I have a growing number of clients (privately held and controlled businesses) that have begun the transition to the next generation. In a recent Harvard Business Review a great article appeared that looks at the issues involved in succession of the family business. In research conducted by Fernández-Aráos, Iqbal, and Ritter (2015) it is clear that family owned and controlled businesses play a critical role in the global economy. However, because of poor talent management and inadequate succession planning many fail to thrive or survive. In fact only 30% of family owned businesses last into the second generation and only 12% are viable into the third generation.
The Best Led Companies
The best family-led companies do four things well: they establish a baseline of good governance, preserve family gravity, identify future leaders from within and without, and bring discipline to their CEO succession.
Managing a family business successfully over the long haul requires a clear separation between family and business – a separation that ensures that the professionals hired by the business can clearly settle their hesitations about joining a family business namely: uncertainty about levels of autonomy, hidden agendas, lack of dynamism, and the potential for nepotism and irrational decisions. Professionals frankly want to be sure a level playing field exists in terms of future possibilities, growth, and advancement. 94% of the family owned companies surveyed by Fernández-Aráos, Iqbal, and Ritter were controlled by a supervisory or advisory board of about nine members on average. Family representation on these boards averaged 46% in Europe, 28% in the Americas, and 26% in Asia. Good governance appears to be the first hurdle for family businesses that want to hire and retain the best people and remain competitive over the long haul.
Issues to consider. Owning a Mom and Pop operation does not need the formal governance structure larger family owned and run businesses need. They do need outside mentors and advisors to remain competitive. If the objective of the Mom and Pop business is to grow into a significant player in their market then a good governance baseline is a critical component. I have seen Mom and Pop businesses grow only to provide a divestiture of businesses for their children to run – reproducing Mom and Pop businesses. The model works but not as a foundation for creating a large family run and controlled business. What may be difficult in the divestiture model is retaining the talent that grew the business in the first place.
The researchers concluded that while family owned and operated businesses need independent governance structures they also must be careful not to lose that makes them unique in their market niche. This uniqueness is what the researchers called “family gravity.” Every successful family owned and operated business in the research pool had one key family member (sometimes up to three) who stood at the center of the organization personifying the corporate identity and aligning differing interests around clearly defined values and a common vision. The key family members all had a common view i.e., the next generation not just the next quarter. Each of these key family members embraced strategies that put customers and employees first while also emphasizing social responsibility. It is interesting to note that these are elements of servant leadership. While the researchers did not make servant leadership a subject of their project, they never-the-less uncovered critical attributes that differentiate servant leadership from other leadership approaches. The significance of this correlation rests in the fact that leaders who practice servant leadership out perform their peers in almost every business metric. Fernández-Aráos, Iqbal, and Ritter contend that,
When a single family member (or a few who are completely in sync) maintains the right presence in a family business, recruitment, retention, and results clearly benefit.
Issues to consider. The leadership team needs to answer six fundamental questions that will then eliminate even small discrepancies in their thinking. Realize that none of these questions can be addressed in isolation; they must be answered together. To fail to answer these questions clearly is to fail in becoming a healthy organization. Remember don’t use jargon or buzz phrases.
Why do we exist?
How do we behave?
What do we do?
How will we succeed?
What is most important, right now?
Who must do what?
Finding Future Leaders
It is generally understood that the person who is right for the highest-level positions in a firm must possess competencies including: strategic orientation, market insight, results orientation, customer impact, collaboration and influence, organizational development, team leadership, and change leadership. But what Fernández-Aráos, Iqbal, and Ritter found in their research adds another important dimension – one that differentiates family businesses – values served as the acid test. 95% of the businesses interviewed by Fernández-Aráos, Iqbal, and Ritter overlapped in language used to describe their corporate ethos e.g., respect, integrity, quality, humility, passion, modesty, and ambition. This commonality in the values held by these firms contributes to a shared vision and trust of each other. Family members evaluated executive candidates based on cultural fit above all else. So important is the concept of cultural fit that it drove a significant part of each company’s definition of development. 40% of the companies in the study included members of the next generation in their boards and committees in order to nurture their business and management skills.
The best family firms find their future leaders early and invest in them – whether they are cousins and grandchildren, existing nonfamily employees who show promise, or outsiders with no previous connection to the firm. Likely prospects are carefully brought up through the business so that when they’re ready for more-senior roles, the values and competencies match is a sure thing.
Issues to consider. Have you done the work to identify the components that make up competencies such as: strategic orientation, market insight, results orientation, customer impact, collaboration and influence, organizational development, team leadership, and change leadership? What other competencies may be needed in your unique industry. The clearer you are on what is needed in a future CEO the easier it is to create a development plan. In addition to competencies it helps to have an assessment of leadership and personality style. Often it is personality conflicts more than lack of competence that drives a leader over the precipice of failure. A good assessment helps a leader gain self awareness and assists him or her in working with people who are different. The best led companies searched among family, internally, and then externally for future leaders. However, they all followed the pattern outlined above in the three phases.
