Replacing Today’s Leaders with Tomorrow’s Stewards

Many families focus on deciding which individual is going to be the next leader of the business, the family council, or the board. But there are serious problems with this approach.

When families think of replacing an existing leader, they often look for someone whose attributes are similar to the person who is successfully leading the business right now. Today’s leaders are capable of guiding a family or a company of the size and complexity that exists today. Many families are not thinking of skills they’ll need leaders to possess ten or twenty years from now, when the family or the company may have grown to three times its current size. A new kind of dynamism will be required to successfully keep the family united and help the business adapt.

The best way to approach a transition or plan a succession is to not to think about what is needed today, but about what will be needed in ten years. For obvious reasons, that’s difficult to gauge, but you want the next crop of leaders to have even more talents and skills than the current leadership team. If you are in a leadership role, you want to replace yourself with someone more talented than you are, because the company and the family are both going to become more complex over time.

If that’s the goal, it can be almost impossible to cultivate the necessary leadership skills in house. That’s why many families look for outside talent, either as an interim step or as an ongoing solution. Finding a new CEO from within a family of fifty can be extremely difficult, especially because you’re not only replacing what you have now. You need even more. When you’re looking for someone who’s going to surpass your own abilities, you may not have the capacity to mentor that person yourself. How do you train someone to think out of the box when you’re in a closed system? It’s just not possible.

When you hire somebody from the outside, you can hire with an eye toward the size the company is going to be in ten years. You can select someone who has the skills and experience required to grow through acquisitions, perform a turn-around, or integrate LEAN practices into the business and manufacturing operations, etc. The new hire can help to increase the skills and experience of the whole team, so the group as a whole will be able to meet the challenges ahead. Someone from the outside can raise up the capabilities of the entire company by many more notches than if you just hired from within.

The same thing can happen at the board level. When you bring in an outsider who has experience on the board of a much larger company, that person’s involvement can raise the entire level of the board.

The biggest challenge is developing the talent needed for family governance. Most families don’t hire outside family council chairs. They do however, take advantage of outside consultants to educate and increase awareness of the whole family. There are also ways to increase the knowledge of the family leaders or candidates by sending them to classes and conferences, and by building a network of other family business leaders who are operating where you will need to be operating in the next 10 years.

Recognizing that the needs of the company and the family exceed the current leadership’s abilities takes a great deal of humility. But it helps to think of succession planning from a stewardship perspective rather than a more limited leadership perspective. Ask yourself what the current leadership team needs to do to be good stewards of the business. That perspective allows you to sublimate your own ego, and think about what’s best for the company, the family and the community. Even the most accomplished business leaders don’t know everything, and nobody can possibly have all the skills needed to see a business through all its phases.

With this perspective, you can begin to build strong leaders while keeping responsible stewardship as the central goal. Stewardship makes succession planning all about the business and the family, and not about the individual leaders.

Developing and Selecting Qualified Family Directors

Once a family determines the role of a family director, a family can then determine what qualities a family director should have. After that, the family can develop an evaluation process to check for those qualities, and agree upon a selection process for family directors.

A family director needs to be able to do several key things:

  • Have strong working relationships with family members.
  • Understand the family and business strategy.Represent the interests of all family members, not just the interests of a single branch or individual.
  • Be part of the family governance process to ensure that he or she understands the will of the family when voting on board matters.
  • Have enough business and financial education to be able to understand the dialog at board meetings, and interpret the financials.

A family may have many more expectations of their directors, but these are some of the key items.

Once a family determines the expectations, they need to determine how to develop the desired skills in individual family members. There are classes, conferences, webinars and other experiences in which a family director candidate can participate. A few families that I work with have started to build, as part of their family strategy, a development and education committee to help guide individuals along their development path. The development and education committee can help the family define expectations for all roles, including family director, and create a process by which to support individuals in their efforts to become qualified for a role.

Some of the tools that a development and education committee can use to help individuals become director-ready are:

  • Psychological assessments to determine baseline strengths and weaknesses
  • Role expectations Individual development plans
  • Curriculum development and delivery
  • Coaching
  • Mentoring
  • 360-degree evaluations

The development and education program can also be used for development for other roles as well, such as family council chair, family employee, standing committee chair, family council member, and next generation development.

