Workplace Issues

How to Run a Family Business When You’re Not in the Family

CFOs of family-run businesses have unique challenges. But there are compensations.
David RosenbaumOctober 29, 2012

MIAMI — When moderator Jim Johnston asked the assembled finance executives at today’s CFO Playbook for Private Companies conference here how many worked for businesses that had been owned by the same family for at least two generations, more than half raised their hand.

That’s not surprising. The percentage of family-owned businesses (which tracks very closely to small-business ownership) is 80%–90% of all U.S. businesses, according to the Conway Center for Family Business. And as Johnston, president of Johnston Co., a C-suite advisory, said, the family has been the main way business has been organized “for millennia,” built on “trust and familiarity.”

However, as these family-owned operations grow in size and complexity, they frequently reach out to people like Lawrence Writer, CFO of Hillerich & Bradsby (maker of Louisville Slugger baseball bats); Corey Aronin, CFO of Love and Quiches, a specialty dessert manufacturer; and Dan Marchetti, CFO of Urschel Laboratories, a manufacturer of industrial cutting blades, primarily for the food industry. These CFOs work for the family that owns these business; they are not part of the family.

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That was made very clear to Writer even before he joined Hillerich & Bradsby, a company that’s been in the same family for five generations. “The first or second thing the chairman, my boss’s father, said to me,” he recalled, “was to tell me I’d never be chief executive officer.” That position was reserved for family.

But family businesses develop extended families, and it’s critical for the CFO to become part of that family, earning trust and building relationships that go beyond business.

When Urschel, a 103-year-old company, recruited Marchetti for the CFO position, he said he was never asked about his accounting skills. He was, he said, vetted for how he would fit in with the family.

“I asked about the budget,” Marchetti said, and he was told Urschel didn’t have one and never did. The family believes budgets stifle creativity.

Marchetti asked about the company’s culture and was told it didn’t have that, either. The culture was the family. Indeed, said Marchetti, the business was referred to as “the family” so often that he felt like he was “working for the Mafia,” he said.

“I tried calling it ‘the company,’” Marchetti said. “It never caught on.”

Ultimately, as these businesses grow, it’s often up to the nonfamily CFO to replace family dynamics with a “more corporate view, more structure, more formal meetings, more strategy, more discipline,” said Love and Quiches’s Aronin.

All the CFOs on the panel struggled to a greater or lesser extent with the fact that in a family business the financials tend to be extremely closely held, shared only with a few executives outside the family on a need-to-know basis, if that. That can make raising capital from investors and certainly from banks, or getting insurance, a challenge.

“Sharing financial statements with insurance carriers?” Aronin asked, rhetorically. “We’ll give them sales statistics, net income, as little as possible. But either you get the policy or you don’t.”

But the frustrations of being a nonfamily member of a family-owned business are balanced by certain compensations.

“The focus of the business is on the people in it,” said Marchetti. “You go to the family weddings. When a child is born, you go.

“You do become part of the family.”