27 Jan 2014  Research & Ideas

Family CEOs Spend Less Time at Work

CEOs who are related to the owners of family-owned firms work significantly fewer hours than nonfamily CEOs, according to a new study by Raffaella Sadun and colleagues. This is in light of the fact that longer working hours are associated with higher productivity, growth, and profitability.

 

Two years ago, the World Management Survey on organizational leadership reported that firms led by family CEOs (managers related to the family owning the business) are often managed badly, particularly those where a first-born son has inherited the role of CEO from the previous leader.

Now comes additional research showing that on average, family CEOs also work significantly fewer hours per week than other (nonfamily affiliated) CEOs. It's an important finding because longer working hours are associated with higher firm productivity and growth, says Raffaella Sadun, an assistant professor in the Strategy unit at Harvard Business School who studies the curious relationship between managerial incentives and motivation.

"Family CEOs are a very interesting group"

"Family CEOs are a very interesting group," says Sadun, coauthor of the paper Managing the Family Firm: Evidence from CEOs at Work, with Oriana Bandiera of the London School of Economics and Andrea Prat of Columbia University. "On the one hand, it stands to reason that they should be super-motivated to work hard because whatever they do for the company adds to the wealth of their whole family," Sadun says. "On the other hand, a CEO's incentive to perform is in large part tied to what happens when he or she does not perform—a risk of getting ousted. But aligning a board to say we're going to start looking for someone else is a lot more complicated when the board is made up of family members who are related to the CEO."

Primarily interested in incentives for growth in developing countries, the researchers began their study in India, where a large portion of businesses are family-owned. But they ended up finding similar results with follow-up studies in Brazil, France, Germany, the United Kingdom, and the United States. In short, their study shows that family CEOs on average work fewer hours relative to nonfamily-affiliated managers in all the countries they studied.

Family vs. Professional

To launch the study, the researchers hired 15 students in Mumbai to cold-call executives at more than 1,400 Indian manufacturing firms, asking whether they would be willing to take part in a study of how CEOs spend their time. Some 356 CEOs agreed to participate.

Some family CEOs spend less time at work than professional CEOs, especially during major sports events. Photo: iStockPhoto

Of the sample, two-thirds of the CEOs were members of the family that owned the firm; they were labeled "family CEOs" in the study. The remaining third, not related to the owners, were labeled "professional CEOs." (It's important to note the difference between family CEO and CEO of a family-owned company, Sadun says. Indeed, not all family-owned businesses employ a family member as the CEO. Sam Walton founded and the Walton family still owns Wal-Mart Stores, Inc., for example, and the founder's son Rob Walton is chairman of the board, but the company's president and CEO, Mike Duke, is not a family member.)

For three months, the researchers collected time-use information through daily phone calls with each CEO's personal assistant (PA) or with the CEO himself (99 percent of the sample consisted of male CEOs). On the first day of the week, a researcher would call the PA or the CEO in the morning, to collect data on the executive's planned activities for the day. In the evening, and for the week's subsequent evenings, the PA or the CEO would report the activities that had actually happened that day—along with the planned agenda for the next day. At the end of the three-month study period, the researchers conducted a short interview with each CEO to ensure that the daily reports matched with the executive's recollection and were representative of his usual work routine.

Analyzing the data, the researchers looked separately at founder-CEOs (those who founded their family firm) and second-plus generation CEOs (those who inherited the role). They found that founder-CEOs and next-generation CEOs of family-owned firms logged 8 percent and 6.6 percent fewer hours than professional CEOs, respectively. Further analysis showed that a 1 percent increase in weekly hours worked by the CEO was associated with a 1.04 percent increase in firm productivity annually and a .1 percent increase in sales growth over a five-year window.

And while the study considered the possibility that some CEOs might work more efficiently than others, "we didn't find any evidence that family CEOs were planning their time more effectively to maximize their time in the office," Sadun says.

The monsoon and cricket effect

The researchers also took care to look for outside events that might affect the CEO's cost of exerting work effort within the survey week, testing whether family CEOs were especially responsive to these "exogenous shocks." They focused on two potential shocks: bad weather and big sporting events. "We were lucky," Sadun says. "We happened to collect the data during monsoon season. At the same time, during the study period, India hosted the Indian Premier League. It's an important event in the game of cricket. Superstars from all over the world come to play in this tournament."

