Description
Family businesses typically begin as small, local operations. Over time, and often through the early leadership of visionary and daring founders, some develop into powerful multinationals that successfully compete with the world's leading public companies. As family-owned businesses (FOBs) undergo this transformation, a process that can take generations, their focus shifts from shortterm survival to bigger questions of diversification, professionalization and internationalization. These evolutions often are accompanied by profound changes in strategy, corporate governance and organization model.
The Five Principles of Effective Talent Management
for Family-Owned Businesses
Family businesses typically begin as small, local opera-
tions. Over time, and often through the early leadership of
visionary and daring founders, some develop into power-
ful multinationals that successfully compete with the
world’s leading public companies. As family-owned busi-
nesses (FOBs) undergo this transformation, a process
that can take generations, their focus shifts from short-
term survival to bigger questions of diversification, profes-
sionalization and internationalization. These evolutions
often are accompanied by profound changes in strategy,
corporate governance and organization model.
Driving these changes is the company’s senior leadership
team, which may still be dominated by family members. But
at defining moments, leading FOBs recognize the need to
bring in executives from outside who have expertise in shep-
herding businesses through unfamiliar strategic and organi-
zational changes. In a 2007-2008 global study by
PricewaterhouseCoopers, 42 percent of family-controlled
businesses considered recruiting to be one of their most
important business issues. As FOBs evolve from small-scale
family businesses to larger-scale operations that happen to
be family-owned, they need an effective talent-management
approach to ensure the highest likelihood of success.
An examination of select global family-controlled business-
es shows that five guiding principles can help an FOB
choose the right talent-management approach to support
its long-term goals — one that enables it to attract and
retain top executive talent and keeps it on the path to
becoming a successful, world-class business.
Define the family’s sources of value
to the business
To determine how the company should be organized, the
family should thoughtfully consider what value it brings to
its own business and what contributions it is prepared to
make, or not, moving forward.
On one end of the spectrum, families may be quite hands-
off, contributing mostly shareholder capital and oversight.
This is the case for the Ayala family, which operates Ayala
Corporation, the Philippines’ oldest and largest conglom-
erate, as a balanced portfolio of diversified and largely
independent businesses. The family adds value to its hold-
ing portfolio through its access to capital and professional
management practices.
At the other end of the spectrum, the family and company
have a symbiotic business relationship, where the family is
intimately involved in day-to-day decision-making across
the organization. Korean chaebols such as Samsung typify
this approach. In this case, the family adds value by bring-
ing hands-on management talent to the business and
developing favorable government and business relation-
ships through personal family connections.
by Arnaud Despierre
1
2
Either model, as well as hybrids of the two, can be success-
ful, as long as the family’s role in the business is explicitly
defined, from relatively hands-off board participation to
control over key executive positions. The right model is one
that all the key stakeholders are willing to accept and that
the rest of the business can be organized around.
Put the family’s long-term
interests first
Once the family agrees upon its overall value to the
organization, the specific roles of individual family mem-
bers should be clearly defined. This helps to ensure that
the long-term interests of the family and the business are
not compromised by the short-term self-interest of influ-
ential family members. These temptations can include
excessive dividends, unjustified mergers and acquisitions,
or appointments by birthright.
To avoid these mistakes, it is important for family-owned
businesses to prevent direct conflicts of interest such as
giving both significant shareholder rights and excessive
executive decision-making power to the same individuals.
As an added safeguard, it is wise to put a clear governance
structure in place, as Sweden’s Wallenberg family has done
for its diversified investments in Investor AB, one of
Northern Europe’s largest industrial players. Using analyti-
cal value-creation agendas, the company makes fact-based
investment and management decisions on its Investor core
holdings. Clear criteria have been set upfront on issues
such as M&A potential based on value-creating business
principles, allowing no room for interference. This value-
based approach ensures that the long-term health of the
Investor business is prioritized over any short-term harvest-
ing incentive by any individual family member.
Actively embrace opportunities to
bring in fresh talent
Once the family’s role has been defined and adequate
controls are in place, an FOB is ready to consider if, and
2
Define the family’s sources of value to the business
Which strategic asset does the family bring to the business?
