appeals court” where the final decisions are often made by the family, not the appointed leader.

When employees repeatedly sidestep the new leadership, it sends a message that the external leader’s authority is not respected or valued. It also creates a fragmented leadership structure, where family members might feel compelled to take sides or intervene, further complicating the decision-making process. This leads to confusion over who is in charge and can create an environment where no one feels fully accountable to the leadership team.

1. Lack of Accountability

A major byproduct of the “appeals court” phenomenon is the erosion of accountability within the business. In many family businesses, employees are used to the idea that family members are the ultimate decision-makers, and they may struggle to adjust to an environment where outside leadership is tasked with making final calls. This lack of accountability can be particularly harmful when it comes to performance management, setting clear expectations, and ensuring that all employees are working toward the same goals.

Without a clear and accepted chain of command, external leaders often struggle to enforce policies, set deadlines, or hold employees accountable for performance. Family employees may feel less inclined to follow external leadership’s direction if they know they can circumvent it by going straight to the family owners. This undercuts the effectiveness of the leadership team, leading to frustration and a lack of alignment across the organization.

1. Family Members in Key Positions

Another challenge is when family members hold key positions in the business alongside or in support of the external leadership team. While it’s common for family members to take on executive roles within the company, their dual role as both family members and business leaders can create tension with outside leadership. These family members may feel protective of their family’s legacy and may resist external leadership’s efforts to bring about necessary changes.

On the flip side, family members who are appointed to leadership roles by the family owners may feel conflicted between their loyalty to the family and their responsibility to uphold the directives of outside leadership. In this situation, family members can unintentionally become conduits for circumventing external authority, either by directing employees to go to the family or by undermining new leadership indirectly.

Strategies for Overcoming These Challenges

While the challenges of bringing in outside leadership in family businesses are significant, there are strategies that can help mitigate the impact and create a smoother transition. Here are a few practical solutions:

1. Clear and Consistent Communication Establishing clear lines of communication from the outset is essential. Both family owners and external leadership need to articulate their roles, responsibilities, and expectations to employees. This will help eliminate ambiguity and ensure that everyone knows who to report to, what decisions are to be made by external leadership, and where the family’s role lies. Transparent communication can help alleviate concerns about outsiders and establish trust in the external leadership.
2. Establishing Authority Early On When hiring an external leader, it’s important to ensure that the role and authority of the leader are clearly communicated to all employees, particularly family members. The family must explicitly support the new leadership in front of employees and reinforce the importance of respecting the appointed leader’s authority. If employees see family members backing external leaders, they are more likely to respect the new chain of command.
3. Set Boundaries with the Family The family must recognize the importance of stepping back from day-to-day management, particularly in instances where employees turn to them as an “appeals court.” Establishing boundaries—such as clearly delineating when family members should intervene and when they should support the outside leader—can help avoid confusion. It’s critical for family members to resist the urge to step in when an employee bypasses the external leader. Instead, they should encourage employees to work through the established channels.
4. Building Trust Between Leadership and Employees Trust is essential for any leadership structure to function effectively. Outside leaders should make an effort to build relationships with employees by engaging in regular dialogue, demonstrating competence, and showing respect for the company’s culture and values. By gaining the trust of the employees, external leaders can reduce the temptation for employees to bypass their authority.
5. Integrating Family and Outside Leadership In some cases, the best solution may be to integrate family members into key roles alongside external leaders. This can create a more seamless leadership structure and ensure that family values and goals are maintained. If family members are involved in leadership but are able to work collaboratively with external leaders, it can ease tensions and ensure smoother decision-making.

Conclusion

Bringing in outside leadership to a private closely held family business can offer fresh perspectives and help address gaps in expertise, but it is not without its challenges. The dynamics of family loyalty, accountability, and resistance to authority often create obstacles for new leaders. Overcoming these challenges requires a thoughtful, strategic approach—clear communication, setting boundaries, and actively building trust between family members and external leadership.

When done correctly, the integration of outside leadership into a family business can unlock growth, operational efficiency, and long-term sustainability while preserving the family’s legacy. However, success hinges on ensuring that everyone understands their roles and responsibilities, and that all leaders, whether inside or outside the family, are empowered to lead with confidence and authority.

Paul Fioravanti, MBA, MPA, CTP, is the CEO & Managing Partner of QORVAL Partners, LLC, a FL-based advisory firm (founded 1996 by Jim Malone, six-time Fortune 100/500 CEO) Qorval is a US-based turnaround, restructuring, business optimization and interim management firm. Fioravanti is a proven turnaround CEO with experience in more than 90 situations in more than 40 industries. He earned his MBA and MPA from the University of Rhode Island and completed advanced post-master’s research in finance and marketing at Bryant University. He is a Certified Turnaround Professional and member of the Turnaround Management Association, the Private Directors Association, Association for Corporate Growth (ACG), Association of Merger & Acquisition Advisors (AM&MA), the American Bankruptcy Institute, and IMCUSA. Copyright 2024, Qorval Partners LLC and/or Paul Fioravanti, MBA, MPA, CTP. All rights reserved. No reproduction or redistribution without permission.

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