The development and education committee acts in an advisory capacity to ensure that the individual is working towards his or her goals, and offers support and accountability on a weekly, bi-monthly, or monthly basis, depending on the immediacy of role placement.

One of the final tests of readiness is an evaluation. An evaluation will comprise of both subjective and objective criteria. The subjective criteria measure expectations. Does the individual have trust of the family? Does he or she act with integrity? Does this individual represent the whole family in all of his or her actions, not just the interests of a branch or individual?

The objective criteria are easier to measure. Did the individual complete his or her development plan? Did he or she attend the recommended classes and conferences? Can the individual demonstrate knowledge of the board financials? The development and education committee may be better placed to measure these objective expectations than the family as a whole.

Finally, the development and education committee combines the subjective and objective measures into an overall evaluation and reports back to the family on the candidate’s readiness for the role of family director. The family then needs to decide on how to select the qualified candidate. Are the qualified individuals nominated and then a vote is cast? If a family has a voting trust, will the voting trustees review the evaluation completed by the development and education committee prior to making a selection? Will the individual be nominated by the nominating committee of the board after seeing the evaluation results? There are many ways to vet and vote on qualified family directors. In fact, many families have the voting process already determined, and the challenge is to bring only those individuals who are qualified forward for a vote.

Bringing New Ideas Into a Closed System

Families who own family business are essentially a closed system. It’s not unusual for family members to share similar values, and grow up in the same cities or even in the same neighborhoods. They’ve been raised in the company culture, and focused on the ways the business defines and strengthens the family. All of these shared experiences make it hard to come up with unique, original ideas. Even though everyone in the family contributes their own ideas, it will still be a fixed set of ideas because you’re a fixed set of people. You only have so much experience and expertise to draw on.

That’s why a dynamic, adaptable family will be alert for new ways to stir the pot. Sometimes families need to look outside their own ranks for fresh perspectives. Including spouses or partners in the family council provides a full set of new ideas, but they will quickly become steeped in the family culture and more outside input becomes necessary.

1. Family business consultants

Family business consultants can offer a family understanding and background of the best practices in the industry. But they can also draw on their experiences with many other families and clients, so they bring not just their own ideas but the ideas they’ve garnered from working with many other families. A good consultant brings many different options and solutions, and it’s a great way to grow the skills and experiences of a family.

There are some drawbacks of hiring consultants. The biggest problem is that they’re only drawing on the experience they’ve had with their clients. They may not have a full perspective on the scope and history of the family. This is part of what makes it so difficult to find a consultant who’s a good match with the family. The consultant is a closed system, too. Consultants can bring in new ideas and help broaden a family’s perspective, but they shouldn’t be considered a total solution.

2. Conferences

One of the best ways to grow a family’s capabilities is to send several family members to family business conferences. There are conferences all over the world such as Family Business Magazine Transitions conference and Family Business Network conference. The best family business conferences have presentations by family members that are valuable chances to be exposed to a huge variety of concepts, ideas and solutions.

You can maximize the usefulness of a conference by bringing a challenge you’re working on. Throughout the conference experience, try to find people who are dealing with the same challenge, or people who have gotten through it. Go to Q&A periods, meet the panelists and speakers after their presentations, and really work on talking with them about your challenge. Find out what they did to solve a similar problem. You’ll bring back several different ideas of how different families have solved the problem. I’ve done this several times, and every time I’ve come back with the answer.

At conferences, you’re in a room with people who are facing the same challenges you’re facing or have found a solution to the challenges you’re going through. There are a finite number of challenges a family can face. There may be a scale of severity, but most problems are similar. At a conference, you have tons and tons of resources.

The hardest thing about a conference is that you’ll often hear a panelist of experts talk about something that sparks in your mind as an answer to your problem. But you don’t have the depth of understanding of that idea to take it back to your family and present it by yourself. That’s why it’s good to have several people from the family go together so you can compare notes and come back to family with a much fuller picture.

It can be difficult to get family members to go to conferences. One way to get people to a conference is to hold a family meeting at a conference location. It helps if everyone attends the conference and stays at the hotel for a day or so afterward to have a family meeting. I know many families who have done this and every single one has reported that it’s been wildly valuable.

