Cameron Rogers, who worked his whole adult life for his father's company, Legacy Pacific Land Corp., a real estate development company in British Columbia, agrees that the success of bringing in outsiders largely depends on how family members-particularly the CEO-treat and view that outsider.
"We brought in some pretty highly paid outsiders, but my father wouldn't let go of the day-to-day decisions to them. Everything required his approval and sign-off," Rogers says.
Conversely, families who can delegate have brought in outsiders that wind up serving the family and providing opportunities for family members and dividends for the business. They turn the family business into a professional enterprise, Rogers says.
"If you bring in outside managers, but you don't change your culture or give them normal decision-making powers, you end up with people who resent you and the family and will do whatever they can to tear the family apart," he says.
If a family is pulling together and everyone is going in the same direction and has trust, you can accomplish a lot of things that you can't accomplish in a non-family business, Rogers says. There's a higher degree of trust. And while outside employees come and go, family members can be there permanently, he notes.
Outsiders aren't always a panacea. Jeff Sands, a director at Dorset Partners, a turnaround company based in Dorset, Vt., says outsiders can actually ruin a family business, largely because, like proprietary traders at a big Wall Street firm, they're taking risks with other people's money.
Sands' father, a serial entrepreneur, started a family business more than two decades ago that sold home décor supplies. The family owned it until it was sold in 2006, but several years before the sale, they brought in outside management. Sands' father retired and Sands became preoccupied with a new business he had launched. He brought in a chief financial officer, who he then promoted to be president. The new president brought in his own management team, but it "complicated the hell out of what should be a simple business," Sands says.
"They were burning through cash and running into trouble, and then cooking the books to make it look good," Sands says. "They spent more than they were bringing in."
The information technology department, for instance, was increased from two to eight people.
"We had a simple little business that sold nice pieces to simple folks, and we made a ton of money doing it. And they thought we didn't have enough systems and processes, and so they over-complicated it," Sands says.
Sands says a fatal flaw was in offering the management team a stock appreciation program so they could enjoy any appreciation in the business. But, for the outsiders, there wasn't a downside if profits fell.
"The downside was the bank threatened to take my house from me," Sands says. "They were playing big games with my money."