The role of external managers in family-owned companies

There must be a good reason if Jack Ma, the founder of the Chinese e-commerce giant Alibaba, which capitalizes over 200 billion dollars, has traveled far and wide throughout Italy with his management team to study our “pluri-generational companies”.

Family businesses are the backbone of the Italian economy and have always contributed to the country’s growth and employment. In the top ten ranking of the world’s oldest family businesses, five are Italian: Fonderie Pontificie Marinelli (founded in the year 1000), Barone Ricasoli (1141), Barovier & Toso (1295), Torrini (1369) and Marchesi Antinori (1385). And the network of our industrial districts is bolstered by a good many of Italy’s 784,000 family businesses, a miracle of the nation’s economic model which is deeply rooted in our grand artisan tradition.

But today we find ourselves at an important watershed. Let’s look at a few numbers. The percentage of family-run businesses in Italy is in line with that of other European countries: in Italy, they represent 85% of the total; in Germany, 90%; in Spain, 83%; and in Great Britain, 80%. But the full backwardness of Italian family-run capitalism is reflected in its recourse to external managers. In 66% of Italian family businesses, the entire management is composed of family members, whereas in France this situation exists in only 26% of the cases, in Germany in 28%, and in the United Kingdom in barely 10% (AIdAF and EFIGE data).

Due to the complexity of the challenges created by internationalization, globalization and dimensional growth, this gap must be closed as quickly as possible. Most international studies confirm that only in small-sized companies does a lack of external management produce operative profitability. Ernesto Poza, one of the top strategic consultants for family business development, says that you can pilot a small Cessna on your own but when you move up to a Boeing you need a crew. The contribution of an external manager improves the company’s internal standard of reference, raising the bar which family members must measure up to.

By no means am I implying that entrepreneurs are mediocre managers. But in large structured companies, the two roles have different profiles. The manager is a professional who executes company strategies: “to manage means to get things done,” in the words of an old managerial adage. The entrepreneur is a person who must express vision and courage, who focuses on strategy and assuming company risks.

I am convinced that family companies will continue to represent the keystone of Italy’s economic growth. They do not hinder innovation: on the contrary, a few of the world’s biggest companies, such as Wal-Mart or Nike, have a family structure. Moreover, in rough times a family’s will to resist is proverbial. For example, take the Fiat Group. After Gianni and Umberto Agnelli passed away, one of Italy’s most famous entrepreneurial families went through a very difficult phase but they refused to give up. They gathered their investment forces and turned to a very talented external manager who, in just a few years, was able to purchase and re-launch Chrysler, transforming Fiat into a truly global player in the automotive industry.

The family-owned business has a great future awaiting it, even in an increasingly complex and changing economic situation like today’s, but only if it has the courage to inject its DNA with the proper external expertise, recognizing its added value and professionalism.

As Warren Bennis, a pioneer in leadership studies, wrote long ago, “Managers are people who do things right and leaders are people who do the right thing.” He was absolutely correct.

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