In my own field research I observed family owned and controlled businesses that require their sons/daughters to earn college degrees and then find employment and success outside of the family business before they are considered for executive candidacy inside. In one particular firm I looked at family members recruited into the business served in a variety of roles designed to prepare them for senior management and groomed them as potential successor CEOs.
Disciplined CEO Succession
The greatest threat to any company is a failed CEO succession. Jim Collins found that all but one of the companies in decline he studied had experience a problematic transition at the top. In one family owned and operated business I studied the CEO (son of the founder) explained one day how he had nearly driven the highly successful company he inherited into the ground. Why? He equated entitlement with success. He arrived, put his feet up on the desk and commanded others like they didn’t know what they were doing. Instead of learning about the business he utilized the servers of the company over the employee lunch break to play online video games. On the verge of bankruptcy he had to come to terms with his own lack of competencies. The succession event that put him in the driver’s seat had none of the characteristics described so far by Fernández-Aráos, Iqbal, and Ritter. In contrast a disciplined succession process possesses three phases.
Phase 1: Discussion and commitment by the Shareholders. In this phase the owner family and/or board provides a briefing on succession and an analysis of possible scenarios with the shareholders. A shareholder workshop is held to strategize about the future and design succession processes. The result is the creation of an ideal successor profile based on strategic goals, values, and desired competencies.
Phase 2: Candidate Selection. In this phase a list of suitable internal and external candidates is identified and evaluated. This progresses to a short-listing and obtaining references for a select group of qualified candidates. The desired outcome is agreement on one or two finalists and contract negotiations with the chosen successor.
Phase 3: Integration and Development of the Successor. Once a candidate is selected an agenda for the first six to 12 months is established and the top management team is selected. After 12 months, a 360˚ feedback is conducted and, if needed, a development plan is made to meet strategic and business targets after roughly two years. This leads to a discussion and decision about renewing the CEO’s contract t when due.
The process is a highly personal one. As one of the subject companies explained,
“When we get someone in, we accompany him like a personal scout,” one family CEO explained. “A director or board member introduces him, helps him, and talks to him regularly. The know-how is transferred personally.”
Issues to consider. If your company does not have a formal process it should consider creating one. In the subject companies some did find new leadership through inspiration or chance. However the research showed that CEO appointments were far more successful when they followed a disciplined search involving multiple candidates. What does this mean to a company preparing to hand off the CEO role to a son of the current CEO? Help the son through the process outlined. Further, it is not a bad idea to have a second candidate or to be ready to search for one should the son not succeed in the role. Too many retirement nest eggs, depending on the sale of the company to the son or daughter, disappear because of poor succession planning.
The conclusion of the researchers is that not-with-standing the minefield leadership decisions can be, a family business can thrive for generations if they establish good governance, preserve family gravity, identify and develop high-potential executives within the family and outside it, and bring the right discipline to their CEO succession and integration processes. Other research by Ernst & Young, the Family Business Network, and Credit Suisse shows that large, long-standing, publicly traded family businesses grow faster than nonfamily companies, are more resilient, and outperform market returns by several percentage points. There is no reason why smaller non-publicly traded companies cannot mirror similar results if they apply the same disciplines. Part of the question business owners have to answer is to determine what the horizon of their vision for their company will be. This is not an easy question. It deals with issues of ultimate contribution and is determined by the degree to which owners are willing to grow their own capacity as leaders.
 Claudio Fernández-Aráos, Sonny Iqbal, and Jörg Ritter. “Leadership Lessons from Great Family Businesses” Harvard Business Review. April 2015: 82-88.
 Fernández-Aráos, Iqbal, and Ritter, 85.
 Fernández-Aráos, Iqbal, and Ritter, 86.
 Patrick Lencioni. The Advantage (San Francisco, CA: Jossey-Bass, 2012). Lencioni’s discussion of clarity in values and communication is must read for all family owned and controlled businesses.
 Fernández-Aráos, Iqbal, and Ritter, 87.
 Fernández-Aráos, Iqbal, and Ritter, 88.
Originally posted on Leader Impact:
Here are my top 10 actual complaints by dissatisfied customers received from Thomas Cook travel agent.
- “On my holiday to Goa in India, I was disgusted to find that almost every restaurant served curry. I don’t like spicy food.”
- “We went on holiday to Spain and had a problem with the taxi drivers as they were all Spanish.”
- “The beach was too sandy. We had to clean everything when we returned to our room.”
- “We found the sand was not like the sand in the brochure. Your brochure shows the sand as white but it was more yellow.”