To gauge the effect of monsoons, the researchers looked at a sample week in which 192 CEOs in the study (118 family CEOs and 74 professional CEOs) experienced at least one day of extreme rain and one day of light rain. "What happens in India, especially in urban areas, is that when the monsoons hit, water fills the streets, leading to a lot of congestion," Sadun explains. "Traffic becomes a nightmare. It's like dealing with the worst snowstorm in Boston."

According to the results of the sample week, family CEOs reduced their working hours by an average of 5.4 percent on days with extreme rain. Meanwhile, professional CEOs showed a positive (but not significant) 3.8 percent increase in hours worked.

The effect of the cricket tournament was a different story. The researchers looked specifically at the effect of playoffs, semifinals and finals, which all happened in the evening, starting around 8:00 p.m. (Indian Premier League games are different from standard cricket games in that they are condensed to just about three hours of play.) "On the day of the cricket match, they'd all leave the office by early afternoon," Sadun says. "Regardless of whether they were professional or family CEOs, they'd all leave early, and according to our interpretations, they were all leaving to watch the game."

However, the data showed that the professional CEOs on average planned their schedules accordingly on cricket match days—compensating for the early departure by increasing the hours worked earlier in the day. Family CEOs, on the other hand, worked fewer hours throughout the day.

Cross-country comparisons

Considering the finding that more CEO-hours worked yields more productivity and profit, the researchers wondered whether the CEOs in their sample simply couldn't afford to delegate key duties to professionals who would be willing to work longer hours—and thus generate better results—than the CEOs themselves. Delegation is prohibitively expensive in India due to poor contract enforcement, the researchers explain in the paper. "If delegation costs entirely explain why family CEOs stay at the helm of their firms, we should observe no difference in the time use of family and professional CEOs in richer countries," they write.

To that end, the researchers conducted a similar study among a large sample of some 800 manufacturing firm CEOs in Brazil, France, Germany, the United Kingdom, and the United States. The results were similar across the board. The difference between family and professional CEOs in terms of hours worked turned out to be about 11 percent in Brazil and 8 percent in the higher income countries.

There are certainly plenty of examples of high-profile family-owned firms like Walmart that employ nonfamily CEOs. For example, Christopher McCormick (HBS AMP 158, 2000) took the helm at L.L. Bean in 2001, the first non-family member to take on the title of President and CEO since the company's founding in 1912. But overall, under 15 percent of US family firms are managed by nonfamily executives, according to the Family Firm Institute.

Sadun's team plans to apply the findings of the family firm research in other studies on motivation.

"If you find family CEOs who are still controlling their firms and working less, even in a country like the United States, I think this is telling us that there is some fundamental, nonmonetary benefit that they get from running their companies," she says. "It's clearly not just about maximizing profits. It's not just about how much they're paid. And we just need to understand what's going on, what the motivation is. Because we know that if we could target these groups of firms and improve their performance, there would be very important implications for business research and, most importantly, the economy."

About the author

Carmen Nobel is senior editor of Harvard Business School Working Knowledge.

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Comments

    • Clementina
    • Partner, C2 Ventures

    I believe that the difference shown between both groups are very small to allow for reliable conclusions. Specially, if you take into account that family CEOs are more confident in their position and therefore probably tend to work more efficiently and effectively than non family CEOs, who need to show the hours and whose networks is not so powerfull.

     
     
     
    • SUMAN
    • MANAGER, WBSEDCL

    The background of a person,how he has grown up,normally develop his/her thinking process.The true driving force behind the society & all its activities driven by people is the set of rules he use to bind him to be followed.The creation & modifications of the rules depends on his commitment to his life,his desires & the satisfaction level of the situations created as a product of rules. So following this,its very natural to have more chance for a person who has born with a golden spoon to be somewhat less competitive then a outlier to the company hired for the position in a competitive basis.In the second case the person is working for the salary hike,the bonus and further growth to become CEO of a other Big firm with his performance, so normally he is focused with all his ability.In the first case as he own the company the most important thing is that whatever the company perform it will directly hit him,may be good or bad.If it's bad then normally a tendency comes to him that it's his property so he should handle it,he can not trust other person at that situation.May this cause him more loss but it is the human tendency. The non monetary benefit behind a family CEO is the satisfaction with the chair & deliverance of its responsibility,its like living in your own house build by your own hand.

