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.
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.
by Carmen Nobel
READ FULL ARTICLE