Family Firms Need Outsiders to Win
Family firms are one of the major driving forces of the Asian economy, but relying only on family members to run the business isn’t enough for lasting success. New research suggests that bigger divides between family and non-family executives may actually be the secret to better performance.
The study, led by Professor Dora Lau Chi-sun, associate professor (teaching) in the Department of Management at CUHK Business School, found that when family and non-family managers differ more in age, education, and background, firms often make quicker decisions and craft more creative strategies.
«A well-defined power hierarchy allows the lower-status subgroup to defer to the higher-status subgroup, facilitating faster decision-making, clearer strategic direction, and more consistent execution,» Professor Lau says. «Together, these dynamics contribute to smoother and more efficient team operations.»
Dividing Lines
Analysing 262 Chinese family firms listed in Shanghai and Shenzhen, the research shows that these «dividing lines» spark both dominance complementarity –where authority is clear and family managers typically hold greater influence – and information & knowledge complementarity – where different perspectives lead to richer ideas.
But the benefits disappear when outsiders face unfair treatment or when local market intermediaries, like auditors or consultants, are underdeveloped.
Fresh Skills
Professor Lau advises family firms to seek non-family professional managers who bring fresh skills and viewpoints, and to treat them equitably.
«Rather than prioritising similarity or loyalty, controlling families should focus on recruiting professional managers who bring fresh perspectives and expertise that complement the capabilities of family members,» she notes.