Conferences are also the perfect opportunity for networking. Bring stacks and stacks of business cards. Follow up with every person you met at the conference with invitations to connect over time with the opportunities and challenges you’re both facing. I’ve met people at conferences that I still check in with every six months, asking, how’s it going? I know you were struggling with this issue before. How did you handle it? With every networking situation, you’re bringing some information to the table to share as well as gaining information from others. Networking is really a two-way street.

3. The Family Business Library

If it’s not feasible to bring multiple family members to a conference, it’s still possible to help everyone benefit from expert advice. Every family should develop a library of relevant books to share amongst themselves. Every book that’s really good should be sent out at least to every member on family council, and the group should have a discussion on it. This process helps frame how a decision can be made. It helps inform family members when they’re trying to make a big decision.

The same can be said for magazines. There are several magazines that can be useful resources. Not only will the featured family interviews help build your network, the magazines will bring a series of ideas and challenges that other families have faced and details on how each family managed the situation. There are often several experts who offer advice on a range of topics in magazine articles and profiles. Every member of the family council should have a subscription to a few essential magazines such as Family Business Magazine and Harvard Business Review. If there are family members on the board, other magazines and online subscriptions should be added to the list, including Directors and Boards, Wall Street Journal, National Association of Corporate Directors. One rule many families have is if a person receives any of these subscriptions, they are required to share any relevant article with the rest of the family.

4. Family Business Classes

Lastly, there are some excellent family business classes that can help a family build their net knowledge. Many classes focus on stewardship, leadership, governance, managing relationships, transitions, etc. There are several great courses held at Loyola Family Business Center. One of which is the Family Business Stewardship Institute; an 18 month course. The classes are held once a quarter for the duration and provide webinars and homework assignments in between sessions. The Stewardship Institute provides the students with case studies, guest lecturers, and templates and exercises to easily bring new concepts back to one’s family. At a minimum, every family council chair should attend a class like the Stewardship Institute. The real value of these classes is when several family council members attend the same course. This helps build the overall knowledge of the family and make it easier to introduce new concepts.

Family business classes, like books, magazines, conferences and consultants, help increase the net knowledge of the family. Only with a constant influx of new ideas and knowledge can a family break out of the closed system mentality. This allows for families to build creative and flexible solutions that can address the challenges a family is facing today.

The Challenge of Family Business: When You Can’t Hire Your Team, but Inherit It

It’s a big challenge–growing the business to keep pace with the growth of the family. Since most families grow exponentially, that creates great pressure on businesses. The converse challenge is to ensure that the family can grow in their capabilities as stewards of the business as it grows in complexity. Businesses have the advantage over families because they can hire their team, while families inherit theirs.

A few years ago, I talked with the CEO of a family business. He was describing all of the work that he had to do, how much internal development was under way, and how many people he had to hire in order to implement the business strategy. I found myself getting quite jealous, because he could hire the talent he needed when internal development wasn’t enough. Families don’t have this option.

Families have several opportunities to maximize the talent on their team, but in order to build the proper development program the family needs to agree on the following objectives:

  1. Remaining family owned and controlled
  2. Being a good partner with the board and management
  3. Being good stewards of the business

Working with your inherited team: development and education programming

Putting together a development program is one of the strategies required to achieve the family’s objectives.

Provide multiple opportunities to build experience

Revamping the family council may be necessary to create more leadership opportunities. Task forces can be used to pull in many different people and interest levels, and committees help build leadership skills. This also provides growth opportunities for the family council chair, because now he or she is mentoring committee chairs and task force leaders. The policy on visiting board meetings may also need to be revised, and consideration should be given to creating an associate director or long-term visitor policy to create a deep bench of qualified family director candidates.

Focus on individual development

A clear development path should be made for all roles in the family, including family employee, family director, family council chair, committee chair, committee member, family council member, family assembly participant, etc. A clear development path including role and experience expectations creates a transparent and inclusive process. This means that anyone can pursue a given role. The development path may be longer for some roles or some people than others, but it means that becoming qualified for a role is open and accessible to everyone in the family. With a limited pool of candidates in a family, no matter the size, no one who wants to become qualified for role should be turned down. All should be encouraged. With the help of a clear development path and support along the way, every individual should be able to achieve their desired role. Progress can be tracked by a development and education committee in an Individual Development Plan, which includes progress on meeting the desired role expectations, education and required experience, as well as results from assessments, evaluations, and other related activities, like conferences and family business courses.

