Family CEOs Spend Less Time at Work

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."