Shareholder Capital Business Networks Management Capability Personal Networks
Ayala
Corporation
Investor AB
Bombardier,
Jean Fayolle
& Fils (JFF)
Samsung,
Hutchison
Whampoa
• Oversight
• Financial resources
• Access to pipeline
of M&A deals
• Catalyst
• Financial resources
• Industry expertise
• Access to pools of
world-class talent
• Leadership
• C-level talent,
including CEO
• Industry expertise
• Symbiotic
• Mid- and C-level
managerial talent
• Commercial
relationships
• Regulatory influence
3
Representative family-
controlled companies
Family role
Most likely
family contribution
3
when, specific skills should be brought in from outside to
support the corporate strategy. This can feel like a major
risk to family businesses accustomed to closely control-
ling all aspects of their operations. But it is often what the
business needs as it goes international, diversifies into
new markets or establishes a more professional organiza-
tion. These unfamiliar transitions require a fresh look at
how the company is operated — and expertise and capa-
bilities that the family may not possess.
As an example, a leading Chinese tire manufacturer
owned by a Singapore-based family has an ambitious
global growth strategy that already has allowed its busi-
ness to reach the four corners of the globe. To realize it,
the company has laid out recruiting plans in key areas to
bring in world-class executives from within and beyond
the tire industry. In another example, the Wallenberg fami-
ly so clearly recognizes the importance of identifying and
recruiting fresh talent that it acquired a controlling stake
in a professional recruiting firm, Novare, as part of its
investment portfolio. In addition to being a standalone
profit-making business, the firm serves the talent needs
of the rest of the family’s diverse business investments.
Embracing fresh talent can go as far as bringing in a CEO
from outside the family to run the business, a move that
can sometimes prove beneficial. Research by McKinsey &
Company of 700 Western manufacturing FOBs found that
family-controlled businesses run by outsiders have, on
average, better management practices than those run by a
family member.
Tailor the talent-development
approach to the culture
Once the company begins to bring executive talent on
board, processes for managing their development should
be aligned with the family’s culture.
One option is the ‘chessboard’ approach, where executive
development is monitored carefully and career decisions
are centralized. This approach is most suited to medium-
size FOBs in which the CEO can personally manage the
development of his executive team. Such is the case at
Jean Fayolle & Fils (JFF), a 2,500-employee French civil
engineering FOB that is growing aggressively through
acquisitions in France and Canada. JFF CEO Bruno
Fayolle, the great-grandson of the founder, views manag-
ing the careers of his top 100 executives as his personal
mission and as a key pillar of how his family adds value to
the business. He makes personal decisions on appoint-
ments, promotions and bonuses and carefully assigns
stretch opportunities to groom executives “who have a
passion for our business and think like CEOs”.
At the other end of the spectrum is the ‘free market’
approach, where executives are expected to drive their
own career path. This style is best suited to larger FOBs
in which the HR department’s main role is to create visi-
bility of available opportunities and ensure that policies
and the culture are supportive of a free flow of talent with-
in the organization. One FOB that has traditionally
favored this more flexible talent management approach is
Bombardier. According to CEO Pierre Beaudoin, the com-
pany’s entrepreneurial spirit means that working for
Bombardier “is like having your own company, but with
the resources of a large corporation”.
FOBs should consider their own culture as they choose
their talent-development approach and as they recruit
candidates, who should be screened for the right cultural
‘fit’ along with traditional competency-based assessment.
Most importantly, when a senior executive is hired into an
FOB, both parties should be clear about what they are
getting into. The family needs to understand that senior
executives will expect some leeway for action to achieve
the results expected of them. And executives should real-
ize that they will need to work carefully within the bound-
aries of the family culture in order to succeed.
4
Give privileged opportunities to
outstanding talent
Attracting top talent can be a challenge for family-con-
trolled businesses, since executives may worry that their
status as outsiders will limit their career potential. To
counter this concern, family-led businesses need to make
outstanding talent ‘feel like family’.
One family-controlled business that has been particularly
successful in this regard is Samsung. Its Global Strategy
Group (GSG) targets top talent and hires young, foreign
MBA graduates from top schools. The group, located next
to headquarters, is given exposure and direct access to
Samsung’s Chairman Lee and work for him on his special
projects and new personal business ideas. This inclusive-
ness fosters a strong sense of loyalty and personal attach-
ment in these young executives, as well as pride from
working on the company’s top business issues. These
executives often exit from the GSG into operational leader-
ship roles with Samsung’s affiliates and typically develop a
strong emotional attachment to the company.