Focus on group development

In addition to creating opportunities for individual development, the whole family needs to move along the expectations continuum to become better stewards as the business and family grows in complexity. This includes providing education days for the family at family meetings, interaction with and presentations by management, presentations and informal conversations with the board, bringing in outside speakers to family meetings, such as subject matter experts or the family estate planners, trust advisors or accountants. Some families also hire outside consultants or family members from other family businesses to speak at family meetings on relevant topics. Rescheduling a family meeting to run before or after a family business conference also provides an opportunity to increase the family’s knowledge as a whole.

Start now with the next generation

Good stewardship requires thinking for the long term. Start now, and create opportunities for even the youngest current or future shareholders to spend time together as cousins. Have the family or company pay for kids to travel with family council members for meetings. Conduct family council meetings on the weekends so children can attend the social events and spend time together under the watch of sitters. Create a family camp for multiple generations to interact with one another in activities that are kid friendly. Any investment made now will pay off many times over with deep and abiding relationships amongst the youngest generations.

What are Family Values?

Family values are a statement about the fundamental agreements of a family. This provides a framework, based on agreement, that helps a family set priorities.

Of course, every individual and smaller family unit will have their own values, ideas that determine how they treat people and the impact they want to have on the world. Individual sets of values shape the group’s agreed-upon values, but it’s important for the family as a whole to find the values with which they’re going to measure all their decisions.

Many families want to prioritize the values of inclusiveness, transparency, integrity, stewardship, education, engagement, relationships—the possibilities are endless.

Once you have clearly defined your family values, everything you do moving forward has to speak to all or many of those values. All decisions will be made in alignment with your values. Each decision is evaluated based on how it’s going to help achieve your vision, and how it’s going to help you carry out your values. Your values become a road map.

Values explain our actions as a family. For example, the value of stewardship explains why the family might decide not to gut the business for personal gain. It explains why we might decide not to spend lavishly on ourselves instead of reinvesting in the business for the good of future generations. It may also explain why the family is no longer e-mailing confidential corporate information, and is now implementing a secure portal for all private information.

It’s easier to implement change when you base decisions on something you already agree on–your values.

Managing Change & Conflict through the Task Force Process

Most families have ongoing projects and policies that are handled in regularly scheduled meetings. But some challenges, like internal conflicts or major transitions, are better handled by a task force–a smaller group, working together in a focused way for a limited time.

Task forces usually take on a discrete agenda to address one-time needs, unlike a family council that has a repeating schedule of tasks they perform on an annual or biannual basis. Task forces can be used to address making a change in your family, a change in a policy or establishing a new process. Task forces are also effective for managing conflict, and they promote engagement deeper into your family instead of having a highly engaged family council doing all the work. A successful task force looks beyond the usual suspects who do the biggest share of the work, pulling people in from the larger family to get them engaged and get their input on the process. It’s a great way to build buy-in from the family as a whole. By inviting people to join a task force, you’re demonstrating that you’re using an open, transparent and inclusive process. Even if someone chooses not to participate in the task force or isn’t able to find the time, an invitation shows them that their opinion is valued.

Setting up a task force is fairly straightforward. First, the family council determines the topic and solicits volunteer participants. A series of conference calls or emails narrows down the scope of the task force, and sets the agenda and timeline for the group to deliver its recommendations to the family council and family assembly. A key to a successful task force is to determine in advance when you want to roll the final recommendation out to the family assembly for approval. Then work backward to determine when the concepts should be introduced to the family assembly for review and feedback, when the family council should see it and provide feedback, and how long it will take to draft. Working backwards from your final goal helps determine the call or meeting frequency leading up to the request for ratification. Some task forces can complete a task in 6 weeks or so, and require only a couple of phone calls to get the job done. Some take longer. If you’re changing a major policy, it can take an entire year before you’re ready to come back to the family assembly and present results.

It’s important for the task force to avoid laboriously drafting new policies. Many families spend a lot of time drafting documents. Inevitably, the larger group will ask for major revisions, and if you’ve spent a hundred hours getting the language just right, it can be very frustrating to go back and change the underlying concepts. It’s better to sketch out the important concepts first in bullet points, and present it to the family council for feedback. With bullet points, you can actually change the concepts in real time while you’re presenting the ideas to the family council. Once everyone has agreed on the general concepts, it doesn’t take long to flesh the ideas out into full-blown policies. Powerpoint is an excellent tool for this as it can incorporate images and shapes to help convey the ideas.

