Lessons From The Choice Of Professional Managers In Shanxi

Currently, the majority of companies in China are in "first generation" to transfer the business from parents to their children, but many entrepreneurs’ children are not willing to take over the family business or they lack the ability to run the business. The traditional family model of governance is improved into management of professional managers, the new model is that family members have the ownership of companies and professional managers take care of them, which becomes many founding entrepreneurs’ choice. Therefore, the introduction of professional managers has become a typical sign of modern enterprise bid farewell to family enterprise. But this process was not always smooth, we can feel the contradictions among professional managers and company founders. It becomes an important issue that how to make the interests of professional managers and founders maximize effectively during the development of modern enterprises.In history, Shanxi Draft Bank is a typical pattern that professional managers run the business and financial investors enjoy the ownership benefits. In the management of Shanxi Draft Bank, effectively using the "Investor-Manager mode" has reduced agency costs between financial investors and professional managers, which avoids the opportunistic behavior of managers. The unique management mode received very good results in the long-term practice, and it has also become an important reason why Shanxi Draft Bank can stay flourishing. The organizational structure, experience of governance structure, incentives and personnel training system in Shanxi Draft Bank has far-reaching implications on modern family enterprises, especially the use of labor stocks to achieve professional managers incentive and restraint effect. Therefore, the initial equity distribution structure between financial investors and professional managers can be used as a benchmark equity incentive for modern family enterprises.However, in the real business world, GOME’ founder and professional manager fought for the control right; whereas Midea Group’s founder smoothly transferred the manager right to professional manager, which successfully broke bottlenecks. Sharpley axiom can be used to calculate the optimal solution of equity allocation, with Shanxi Draft Bank’s parameters calibrating the solution, which can analyze the situation of GOME and Midea Group. Therefore, by summarizing "Investor-Manager mode" ’ strengths and weaknesses, and using relevant case experience and lessons as a supplement, we can provide some advice for those company founders who will choose professional managers to take over their enterprises.