- “Although the brochure said that there was a fully equipped kitchen, there was no egg-slicer in the drawers.”
- “When we were in Spain, there were too many Spanish people there. The receptionist spoke Spanish, the food was Spanish. No one told us that there would be so many foreigners.”
- “It’s lazy of…
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Look at Leadership Three Dimensionally
“This looks like it is built for business, it seems like it only loosely applies to me,” the statement stemmed from wonder – having just completed a 360 degree assessment of leadership competencies Terry was looking for a way to integrate the concise definitions of competencies into his experience. “How do I integrate these insights into my role in leading a mission organization?” he asked.
The question is not uncommon. The contrast in purpose and metrics between a church or mission agency and a business seem stark. However, the way business and non-profit leadership is defined reveals far more about the degree to which a person has integrated their faith and work than it does any inherent difference in purpose between these two entities. Why? Because business fundamentally seeks to define needs and answer them. Faith based ministries fundamentally do the same thing. Each works in a different sphere of human experience that often crosses into the domain of the other.
True, some businesses seem driven solely by profit and are sometimes willing to sacrifice friendships, people, family, and care for the environment to make a greater profit. But before I go too far in raising straw man arguments of false comparison; it is equally true that some non-profits are pure and simple charades designed solely for the enrichment of the founder or pastor or evangelist. Abuses happen in all sectors – the banality and reality of evil is ever-present. So, making false comparisons that vilify either business or faith reveals only mental laziness.
Understanding leadership is not an easy chore. Often the challenge is that leadership is defined one dimensionally i.e., as a matter of applied skills or competencies (as happens in business) or as a matter of applied values and purpose (as happens in ministry). However, it does not take long to discover that leadership is as much about one’s self-awareness and personality as it is skill. What’s more, endurance, resilience, and consistency over time as a leader have more to do with a sense of meaning or purpose that we associate with spirituality. Loehr & Schwartz (2003) writing on managing energy as a leader point out that the physical, emotional, and mental capacities of a leader are dependent upon a leader’s spiritual development.[i]
It helps to have a comprehensive model of leadership development that illustrates a three-dimensional approach to defining leadership. I use the term three-dimensional to point toward the necessity of seeing leadership as actions that stem from and are dependent upon the spiritual, personal, and skill development in a leader’s life. These three dimensions of a leader’s life represent the leader’s sense of empowerment, motivation, and learning posture. These three dimensions are illustrated in Figure 1.
Figure 1: Components of Leadership Development[ii]
Possessing a model like Figure 1 allows a leader, or those charged with developing leaders, to imagine a holistic process of development. Terry’s integrative work needs a model such as this to help categorize his thinking and conceptualizing. Competencies are categorized as skill development in this model. Skills build competence. The importance of develop skills recognizes the truism that good intentions not only pave the road to hell, they undermine a leader’s credibility when not accompanied with the competencies needed to do the work of leadership.
Terry’s consternation in attempting to synthesize what he knows about leadership was compounded by the fact he has participated in a variety of assessments. The Birkman Method® Assessment, Strength Finders, Meyer’s Brigg’s, the Birkman 360, DiSC, and others do not measure the same thing to the same degree. It is important to categorize assessments by development domain. Terry for example, threw Strength Finders and the Birkman 360 into the same bucket (Personal Development in Figure 1). These two instruments are better categorized and Personal Development and Skill Development respectively (Figure 1). An integrative model such as Figure 1 accelerates understanding the relationship between personality and skill development.
Models also help diagnose difficulties faced by leaders. I sat with Ted, a CEO of a privately held firm with annual revenue of $50M. Ted expressed frustration with his team, the direction his company was going, and the mediocre performance of his company. It could be argued that Ted lacked certain competencies (e.g., vision casting or dealing with conflict) but this did not fully explain his own sense of aimlessness. The longer we talked the more clear it became that Ted’s real lack emanated from the fact he had lost his sense of purpose and ultimate contribution. Ted was in a spiritual crisis that undermined his ability to cast vision for the future. His company was disintegrating into a series of silos competing with one another for a dwindling pool of resources. In the absence of a clear purpose the company was collapsing into turf wars between strong personalities jockeying for power.
I saw in the real struggles Ted expressed the same patterns I found reading through the Prophet Amos (common to both Christian and Jewish Scriptures). I was struck with the fact I could synthesize my model of leadership development with Amos’ commentary on the disintegration of his social context to define derailed development see Figure 2.