After you set the timeline and agree on a method of work, you have to establish how you’re going to get agreement from your family. Will the group’s recommendation be presented to the family in a meeting, or via online tools like WebEx or join.me? Webinar tools are useful when it’s impossible to get everyone in the same room, and if the task force has been drafting ideas in visual software, like PowerPoint, it’s the work of a minute to share the documents with the rest of the family. This makes it easy for a task force to get the larger group to agree to things even before the process is complete. Before you do a formal roll-out to the family, you want your family already to have seen drafts and provided feedback. When you’re creating the timeline for the task force, make sure your family has time to see the work in progress once, twice, or even three times, depending on the complexity of the issue. That way, when you do your roll-out, everybody has already seen your proposal and provided feedback and you’re ready to ratify it and move on. The key to a successful family meeting is to make it a boring one with no surprises. Everyone at the family assembly meeting should have already seen the work of the task force several times and have had an opportunity to provide feedback along the way.

The task force process can go a long way toward smoothing over conflicts within the family. If you are rolling out a new policy or process, you may know that there will be one or two people who will take issue or have a problem with the proposed changes. You can count on them to be really passionate about the issue at hand. Make sure they’re invited to join the task force and encourage them to participate. The invitation is half the battle. If they can’t participate because of other commitments, share the task force’s ideas with them in advance through phone calls and webinars, and get their feedback as you go along so you’ve already incorporated their opinions and issues into the solution. Getting their thoughts right up front eliminates some of their resistance later in the process, and they become a proponent, rather than an opponent, of whatever change you’re trying to introduce.

Engagement is one of the biggest challenges facing every family, and the task force model can help. The group that makes up your family council is fairly static. You see the same people every quarter. By opening up your task forces to other family members who are not part of the family council, you’ll benefit from additional voices and build relationships beyond the council. The best way to build relationships in a large and complex family is to build working relationships. By working together, you become much closer as a family. Task forces are also a great way to build the family’s skills and help identify people who might be groomed for leadership. Task forces help build that all-important deep bench of talent within family.

Delegating some tasks to a discrete task force strengthens the family council’s role within the family and within the business. Participating in task forces helps family members understand what the family council does, without their having to make a full-blown commitment to the family council in order to learn about its inner workings. Many talented and skilled members of the family can’t be family council members because of the stage they’re at in their lives. But they may want to do more than come to a meeting once a year, and they may want to leave the door open to join the family council in the future. Participating in short-term task forces is the perfect way for the family to benefit from their strengths, and for them to feel more engaged with the governance of their shared legacy.

The Purpose of Strategic Family Councils

Many families create a family council to fulfill short-term goals, like developing policies and planning meetings. Once all of the policies are completed and the family gets acclimated to having annual meetings, it often seems like there isn’t much to do. I have spoken with several families who complete all of their policies and operate their council for 10 years or so, only to disband the family council because all of their work is done.

Don’t make this mistake. An active family council has many long-term benefits for both the family and the business.

Family councils can be extremely useful tools, but they need to be designed to meet both short and long-term needs.

  • The scope of a family council should be to
  • Increase the family’s capabilities as stewards of a company that is growing in complexity
  • Build strong working relationships among family members
  • Build a strong and diverse leadership team
  • Develop a process to manage conflict and provide inclusive decision-making
  • Increase the family’s knowledge and understanding of the market, business, and board activities
  • Plan for succession and transition by ensuring role readiness with as many candidates as possible
  • Build accountability measures for those seeking additional leadership roles
  • Create a process to prepare and qualify family employees
  • Ensure that the youngest generation’s experiences with to the family and business are exciting and positive

This may be a long and intimidating list, but there are ways to organize the work so that it doesn’t all fall on the shoulders of one individual. The first is to create a task force or work with the family council to develop a 10 year plan, also called a family strategy.

