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The Unique Role of a CFO in Family Businesses

Family-owned businesses tend to fly under the radar – they typically receive less industry scrutiny than large Plc’s and big tech. But their enormous economic impact, estimated at over 70% of global GDP, means that being an operator in these companies is often as challenging an assignment as one can find in any global Plc.

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When combined with the complex interpersonal dynamics that underscore family-led boardrooms, it becomes clear that CFOs in family firms face a different set of challenges from their counterparts in private equity-owned companies.

Large Family Firms: The Dynamics

Family-owned companies are unique. Sure enough, like other businesses, they are driven by considerations of profit and sustained impact. However, there’s an added dimension to family firms – an imperative to balance family interests and expectations with the needs of the business.

The relationships between parents, siblings, and other relatives sometimes shape day-to-day operations and business structures in unique ways. Likewise, the personality traits of the owners will often play a key role in how they carry out their duties, and these dynamics will shape how, when, and why big decisions are made in the business.

For administrators within these firms, operating effectively requires a fine balancing act – knowing where good business practices are indispensable and being able to fit the family traditions, history, and future expectations into the business’ growth and future.

How is the Family Business CFO Different?

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A CFO in a family-owned business isn’t just a member of the C-suite. They’re trusted advisors who are often relied upon to provide counsel on wide-ranging issues within the business and the family.

As Faz Chaudhri, CFO at Diarough Group, notes, “often, the boundary between business interests and private interests is porous, with CFOs also becoming involved in the broader management of the family’s outside investments.”

Consequently, unlike their counterparts in private equity-owned companies, family firm CFOs experience greater fluidity in their role. As the prime orchestrator of the company’s finances, there are few areas within the business where they are unsuited to advice.

But that fluidity also commonly extends to family matters such as conflict management, succession planning, personal financial management, investment management and more.

We’ll take a close look at some of these financial and familial responsibilities below:

Financial management: The CFO’s role includes overseeing the company’s financial operations and supporting transparency into the company’s finances to ensure better decision making and financial stability.
Investment management: In addition to their duties managing the company’s treasury, the CFO will also be called upon to oversee the investment of family assets and manage risk.
Family matters: From negotiating conflicts to facilitating communication amongst family members, the CFO may also be required to help manage family dynamics. The challenge here is that the mediation will often be happening at a high level, both company and family-wise. For instance, the dispute may be amongst board members or senior management who also double as prominent family members.
Estate planning: The CFO’s duties may include providing financial advice for the estate and tax planning of family members, in addition to his portfolio managing the company’s finances.
Succession planning: Lastly, as this is at its core a risk factor, the CFO will also be heavily involved in succession planning, both at the family and company level. They will help ensure the smooth transition of the business from current to future generations.

The CFO Role in Family Businesses: Pros & Cons

An immediate advantage to being family CFO is the depth and breadth of experience achievable in the position. Family CFOs are forced to develop soft skills that are not a typical requirement for that role – balancing sometimes emotionally charged interests and managing expectations that may not always be objective. While developing these skills is a challenge, successful family CFOs find that they become an advantage since the same skillset is needed to operate at senior levels in any company.

Family-owned businesses also have typically strong ties to their community and demonstrate deep loyalty to employees. Consequently, they can provide a rewarding, if unglamorous, work environment where impact isn’t just a metric on spreadsheet. The role also provides opportunities to explore niche investment options that can be missed by private equity companies and large public companies constrained by shorter investment horizons.

On the flip side, the comingling of personal and business interests is always a difficult line to walk. The CFO must recognize that the company is more than a business to the family. Emotions can often run high, obscuring and making complex what should otherwise be routine finance decisions.

Likewise, family firms tend to be conservative and sometimes this might manifest as an aversion to healthy change. It can be difficult to push for more formalized processes and governance functions in these firms, especially when there is a history of less formal operations.

Overall, the job of CFO in a family firm is a learning curve, and one that is constantly growing. The CFO must be nimble and equipped with the necessary soft skills, from persuasion to listening skills, to operate effectively in a family-owned business.

Family Businesses: How to Manage Financial Risk

In their line of work, family firm CFOs must be comfortable with saying “no”, but this is not an easy task. They may find themselves dealing with senior management that is too comfortable with risk or those that are too uncomfortable with it. Understanding where to pushback and encourage the right balance will be key.

At the minimum, strong financial governance and detailed scenario planning is vital. The CFO should be able to clearly show how specific courses of action will impact the firm’s finances and the likely impact of alternative options. But they should also foster financial risk management systems that not only encourage good decision-making but a formalized and enabling decision making process that complies with industry best practices.

Family Business CFOs: The Bottom Line

Ultimately, what makes a family firm CFO’s role unique is the need to balance the financial interests of the business with the needs and goals of the family. As CFO in these establishments, you aren’t merely the financial guardian of the company, you also play a crucial role in family communication, management, and decision making.

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Our hands-on family business recruiters have experience working with family businesses and family offices small and large. Clients are typically $50 million in revenue or have assets over one billion dollars. Successful placements span the entire C-Suite, including the role of CEO, Chief Operating Officer, Chief Financial Officer, Chief Marketing Officer, Chief Security Officer, Chief Technology Officer, as well as vice president, general counsel, and other director-level leadership roles.

Learn how our elite team of family office executive recruiters deliver top talent, no matter the need, via our industry-leading research and resources featured below. Discover the strategy that made Cowen Partners the top executive search firm in New York, Chicago, Seattle, Atlanta, Dallas, Anchorage, Boston, New Orleans, Kansas City, Denver, Los Angeles, and beyond.

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The Unique Role of a CFO in Family Businesses - CFO Recruiters