In my experience, family business owners are a resilient bunch. Having survived a myriad of challenges over many years, they have an uncanny ability to come out on top. But how will they fare when it comes time to pass the baton to the next generation of leadership in their own business? Is the role of the next generation leader clear BEFORE the baton is passed?
With roughly 90% of all businesses in the United States being family owned and employing over 60% of the workforce, there is a lot riding on the successful transition to the next generation. Current research shows that 66% of these family enterprises will not survive in-tact into the 2nd generation of leadership and of that, less than 15% survive into the 3rd generation. Why is this?
I believe that loosely defined leadership roles set the family business up for failure in the long run and contribute to family conflict as well. As an example, I had an experience with a family business patriarch (with multiple children in the business) who when asked what his job was he replied, “I check on things.” When pressed further on what he “checked on” his reply was a jumbled litany of mundane somewhat unrelated tasks. To compound matters, he commuted in from a warm location on an ad-hoc schedule. All the working family members were confused about their business and ownership roles and the key employees just rolled their eyes (not to the patriarch’s face of course!)
Juxtapose this with a leader I met who pulled out his company’s updated organizational chart and his own Chairman of the Board job description from his desk and we talked for an hour through the nuances of what it would all look like NEXT year at this time based on the projected growth of the business. His focus was clearly on the future with a methodical strategy achieved by developing leaders to take on expanded future roles. Everyone in leadership understood their role in this process and why it was important. He was also clear what the owners wanted a return on investment and capital allocation.
The lesson outlined above is that if the leader of the business does not have a clearly outlined position description communicated to everyone in the company is it any wonder the troops in the trenches are confused? If the leader is clear on his own role it is easier for the roles of others to be clear as well.
History has shown that companies with poorly structured leadership roles do not have the base, foundation or strength needed for long-term performance. Whether your company runs on the one-leader model (unitary leadership) or adopts the team of leaders’ style (leadership team), it is imperative to build a system that will produce strong decision-making and unity to carry your family enterprise into the next generation successfully.
In my experience and statistics bear out, that the unitary leadership type is clearly the dominate model in the family-owned enterprise. These successful companies routinely use effective communication strategies as well as have a strong personality at the top managing the overlapping areas of management, family, and ownership. A tough job for sure but imperative for success. As family business governance expert and co-creator of the Three-Circle Model of the Family Business System John Davis states, “you can’t keep a a family business performing well over many years just focusing on the business.” The simple graphic framework representing three interdependent and overlapping groups that make up any family business system are: family, business, and ownership. Seven sub-groups are created as a result of the overlap of the three main groups and the overall performance and success of the company depends on the functionality and support of all the groups together.
Family-owned businesses are the backbone of the American economic engine. They create jobs, pay their fair share of taxes and help to build the communities that surround them. When referring to raising children or building a strong community, it is often said “it takes a village” and that is true for successfully running a family business too. Before the baton can be handed off to the next leader, the family-owned business must be sure the role of the leader is clear around all three areas – family, business, and ownership. If not, an orderly and harmonious transition is put in jeopardy.
As a family business consultant in the Minneapolis-St. Paul, Minnesota area, I have worked with many family-owned enterprises to help them anticipate the challenges and the inevitable conflicts that arise when the family and business and ownership intersect.