The 10 year plan should include:

  • The growth of the company and family in both size and complexity
  • The changes planned on the board
  • Upcoming retirements, succession plans, and transitions
  • A vision for the family
  • Agreement that the family wants to remain family owned (or not), also called the mission
  • A statement of shared values
  • Objectives and strategies to live values and carry out vision
  • Programs to implement objectives and strategiesFunding for programming, including education
  • Development of any necessary processes or procedures to execute plan
  • Development of a monitoring and reporting process

These steps comprise a full family strategy. There are two elements that need to be developed to support the family strategy. The first, also called the family constitution, consists of supporting policies and processes required to implement a plan. The second is the structure of the family council that’s necessary to implement the plan.

The family constitution is a tool to document everything that the family agrees on and should be used as a basis for making decisions and changes in the family.

As mentioned above, the family council’s purpose is to carry out the family strategy. It needs to be organized to help implement the overall objectives of the family. The family council should be organized so that the structure itself is helping the family meet their objectives. For example, if a family wants to create a deep bench of family leaders, the family council structure can include committees with a chair for each, creating opportunities for new leaders to gain experience. These committees can be responsible for a portion of the overall family strategy.

The family council should consider having a plan for each of the following areas:

  • Development and Education
  • Governance and Ownership
  • Family Relationships
  • Family Philanthropy
  • Business and Finance

The family council can decide how best to structure the committees, if they are using them, or devise a way to track and implement a plan in each of these areas.

Far from being a static and repetitive process, the family council needs to evolve just as much as the board and management in order to keep pace with the business. This keeps the agendas fresh and the work of the council and committees fluid and exciting.

Family Business: Beating the Odds of Transition

If you’re committed to keeping your business family-owned, the odds are stacked against you. Research by the Family Business Institute shows that 12% of family businesses remain family-owned through the 3rd generation, and only 3% make it to the 4th.

But family businesses tend to outperform public companies. If there’s a competitive advantage to being family-owned, why don’t you see that advantage reflected in increased success of companies through the 4th generation?

There are several business reasons why a family business wouldn’t make it to the 4th generation–a failure to adapt to a changing market, lack of innovation or entrepreneurial spirit in a family, or poorly-managed conflict within the family. There are also several ways in which the family makes it difficult to transition the family business to the next generation.

Family vs. Non-Family Management

Families tend to think that to be a family business; you have to have a family member as CEO or chairman of the board. That is often optimal for the family, but may not be optimal for the business. That’s because most family members gain their business experience inside that business. If you’re not providing external opportunities for these individuals to grow in other companies, it means you aren’t building the talent to take your company to the next level.

To combat this problem, many families bring in high-level outside management such as an outside CEO who may have worked in a much more complex business environment or even a public company. This provides an independent view of the business, but also that boosts the company’s available talent, expertise and discipline.

Communication and Decision Making

Leadership styles can also have a big impact on family business success. Often, during the first generation, the company founder makes all the decisions and the family goes along with it. No problem–it’s his or her company, and everyone just agrees. In the 2nd generation, often that leadership model and decision-making model persists because the family is not so big, they understand the founder’s wishes, and maybe the founder’s still alive. It’s easy for the 2nd generation to keep that decision-making model.

In the 3rd generation, one of the big challenges is that the 3rd generation doesn’t want to make decisions the way the 2nd generation did. But they also don’t have the strong natural family connections the previous generations enjoyed. The stakeholders are no longer connected by shared parents or grandparents. The connections are becoming more tenuous. There are cousins, and there are nieces and nephews. There’s not that natural familial power that allows that person to be the patriarch of the family. The owners of the company are more peers with each other. The leader may be a cousin, rather than a grandparent, so it’s not as natural for them to get away with being an autocrat.

At this stage, the family needs to change their decision-making model and even the culture of the family to be very inclusive, open and transparent. If some members of the family fail to make this change, you will inevitably begin a cycle of conflict with a third-generation leader.

Succession

Succession planning can also sabotage the long-term survival of a family business. It’s natural for the leader in any generation to choose the person who closely matches their own skills and capabilities. But it’s not necessarily a good thing to have a leader who is too similar to their predecessor.

When you have a 70-year-old leader looking at that next generation, they look for the person who looks most like them. Their thinking is, well, I grew the company to this size. I’ve been a leader for 30 years. I have tons of experience, and although nobody in that next generation has as much experience as I do, I want the person who has the same capabilities or has demonstrated the leadership potential that I have.

Although the current leader may have been the exactly right person to grow the company to where it is today, it doesn’t mean that person has the skills to grow the company over the next 30 years. If they did have those skills to grow the company going forward, they would have already done it.