Making efforts to instill this kind of dedication in top talent
may seem foreign to early-growth FOBs accustomed to the
natural loyalty that comes from closeness with the family.
But as these companies grow in size and start bringing in
external managers, they must also professionalize the way
they manage talent to compete with large corporations.
In conclusion, as the diversity of real-world examples
shows, there is no talent-management ‘silver bullet’ solu-
tion for FOBs. The successful blueprint will come from a
thoughtful look at the intrinsic heritage, culture and value
that the family brings to the business. By crafting a specif-
ic talent-management approach that complements the
assets that make their companies distinctive, families can
preserve the longstanding advantages and character of
their businesses while attracting and retaining the execu-
tive talent they need to succeed on a global scale.
About the Author
Arnaud Despierre, based in Singapore, is
a member of Spencer Stuart’s Industrial
and Human Resources practices and
brings eight years of consulting and engi-
neering experience to his role. Prior to
joining Spencer Stuart, he worked with
McKinsey & Company as a strategic management consult-
ant. While there, he served a wide variety of clients, includ-
ing national and multinational family-owned businesses,
on organizational issues such as restructuring, human
resources management, leadership development and
cultural change.
About Spencer Stuart
Spencer Stuart is one of the world’s leading executive
search consulting firms. Privately held since 1956,
Spencer Stuart applies its extensive knowledge of indus-
tries, functions and talent to advise select clients — rang-
ing from major multinationals to emerging companies to
nonprofit organizations — and address their leadership
requirements. Through 50 offices in 27 countries and a
broad range of practice groups, Spencer Stuart consult-
ants focus on senior-level executive search, board director
appointments, succession planning and in-depth senior
executive management assessments.
Spencer Stuart has maintained a presence in Asia Pacific
for nearly 40 years. The firm established an office in
Sydney in 1970 and, since then, has opened offices in
Beijing, Hong Kong, Melbourne, Mumbai, Shanghai,
Singapore and Tokyo. From these locations, Spencer
Stuart consultants execute assignments across the region,
including China, India, Indonesia, Japan, Malaysia, the
Philippines, Taiwan, Thailand and Vietnam, for clients in
a broad range of industries. Within the past year, the firm
has conducted more than 600 assignments in Asia.
4
5
©2009 Spencer Stuart. All rights reserved. For information about copying, distributing and displaying this work, contact [email protected].
Anne Benbow
[email protected]
Wai Leong Chan
[email protected]
Fabrice Desmarescaux
[email protected]
Arnaud Despierre
[email protected]
Dianne Jones
[email protected]
Malini Vaidya
[email protected]
Jason Wagner
[email protected]
Beijing
Room 2709
Tower 1, China World Trade Center
#1, Jianguomenwai Avenue
Beijing 100004
China (People’s Republic)
T 86 10.6505.1031
Hong Kong
Room 3318, Jardine House
1 Connaught Place, Central
Hong Kong SAR
T 852 2521.8373
Melbourne
Level 35, 101 Collins Street
Melbourne, Victoria 3000
Australia
T 61 3.8661.0100
Mumbai
Nirmal, 21st floor
Nariman Point
Mumbai 400 021
India
T 91 22.6616.1414
Shanghai
Room 501
One Corporate Avenue
222 Hu Bin Lu
Shanghai 200021
China (People’s Republic)
T 86 21.2326.2828
Singapore
One Raffles Place #52-00
OUB Centre
Singapore 048616
T 65 6586.1186
Sydney
Level 24, Gold Fields House
1 Alfred Street
Sydney, New South Wales 2000
Australia
T 61 2.9240.0100
Tokyo
Kawakita Memorial Building, 8F
18 Ichibancho
Chiyoda-ku, Tokyo 102-0082
Japan
T 81 3.3238.8901
Spencer Stuart Singapore Office Consultants
Spencer Stuart Asia Pacific Offices
www.spencerstuart.com
doc_175555477.pdf
Family businesses typically begin as small, local operations. Over time, and often through the early leadership of visionary and daring founders, some develop into powerful multinationals that successfully compete with the world's leading public companies. As family-owned businesses (FOBs) undergo this transformation, a process that can take generations, their focus shifts from shortterm survival to bigger questions of diversification, professionalization and internationalization. These evolutions often are accompanied by profound changes in strategy, corporate governance and organization model.