Figure 2: Symptoms of Derailed Development in Leaders
Amos outlined three destructive cycles of derailed development. Each of these cycles corresponds to categories of development: indifference stems from derailed spiritual development, anger stems from derailed personal development, and destructive behavior is the result of derailed skill development. I have seen all three of Amos’ destructive cycles in the workplace. Notice in Figure 2 that Amos provides symptoms to each of his destructive cycles. Figure 2 serves as a diagnostic model from which to name the root problem that derails leadership development. Ted for example had started his company with the desire to model servant leadership and social responsibility. Yet his lack of skill in knowing how to build strong teams and deal with conflict eroded his sense of purpose to the point he withdrew from leading. He looked at his team with suspicion and contempt. The fact is he looked in the mirror with the same emotions and projected them onto others. He became angry when I asked him to define his sense of purpose. He deflected the question by telling me to work on enhancing the skills of his leadership team. He became even more agitated when I suggested that the root problem was a lack of purpose not skill and that even with improved skills on the part of his leadership team he would be not happier than he was now. In fact improving the skills of his leadership team would only guaranteed more conflict as his team attempted to cast vision without him.
Leadership Development models offer a way to guide development, integrate new material, measure behavior, and diagnose derailed development. Is there a bottom line for leaders? Yes, leaders who do not think critically about their own and other’s development are leaders who eventually find themselves caught in cycles of indifference, anger, and destructive behavior. If you want to be a leader who finishes well then do the work of reflecting on and encouraging your own and other’s development from a three-dimensional perspective.
[i] Jim Loehr and Tony Schwartz. The Power of Full Engagement: Managing Energy, Not Time, is the Key to High Performance and Personal Renewal (New York, NY: The Free Press, Simon and Schuster, 2003).
[ii] Raymond L. Wheeler. Change the Paradigm: Learning to Lead Like Jesus in Today’s World (Maitland, FL: Xulon Press, 2015). (Not yet released – coming this fall.)
“There are times that I wonder how to balance the needs of the organization with compassion.” My client sat pondering the issue for a moment then continued, “But then that is the responsibility of the CEO.” Jayne (not her real name) was right. There are few positions that juxtapose organizational and people needs like that of the CEO. Everything hinges on the CEO’s ability to support the dynamic tension between the needs of the organization and the needs of all the stake holders – in this case a key employee.
Jayne runs a 30 million dollar operation in senior life care with 300 employees. She follows a CEO whose style can best be described as laissez-faire. The outgoing CEO neither had the emotional intelligence nor the drive to pull together a workable executive team. He focused on his own strengths and interpersonal forcefulness to build himself a legacy and push things through the system. Effective? Yes, it got the things done that were important to his legacy. Healthy? No. As a result Jayne is working through her executive team replacing toxic people with healthy ones and literally resetting the organization from the chaos left in the absence of the kingpin to a healthy team that knows what the organization needs and has the values and skills to get it there. One of Jayne’s executive team (a VP) is struggling.
“She told me the other day that I intimidate her, I am not sure I feel bad about that,” Jayne said.
“Apparently your VP wanted you to feel bad about it?” I queried.
“Yes, that was the clear message – in her words I have ruined her life by demanding performance proper to her level of employment.” Jayne paused. “The VP said, ‘I can’t even get dressed in the morning without wondering if Jayne will approve of my wardrobe – I am not sure I will ever win your approval.” Jayne locked eyes with me for a moment and said, “I have never said I disapprove of her wardrobe or of her as a person. She said I was killing her personality. She is right on one hand I do disapprove of her lack of performance.” Jayne’s tone changed as she turned to face me.
“I understand holding people to a change in performance.” Jane began. “But how do I hold them accountable for their personality?”
I could tell the question troubled her. I suggested, “Perhaps it is your choice of vocabulary that has you stymied. Your VP can’t change her personality and in fact that is not the issue. The issue is behavior and she can change behavior.”
“Oh, that helps,” Jayne said.
The VP, like many challenging employees, sought to blame something external to herself (the CEO) for the consequences of her own behaviors. The fact is concern on the part of the VP about her job is right. She should consider whether she wants to grow her capacity by modifying her behavior or look for job with less responsibility somewhere elsewhere.
On writing on the leadership of George Washington, Richard Brookhiser observed, “Problems, and a leader’s solutions to them, consist of ideas, forces, and facts of life. But they are always accompanied by, or incarnated in, people. Judging people accurately and managing them well can make the difference between success and failure.”
When leaders avoid the discomfort associated with addressing problems the result is that they only transfer conflict (the evidence of problems) to larger groups of people in the organization they serve. This transfer has a cascading effect that disrupts large segments of the organization’s performance. This contributes to employee angst and job misery more than anything else in organizational life.
How do you work through conflict in the organization you lead? Judging people accurately includes the awareness of their uniqueness and their stress points. Any leader’s job not only includes helping others work at their peak skills but also of performing in their most constructive behaviors. Hold people, and yourself, accountable for both performance and behavior and watch your people become the high performing team you always wanted to see.
 Richard Brookhiser. George Washington on Leadership. (New York, NY: MJF Books, 2008), 83.