Family-owned businesses make up a dominant share of businesses in the United States and are a cornerstone of Las Vegas’ small-business community.
Family businesses are characterized by their access to intangible family-based resources as well as barriers and constraints owing to their familial nature. As such, successfully leading a family business may, in some cases, run afoul of traditional notions of business management. A significant example of this arises as a family business grows and its founders are faced with the choice of keeping management in the family or hiring professional nonfamily managers.
A recent study of more than 7,000 family businesses from across the nation, conducted by researchers at UNLV, Mississippi State University and the University of North Carolina, explores this relationship. The data collected suggest that while professional managers may have superior capability, they take positions that potentially could be filled by family members. Thus, they may not only threaten the familial nature of the business but, in the long run, increase barriers to successfully grooming family successors, inhibiting a business’ ability to succeed ownership to later generations.
This puts many family businesses between a rock and a hard place; it is the desire of the founders to do everything in their power to maximize the performance and growth of their business to make it a positive source of employment, wealth and pride for future family members, but the limited managerial capabilities of family members may lead the business instead to rely on expertise provided by professional nonfamily managers.
The conclusions of this research confirm the notion: that regardless of performance, age or industry, businesses with higher degrees of family ownership and stronger intentions for transgenerational succession are less likely to employ nonfamily managers.
That being said, the threats facing family businesses regarding employment of nonfamily managers weaken as the business grows.
Las Vegas family businesses facing this issue may benefit from this research by putting greater consideration into their expansion strategies. While it potentially could lead to short-term success, an overreliance on professional management in younger and smaller businesses may erect long-term barriers that inhibit family managers from being able to successfully enter, and potentially even succeed ownership of, the business.
These findings suggest a family business certainly should not reject the idea of professionalizing its management outright, but instead should incorporate professional management gradually as the business grows, ensuring its ability to retain and benefit from its family-owned nature.
Robert Randolph is an assistant professor of management in the Lee Business School at UNLV.