     
     
     
    • Umesh
    • Gupta, NA

    Although study indicates that family related CEO works less than professional CEOs but I do not agree that by spending more time on the job company's performance was better. It basically reflects something else which has been missed on this study. Whether employees take family CEOs seriously. Are they consider him happy go lucky type.

     
     
     
    • Pradeep Gupta
    • CMD, Axis Ad-Print-Media India Ltd

    If we can get a data of How-much Time CEO family or non-family spend in a year / week/ month. and connecting this data with Success Ratio post their joining the organisation.

    Pradeep Gupta

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    The conclusion drawn by the research is based on data collected during abnormal weather in Mumbai. This may not hold during normal conditions. That said, it is a matter for thought as to why (if at all) related CEOs of family concerns work lesser than the outside professionals. The latter treat themselves as employees of the concern and their continuance would depend on delivery of results. They do not otherwise have a "direct" interest in the progress of the concern as much as the family connected CEOs have. ALSO, that the latter would generally not be fired and rather defended by the relatives on the Board. We have examples of insider (related) professional CEOs in family owned businesses- Reliance group for example. They are totally attached and work whole-heartedly for the success of their concerns. They may not be always visible on their desk but are busy with the interests of their concerns all through.

     
     
     
    • Baboloki Boniface Reetsang
    • General Manager, Benefits Administration, Botswana Public Officers Pension Fund

    The study revealed some important management issues, however, in my view the reason why family CEOs spend less time at work than professional CEOs is because they are answerable to themselves. The fact that they own a stake in the business means that whatever little time they spend at work they try to maximize the returns. I strongly believe that you don't have to necessarily spend more time at the work place in order to produce tangible results. You have to work smarter not harder.

     
     
     
    • Angela Allen
    • VP, Technology Firm

    The difference in hours worked by Family CEOs and Professional CEOs is very small. #1) Could you tell if any of the Family-CEOs were conducting some business with family at non-business events or locations? For example, in a family room discussion or at home over dinner. 2) More available hours at work doesn't necessarily translate into more productive hours for work. For the 1% increase in business productivity to get .1 increase in sales over five years, there may be other ways to get this done other than by having the family CEO work more hours.

     
     
     
    • Gerald Schultz
    • Retired CEO, Management Consultant, Chemicals and Metals

    While the results of the study are probably valid it is a reach to conclude that more time on the job is the reason for better performance. I agree that the study shows that family businesses run by non-family members perform better than family businesses run by family members. Based on my own experience there are many reasons why this is true. Family member CEO's "generally" are not exposed to the same management experience as non-family member CEO's. Experience gained from different jobs and different company cultures are important for developing CEO management skills. I am convinced that family member CEO's must also understand how they have a different relationship with their employees than non-family CEO's. Family member CEO's are treated more like "kings or queens" than managers. They have difficulty understanding that good managers must earn the respect of their employees. While most key decisions are made by the CEO it is important that employees feel they are part of the decision process. Based on my experience family member CEO's, "generally", fail to get honest, useful, feedback from their underlings. Upper management personnel at a Fortune 500, privately owned, and managed company response to my question about why their company was making a bad decision was, "you don't understand how it is to work for XXX". They were unwilling to question their CEO's decision.

     
     
     
    • Joel MacAuslan
    • CEO & CSO, STAR Analytical Svcs.

    An excellent topic, which I hope will produce more studies leading to even more insights. The delegation angle is particularly unexpected.

    Example questions for further studies:

    1. How can a 3-month study measure 5-year growth performance? And is 0.1% extra growth statistically significant?

    2. Do the family-business owners collectively want something OTHER than maximizing profits or growth? E.g., if they valued humane working conditions more highly than the purely financial investors of non-family businesses, then the CEO might be "leading by example" in spending less time in the office. Or if the families valued the permanence of the business much more highly, then they might care much less about high-growth/high-potential-reward (with higher risk) than they do about stability.