The Five Principles of Effective Talent Management
for Family-Owned Businesses
Family businesses typically begin as small, local opera-
tions. Over time, and often through the early leadership of
visionary and daring founders, some develop into power-
ful multinationals that successfully compete with the
world’s leading public companies. As family-owned busi-
nesses (FOBs) undergo this transformation, a process
that can take generations, their focus shifts from short-
term survival to bigger questions of diversification, profes-
sionalization and internationalization. These evolutions
often are accompanied by profound changes in strategy,
corporate governance and organization model.
Driving these changes is the company’s senior leadership
team, which may still be dominated by family members. But
at defining moments, leading FOBs recognize the need to
bring in executives from outside who have expertise in shep-
herding businesses through unfamiliar strategic and organi-
zational changes. In a 2007-2008 global study by
PricewaterhouseCoopers, 42 percent of family-controlled
businesses considered recruiting to be one of their most
important business issues. As FOBs evolve from small-scale
family businesses to larger-scale operations that happen to
be family-owned, they need an effective talent-management
approach to ensure the highest likelihood of success.
An examination of select global family-controlled business-
es shows that five guiding principles can help an FOB
choose the right talent-management approach to support
its long-term goals — one that enables it to attract and
retain top executive talent and keeps it on the path to
becoming a successful, world-class business.
Define the family’s sources of value
to the business
To determine how the company should be organized, the
family should thoughtfully consider what value it brings to
its own business and what contributions it is prepared to
make, or not, moving forward.
On one end of the spectrum, families may be quite hands-
off, contributing mostly shareholder capital and oversight.
This is the case for the Ayala family, which operates Ayala
Corporation, the Philippines’ oldest and largest conglom-
erate, as a balanced portfolio of diversified and largely
independent businesses. The family adds value to its hold-
ing portfolio through its access to capital and professional
management practices.
At the other end of the spectrum, the family and company
have a symbiotic business relationship, where the family is
intimately involved in day-to-day decision-making across
the organization. Korean chaebols such as Samsung typify
this approach. In this case, the family adds value by bring-
ing hands-on management talent to the business and
developing favorable government and business relation-
ships through personal family connections.
by Arnaud Despierre
1
2
Either model, as well as hybrids of the two, can be success-
ful, as long as the family’s role in the business is explicitly
defined, from relatively hands-off board participation to
control over key executive positions. The right model is one
that all the key stakeholders are willing to accept and that
the rest of the business can be organized around.
Put the family’s long-term
interests first
Once the family agrees upon its overall value to the
organization, the specific roles of individual family mem-
bers should be clearly defined. This helps to ensure that
the long-term interests of the family and the business are
not compromised by the short-term self-interest of influ-
ential family members. These temptations can include
excessive dividends, unjustified mergers and acquisitions,
or appointments by birthright.
To avoid these mistakes, it is important for family-owned
businesses to prevent direct conflicts of interest such as
giving both significant shareholder rights and excessive
executive decision-making power to the same individuals.
As an added safeguard, it is wise to put a clear governance
structure in place, as Sweden’s Wallenberg family has done
for its diversified investments in Investor AB, one of
Northern Europe’s largest industrial players. Using analyti-
cal value-creation agendas, the company makes fact-based
investment and management decisions on its Investor core
holdings. Clear criteria have been set upfront on issues
such as M&A potential based on value-creating business
principles, allowing no room for interference. This value-
based approach ensures that the long-term health of the
Investor business is prioritized over any short-term harvest-
ing incentive by any individual family member.
Actively embrace opportunities to
bring in fresh talent
Once the family’s role has been defined and adequate
controls are in place, an FOB is ready to consider if, and
2
Define the family’s sources of value to the business
Which strategic asset does the family bring to the business?