It may take a lot of self-discipline on the part of the leader, but they need to resist choosing a successor in your own image. Instead, they should choose somebody who has the vision and leadership capabilities to grow the company in a way they haven’t been able to.

Conflict Management

A successful family business also has to be prepared to manage conflict. If they don’t, ownership of the family business becomes burdensome rather than being seen as an opportunity. They see selling as an opportunity to get rid of the conflict, rather than trying to manage it within the family ownership structure.

What are some other reasons family businesses don’t make it to the next generation? I’d welcome a conversation with other experienced business leaders about the potential downfall of family businesses–what causes it to happen and what can we as leaders do to guard against it?

What Legacy Will You Leave?

When people think about what kind of legacy they’ll leave after they die, they usually think about financial legacies—property, a family business or trust funds. They think about leaving an estate.

Most people aren’t thinking about the other legacies they will leave.

For example, everyone leaves a philosophical legacy of one kind or another. A philosophical legacy is the imprint their values have made on their children and grandchildren, and on anyone whose lives they’ve touched. The values passed down along with a financial legacy help govern what the family does with the money. Your heirs will still think about how you would want the financial legacy to be managed.

When a family business is passed down, the values that were passed down along with the business will still be applied to decisions even after the founder is gone. The values-based family culture is the legacy you’re leaving along with your business.

In addition to financial and philosophical legacies, you will also leave an emotional legacy when you’re gone. You’re creating an emotional legacy right now in the relationships you have with other people. Those relationships will be passed down to your children. If you have a really good relationship with all your siblings, chances are your children will be close to their siblings, as well their cousins. The next generation naturally models their own relationships after the older generation’s family relationships.

A lot of successful businesspeople are masters at leaving financial legacies, but they don’t see the value or impact in the emotional legacy they’re leaving. They’re not managing their relationships or acting as stewards of family in the same way they are acting as stewards of their financial legacy or even their values.

If you have a strained relationship with your in-laws, or a strained relationship with your sister’s husband, and that may divide those two branches of the family for generations to come. Those relationships get passed down in a negative way just as they do in a positive way.

There are many components to legacy. If you just think about leaving a large financial legacy or a good business culture, you can really fall short in terms of your responsibility to your family. Your actions now will help future generations to maximize and make the best use of the financial and philosophical legacies you’re leaving them. Your legacy will enrich your family much more if you take great care with your personal relationships and treat them as an important part of your legacy.

The Best Way to Move Out of Family Conflict

Many families who own family businesses have conflict embedded in their culture. Often it starts a generation or two before the current generation. Conflict gets passed down through the generations as part of the family legacy, just like grandma’s china or grandpa’s watch collection. This conflict is unresolvable because those who had the original conflict aren’t around to come to any resolution. My recommendation to families in this situation is to figure out how to get past it, rather than try to rehash old arguments.

The best way to move beyond the family conflict is to stop the conflict cycle. If the same two people always start an argument in family meetings, or the family always votes along branch lines, this situation where the destructive dynamic occurs needs to change. The main reason this is destructive is because the conflict will never get resolved since it didn’t originate with the people carrying out the argument.

Changing the environment doesn’t mean not allowing the individuals prone to arguments be in the same room together, but it does mean that the family can stop the set-up for the argument. Have the chair or someone else intervene in the cycle and act as mediator outside of the family meeting.

Ask yourself if this argument can be resolved without additional information. If it is a yes/no argument where the two individuals take opposite sides, then the likelihood of getting resolution without a great deal of work is very small. This is a great opportunity to institute a task force to research and add different perspectives to the content of the disagreement. To get to a resolution, the individuals need to get past looking at the conflict as a black or white.

Changing the environment also means avoiding big emotional upheavals in the fabric of the family. Families need to build a repeatable and consistent decision-making process. Without this consistency, the family will never be able to build trust or move past the conflict dynamic.

There is a compelling reason to get past the conflict. Without a constructive dynamic in the fabric of the family, the family can’t make progress in other significant areas. Conflict sucks the figurative air out of a room, and the family can’t address other important work like focusing on becoming a good partner with the business, increasing the stewardship capabilities of the family, preparing for inevitable transition, and  building a deep bench of family director candidates and family leaders. Unresolved conflict is a guarantee for stasis.