    3. Do the family CEOs work more hours at home, in the presence of their family (who are part-owners, after all) than the other CEOs? The families of the non-family-business CEOs presumably have different feelings about the company, and about the appropriateness of taking work home, then members of the family that owns the business. Does this interact with the fraction of the household that is employed by the business?

    4. Is the "risk of getting ousted" for the non-family-business CEO more motivating than the risk, for the family-business CEO, of (a) economically failing their family and (b) not being able to "hide" afterward by moving on to some other situation with new investors, directors, and employees who have no history with that CEO?

    5. Are the family-business CEOs less engaged in their off-hours than the other CEOs? Or do they spend more "slow time" thinking about the business, their family, and their roles in both? That is, thinking in 20-year, or even 100-year perspectives, instead of day-to-day urgent matters and 3-month perspectives?

     
     
     
    • Amenze Iyamu
    • CEO, Motive8 Limited

    Great points Joel. I think it would also be beneficial for such research to indicate whether such family CEO run companies actually are making profit or even exceeding profit targets. Also, it will be good if in future the health status of the CEOs are also studied. It is quite interesting that no African nation was taken into account in this study. Nigeria (my home country), South Africa, Ghana and Botswana will have many companies to prove whether or not the study is valid or not. The sample size needs to be expanded. All the same, it is a good study.

     
     
     
    • Sumit Barat
    • Aviation Services Professional, Aviation Industry

    It all boils down to the accountability of the CEO. Is he accountable? Of course he is; he is accountable to the shareholders, to the customers, to the investor community, to the employees. So where is the gap? Are we discussing grocery shops neighborhood or the Bajaj and the Tatas or the Birlas or the factory owners. I my opinion this article needs more clarity on the "family CEO" definition? Are we discussing performance of a "businessman"?

     
     
     
    • Krishna Shankar
    • Visiting Professor, Kirloskar Institute of Advanced Management Studies

    Well researched and pragmatic article which is interesting. Would this theory hold good 30 years from now,with the present Gen Y and Z ?

     
     
     
    • Kevin Hancock
    • CEO, Hancock Lumber

    Very interesting article...cause for reflection! I am a family CEO of a family business. In the periods in my career where I have worked the most hours the performance has been poorer than during the periods where I have worked fewer hours. Some of that could be reactionary as I do tends to put in the most intense work when performance is poorer. At the same time, I have been in a period of strengthening 'engagement' and 'empowering' managers across the company and this has deliberately led me to step back a bit so as to let others lead and make more decisions. In a family business I have found that the owner / CEO 'get's first dibs at the work and responsibility' BUT that there are great leaders within the organization who can take that responsibility, if given the opportunity, and often do the work better than the CEO himself/herself. Finally, I wonder if many family CEO's are actually in real life playing more of an active BOD chair role than they are the CEO role even though they have the title of CEO. Either way it is very interesting.

     
     
     
    • George Beard
    • Managing Member, Beacon Investment Partners LLC

    After searching the world for the ultimate successor, founding CEOs chose their eldest son who, in turn searches the world only to anoint the founder's eldest grandson. Dare we call it what this is - NEPOTISM.

    Is it any wonder the family fortune is blown and the workers all go jobless on the grandson's watch? How many silver spoon CEOs know what they are doing? Most quietly escape to sail or play polo. Wouldn't you?

     
     
     
    • Joel MacAuslan
    • CEO & CSO, STAR Analytical Svcs.

    @George, fair questions to be sure. But not everyone's definition of a well-lived life meaning going sailing. Some think it's building a permanent, profitable, useful business.

    As for nepotism, I understand that the track record of large companies bringing in outside CEOs is systematically worse than promoting insiders. The next CEO might not be a family member, but anyone who is concerned about the outsider-CEO problem is going to be looking at small pool that probably has several family members in it. (If they aren't prepared, or they aren't even in the business before the transition, then blame poor leadership development. Not the ownership.)