Shareholder Capital Business Networks Management Capability Personal Networks
Ayala
Corporation
Investor AB
Bombardier,
Jean Fayolle
& Fils (JFF)
Samsung,
Hutchison
Whampoa
• Oversight
• Financial resources
• Access to pipeline
of M&A deals
• Catalyst
• Financial resources
• Industry expertise
• Access to pools of
world-class talent
• Leadership
• C-level talent,
including CEO
• Industry expertise
• Symbiotic
• Mid- and C-level
managerial talent
• Commercial
relationships
• Regulatory influence
3
Representative family-
controlled companies
Family role
Most likely
family contribution
3
when, specific skills should be brought in from outside to
support the corporate strategy. This can feel like a major
risk to family businesses accustomed to closely control-
ling all aspects of their operations. But it is often what the
business needs as it goes international, diversifies into
new markets or establishes a more professional organiza-
tion. These unfamiliar transitions require a fresh look at
how the company is operated — and expertise and capa-
bilities that the family may not possess.
As an example, a leading Chinese tire manufacturer
owned by a Singapore-based family has an ambitious
global growth strategy that already has allowed its busi-
ness to reach the four corners of the globe. To realize it,
the company has laid out recruiting plans in key areas to
bring in world-class executives from within and beyond
the tire industry. In another example, the Wallenberg fami-
ly so clearly recognizes the importance of identifying and
recruiting fresh talent that it acquired a controlling stake
in a professional recruiting firm, Novare, as part of its
investment portfolio. In addition to being a standalone
profit-making business, the firm serves the talent needs
of the rest of the family’s diverse business investments.
Embracing fresh talent can go as far as bringing in a CEO
from outside the family to run the business, a move that
can sometimes prove beneficial. Research by McKinsey &
Company of 700 Western manufacturing FOBs found that
family-controlled businesses run by outsiders have, on
average, better management practices than those run by a
family member.
Tailor the talent-development
approach to the culture
Once the company begins to bring executive talent on
board, processes for managing their development should
be aligned with the family’s culture.
One option is the ‘chessboard’ approach, where executive
development is monitored carefully and career decisions
are centralized. This approach is most suited to medium-
size FOBs in which the CEO can personally manage the
development of his executive team. Such is the case at
Jean Fayolle & Fils (JFF), a 2,500-employee French civil
engineering FOB that is growing aggressively through
acquisitions in France and Canada. JFF CEO Bruno
Fayolle, the great-grandson of the founder, views manag-
ing the careers of his top 100 executives as his personal
mission and as a key pillar of how his family adds value to
the business. He makes personal decisions on appoint-
ments, promotions and bonuses and carefully assigns
stretch opportunities to groom executives “who have a
passion for our business and think like CEOs”.
At the other end of the spectrum is the ‘free market’
approach, where executives are expected to drive their
own career path. This style is best suited to larger FOBs
in which the HR department’s main role is to create visi-
bility of available opportunities and ensure that policies
and the culture are supportive of a free flow of talent with-
in the organization. One FOB that has traditionally
favored this more flexible talent management approach is
Bombardier. According to CEO Pierre Beaudoin, the com-
pany’s entrepreneurial spirit means that working for
Bombardier “is like having your own company, but with
the resources of a large corporation”.
FOBs should consider their own culture as they choose
their talent-development approach and as they recruit
candidates, who should be screened for the right cultural
‘fit’ along with traditional competency-based assessment.
Most importantly, when a senior executive is hired into an
FOB, both parties should be clear about what they are
getting into. The family needs to understand that senior
executives will expect some leeway for action to achieve
the results expected of them. And executives should real-
ize that they will need to work carefully within the bound-
aries of the family culture in order to succeed.
4
Give privileged opportunities to
outstanding talent
Attracting top talent can be a challenge for family-con-
trolled businesses, since executives may worry that their
status as outsiders will limit their career potential. To
counter this concern, family-led businesses need to make
outstanding talent ‘feel like family’.
One family-controlled business that has been particularly
successful in this regard is Samsung. Its Global Strategy
Group (GSG) targets top talent and hires young, foreign
MBA graduates from top schools. The group, located next
to headquarters, is given exposure and direct access to
Samsung’s Chairman Lee and work for him on his special
projects and new personal business ideas. This inclusive-
ness fosters a strong sense of loyalty and personal attach-
ment in these young executives, as well as pride from
working on the company’s top business issues. These
executives often exit from the GSG into operational leader-
ship roles with Samsung’s affiliates and typically develop a
strong emotional attachment to the company.
