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 Financial Officer (CFO) in family firms. We explore the perceptions of family firm owners towards external managers by analyzing how their goals relate to the employment of a non-family CFO. Design/methodology/approach: Our study is based on a survey of 195 small- and medium-sized privately-held German family firms. We use logistic regression analysis to test our propositions on the relationship between goals of the family and the employment of a non-family CFO.Findings: Family firm owners decide against an external CFO when their goal of independence and control is high. Furthermore, they do not seem to trust external managers to act in accordance to their goal of enterprise value growth. However, they seem to realize that non-family CFOs are likely to decrease financial risk through the provision of additional capabilities. Originality/value: Our findings are relevant to further disentangle the relationship between external managers and family firm owners. By employing a non-family CFO, family firm owners give away part of the control, but they can also gain additional valuable input and potentially lower their financial risk. They should however put effort into setting up appropriate incentive structures for the manager