By Martin Hiebl, Faculty Member, University of Sigen.
The role of the CFO in family versus non-family businesses differs widely. When family businesses (FBs) grow older and larger, they typically employ more non-family managers. Non-family management becomes necessary if there are simply not enough family members available to fill the vacant management positions or if younger generations are not willing or able to take over managerial responsibilities. The first management position handed over to non-family managers is often the position of the Chief Financial Officer because in many cases, controlling families can no longer provide the knowledge and skills from their ranks that are necessary for the CFO position. Furthermore, a non-family CFO usually safeguards the long-term development of an FB by reducing its exposure to financial risk.
However, a non-family CFO also faces FB-specific challenges. On one hand, a non-family manager is required to not only continue the business but also professionalize it. On the other hand, when driving professionalization, the non-family CFO needs to consider the specific requirements of financial information systems in FBs. Moreover, ever-present family influence may pose an additional challenge, especially to professional managers with a non-family business. Such managers are usually used to decision-making based on logic and rational argumentation, whereas in FBs, controlling families can make intuitive decisions and enforce their ideas without extensive discussion.
Thus, when first joining an FB, a non-family CFO might feel restricted in his or her decision-making power and may need to learn to cope with the strong family influence. Independent from the situation in family businesses, research on the role of the CFO has gained popularity both in practice-oriented literature and in the academic literature in recent years. One heavily discussed question is whether the CFO still takes responsibility for traditional financial management tasks, such as financial accounting and management accounting, or whether he or she has moved into a more strategic role and co-leads the strategic course of the firm.
For FBs, the general role of the non-family CFO and the potential role change of the position have not yet been analyzed in detail. Moreover, decisive drivers for the CFO’s more important roles, such as increased shareholder value orientation and short-termism might not be as present in FBs as in NFBs which could limit the CFO’s more strategic role in FBs. Controlling families were also found to place more emphasis on cultural compatibility of non-family management personnel with firm owners than NFBs. Thus,in FBs, there might also be other requirements in place when hiring CFOs than in NFBs.
Against the backdrop of the relative lack of research and the FB-specific antecedents likely affecting the CFO’s role, this paper seeks to examine the questions of how the CFO’s role differs in FBs and NFBs, and which role the CFO generally plays in FBs. At the very outset,I shall make clear that the paper focuses on the comparison of a non-family CFO’s role in FBs and the CFO’s role in NFBs. This means that only CFOs are considered who are not major owners of their respective firms. Thus, family member CFOs are not considered in this paper, as they obtain a dual role as both (major) owners and managers. Such role dualism is usually not observable in NFBs, and therefore directly comparing CFOs in FBsand NFBs would be biased by the family membership of the CFO in FBs. Therefore, when referring to the “CFO in FBs” in this paper, only non-family CFOs are considered. In order to analyze the characteristics of the role of the CFO in FBs, especially compared to the role of the CFO in NFBs, social role theory is used as the theoretical background to study the CFO’s qualifications and capacity. The resource-based view (RBV) of the firm is employed to assess a CFO’s contribution to FB resources, and agency and stewardship theory are applied to investigate the CFO’s relationship to the family and the ChiefExecutive Officer (CEO).