Making efforts to instill this kind of dedication in top talent
may seem foreign to early-growth FOBs accustomed to the
natural loyalty that comes from closeness with the family.
But as these companies grow in size and start bringing in
external managers, they must also professionalize the way
they manage talent to compete with large corporations.
In conclusion, as the diversity of real-world examples
shows, there is no talent-management ‘silver bullet’ solu-
tion for FOBs. The successful blueprint will come from a
thoughtful look at the intrinsic heritage, culture and value
that the family brings to the business. By crafting a specif-
ic talent-management approach that complements the
assets that make their companies distinctive, families can
preserve the longstanding advantages and character of
their businesses while attracting and retaining the execu-
tive talent they need to succeed on a global scale.
About the Author
Arnaud Despierre, based in Singapore, is
a member of Spencer Stuart’s Industrial
and Human Resources practices and
brings eight years of consulting and engi-
neering experience to his role. Prior to
joining Spencer Stuart, he worked with
McKinsey & Company as a strategic management consult-
ant. While there, he served a wide variety of clients, includ-
ing national and multinational family-owned businesses,
on organizational issues such as restructuring, human
resources management, leadership development and
cultural change.
About Spencer Stuart
Spencer Stuart is one of the world’s leading executive
search consulting firms. Privately held since 1956,
Spencer Stuart applies its extensive knowledge of indus-
tries, functions and talent to advise select clients — rang-
ing from major multinationals to emerging companies to
nonprofit organizations — and address their leadership
requirements. Through 50 offices in 27 countries and a
broad range of practice groups, Spencer Stuart consult-
ants focus on senior-level executive search, board director
appointments, succession planning and in-depth senior
executive management assessments.
Spencer Stuart has maintained a presence in Asia Pacific
for nearly 40 years. The firm established an office in
Sydney in 1970 and, since then, has opened offices in
Beijing, Hong Kong, Melbourne, Mumbai, Shanghai,
Singapore and Tokyo. From these locations, Spencer
Stuart consultants execute assignments across the region,
including China, India, Indonesia, Japan, Malaysia, the
Philippines, Taiwan, Thailand and Vietnam, for clients in
a broad range of industries. Within the past year, the firm
has conducted more than 600 assignments in Asia.
4
5
©2009 Spencer Stuart. All rights reserved. For information about copying, distributing and displaying this work, contact [email protected].
Anne Benbow
[email protected]
Wai Leong Chan
[email protected]
Fabrice Desmarescaux
[email protected]
Arnaud Despierre
[email protected]
Dianne Jones
[email protected]
Malini Vaidya
[email protected]
Jason Wagner
[email protected]
Beijing
Room 2709
Tower 1, China World Trade Center
#1, Jianguomenwai Avenue
Beijing 100004
China (People’s Republic)
T 86 10.6505.1031
Hong Kong
Room 3318, Jardine House
1 Connaught Place, Central
Hong Kong SAR
T 852 2521.8373
Melbourne
Level 35, 101 Collins Street
Melbourne, Victoria 3000
Australia
T 61 3.8661.0100
Mumbai
Nirmal, 21st floor
Nariman Point
Mumbai 400 021
India
T 91 22.6616.1414
Shanghai
Room 501
One Corporate Avenue
222 Hu Bin Lu
Shanghai 200021
China (People’s Republic)
T 86 21.2326.2828
Singapore
One Raffles Place #52-00
OUB Centre
Singapore 048616
T 65 6586.1186
Sydney
Level 24, Gold Fields House
1 Alfred Street
Sydney, New South Wales 2000
Australia
T 61 2.9240.0100
Tokyo
Kawakita Memorial Building, 8F
18 Ichibancho
Chiyoda-ku, Tokyo 102-0082
Japan
T 81 3.3238.8901
Spencer Stuart Singapore Office Consultants
Spencer Stuart Asia Pacific Offices
www.spencerstuart.com
doc_175555477.pdf