Between Tradition and Transformation: Recruitment and Succession in Family Businesses

The competition for senior executives has long since become a strategic challenge for German SMEs. Family-owned businesses, in particular, are currently facing far-reaching economic and structural changes: transformation, skills shortages, growing uncertainty and succession planning are increasing the pressure to fill key positions sustainably and with the right fit. After all, every recruitment decision today has a direct impact on growth, corporate culture and future viability.

How do family businesses find the right leaders? What role do cultural fit, trust and long-term prospects play in the selection process? And why is traditional recruitment no longer sufficient in many cases? Dr Marco Henry V. Neumueller, a partner at Odgers, discusses these issues with Prof. Dr Nadine Kammerlander, one of the most prominent researchers on family businesses in the German-speaking world. The discussion centres on the question of how family businesses make personnel decisions that not only work in the short term but also ensure the company’s survival and development across generations.

Professor Kammerlander, you have been studying family businesses in depth for many years. What impresses you personally about these businesses, and what might other types of business learn from them?

When a business is family-owned, this brings with it a certain amount of freedom – the freedom to make ‘the right decisions’, even if they may seem unusual or bold at first glance.

Family businesses can make decisions with a longer-term perspective, as they are not obliged to optimise their quarterly figures. Furthermore, where necessary, family businesses can also take non-financial objectives into account and, for example, prioritise the well-being of their employees or the environmental sustainability of their production. As a result, family businesses can often operate in a more responsible manner than, for example, large listed corporations. When family business owners make bold, values-based decisions, it is impressive – and certainly worth emulating. 

Many family businesses take a long-term view and attach great importance to their corporate culture. How does this affect recruitment and succession planning?

Both can have both positive and negative effects on recruitment. On the positive side, because of their long-term focus, family businesses do not have to bow to short-term trends. They can take a forward-looking approach to considering what talent the business needs, not just now but also in the future. Furthermore, the corporate culture helps to retain talent in the long term. Our own studies show that employees who work in a company with family members on the management board are, on average, more satisfied, view their working atmosphere more positively and are less likely to want to leave. In this respect, family businesses can often rely on a loyal and proactive workforce. But there is also a downside: because of this continuity, family businesses often find it difficult to recognise radical change at an early stage and implement it within the company. 

Where do you currently see the greatest challenges for family businesses and hidden champions, particularly outside the major metropolitan areas?

Despite their advantages, family businesses do not always enjoy the best reputation amongst graduates, as a Spanish study of European MBA graduates has shown. Rather than family businesses, top talent is drawn to large, well-known corporations, consultancy firms and the banking sector. There are many reasons for this: on the one hand, people expect higher salaries, a faster-track career and a more positive impact on their CVs outside family businesses. On the other hand, however, the often rural location also presents a hurdle when it comes to attracting specialists and managers. One of the biggest challenges, however, is home-grown. The ‘hidden’ in ‘hidden champions’ is increasingly becoming a problem. Family businesses that nobody knows about understandably face particularly acute difficulties in recruitment. Therefore, raising their profile and getting the word out about themselves is a key task for family businesses. 

What do family businesses need to offer today in order to attract experienced leaders in the long term, particularly when competing with global corporations and tech giants?

The biggest challenge for family businesses is attracting experienced leaders to the company. To do this, they need, on the one hand, to raise their profile. On the other hand, they need to present themselves as more attractive employers.

The advantages of family businesses – particularly in terms of flexibility and culture – need to be communicated more proactively. Family businesses should proactively monitor the terms and salaries offered by global corporations so that they can respond accordingly. Most importantly, they need to demonstrate that, in family businesses, one can make a direct ‘impact’ without bureaucratic hurdles. If there are experienced managers within the company, family business owners should ensure professionalism in communication and processes. As mentioned above, the culture of family businesses is a genuine competitive advantage. However, latent or open conflicts within the family, or delayed decisions at owner level, can quickly drive away good managers.

Family businesses often differ significantly in terms of culture from listed corporations. What implications does this have for the selection of senior executives?

That is a very important point. Someone who has successfully held a management position in a large corporation will not necessarily be successful in a family business. In family businesses, it is often not possible to delegate tasks at will due to a shortage of resources. Instead, an active, hands-on approach is expected. During the recruitment process, it is essential to ensure that managers are comfortable with this way of working. Furthermore, family businesses often expect their managers to demonstrate a high degree of personal responsibility and to make quick decisions, even in times of uncertainty. 

How important are cultural fit, an understanding of values and trust compared to professional excellence and management experience?

Professional excellence is also very important in family businesses. However, there are additional requirements. Many executives have left family businesses at an early stage because there was a mismatch in culture and values. In family businesses, however, whether an executive is successful in the long term often depends on whether they understand and respect the values, culture and specific characteristics of the owner family. Furthermore, if family owners lose confidence in their (external) executives, constructive cooperation usually ceases.

Many entrepreneurial families are faced with the question of whether leadership should remain within the family or whether external managers should take on responsibility. What developments are you currently observing in this regard?

Overall, the trend over the past few years has been towards external management. This is partly because, in many cases, the children of the entrepreneurial family are not interested in operational roles within the company. At the same time, we observe that many entrepreneurial families wish to remain actively involved – for example, as active owners, on advisory boards or on supervisory boards. It is important that the decision between ‘in-house or external’ management suits the company and the entrepreneurial family. In any case, it is vital that management and owners are perceived as a single entity and present a united front.

In your view, what distinguishes family businesses that are particularly successful in recruitment and succession planning?

Entrepreneurial families who know what they stand for and what matters to them are particularly successful. These families have, in most cases, established early on in their governance framework how to deal with situations such as conflicts and how succession planning should be structured. What sets these family businesses apart is, on the one hand, a long-term vision that ensures well-considered action, and on the other hand, flexibility that allows for rapid adaptation to changing conditions. 

If you could give one piece of advice to the next generation of family business owners, what would it be?

Running a family business entails great responsibility, but also great opportunities. It is the task of the next generation to find answers to the following questions at an early stage: Which aspects of the family business are valuable traditions and should be continued? Where are innovation and change necessary? What is your own leadership style – and how does it differ, if at all, from that of your predecessors? It is important to respect the values and strengths of the previous generation, whilst at the same time having the courage to forge your own path.

Professor Kammerlander, thank you very much for the interview!