Loss of Control vs. Risk Reduction – Decision Factors for Hiring Non-Family CFOs in Family Firms

Purpose: We examine motives for hiring a non-family Chief FinancialOfficer (CFO) in family firms. We explore the perceptions of family firm ownerstowards external managers by analyzing how their goals relate to the employmentof a non-family CFO.Design/methodology/approach: Our study is based on a survey of 195 smallandmedium-sized privately-held German family firms. We use logistic regressionanalysis to test our propositions on the relationship between goals of the family and theemployment of a non-family CFO.Findings: Family firm owners decide against an external CFO when theirgoal of independence and control is high. Furthermore, they do not seem to trustexternal managers to act in accordance to their goal of enterprise value growth.However, they seem to realize that non-family CFOs are likely to decreasefinancial risk through the provision of additional capabilities.Originality/value: Our findings are relevant to further disentangle therelationship between external managers and family firm owners. By employing anon-family CFO, family firm owners give away part of the control, but they canalso gain additional valuable input and potentially lower their financial risk. Theyshould however put effort into setting up appropriate incentive structures for themanager.