Every family or privately owned business will need to answer this question: “How will this company endure after the current owner departs?” With a family owned business, that may be a passing of the torch to one in the next generation, a non-family CEO, or other scenario which involves some form of leadership succession. With a privately owned company, perhaps a strategic sale or employee ownership transaction. Regardless, preparing for that event takes time, people and expertise.
Remarkably however, an orderly succession is rarely the case. In nearly half (47.7%) of all FOB collapses, the failure of the business was precipitated by the founder’s death, or in 29.8% of the cases, the owner’s unexpected death. Only in relatively few instances (16.4%), did the business failure follow an orderly transition, and in situations where the owner was forced to retire, the figure drops to 6.1% (University of Connecticut Family Business Program, 2009).
Why is developing your future leaders important?
- Leaders must be prepared and qualified to take over the helm.
- Respect is earned through time and demonstration of abilities.
- The desired plan may not always coincide with reality:
- Death or disability may necessitate a hasty change.
- The “ideal” family member may not be available or ready to take over leadership.
- Today’s leadership landscape has changed:
- Pull, not push leadership.
- It is about sharing information, not controlling it.
- Constant innovation is critical to the success of many family businesses.
What are important leadership characteristics?
- An independent vision and goals, coupled with a keen history of the business.
- Develop new products, services, relationships, organizations, and channels.
- Manage complex relationships between the organization and its network of stakeholders.
- Decision making
- Risk taking
Why do some families resist identifying who the leader will be?
- Assigning roles or picking a leader my result in conflict or hurt feelings.
- Current leader is not prepared to let go.
- Lack of company support
- Legacy is a double edged sword:
- Previous generation embodies it
- Younger generation often feels saddles with legacy.
Where to start developing leaders?
- Is there a passion for the business?
- Is there a good alignment of skills?
- Does he/she fit?
- Some programs are now specializing in Family Business studies both at undergrad and grad level.
- UVM teaches a course in “Leading and Managing the Family Owned Business”
- Professional programs also exist such as the “Certificate in Management and Leadership at UVM.
- Outside experience will help develop skills and network, as well as respect
- Internship at another family business
- Develop within the business prior to assuming management or leadership positions.
- Peer groups, mentors and coaching
- Peer groups are an effective tool to develop leaders and create a strong support network.
- Mentors, both outside the business and inside the business
- Coaches can help developing leaders establish their priorities and decision making abilities.
- Non-family directors or Boards of Advisors
- Non-family executives can provide a bridge to future family leadership and instill professional benchmarks.
- Provide a nonbiased view on who is best fit to take over leadership.
Some relevant stats related to developing your future leaders:
- Integrity and commitment are the two most important attributes considered by senior generation members for next generation leaders. The ability to garner respect is a close third. (Chrisman, Jh., Chua, J.J. & Sharma, P. 1998).
- The average life span of a family-owned business is 24 years (familybusinesscenter.com, 2010). About 40% of U.S. family-owned businesses turn into second-generation businesses, approximately 13% are passed down successfully to a third generation, and 3% to a forth or beyond (Businessweek.com, 2010).
- Currently, 24 percent of family businesses are led by a female CEO or President, and 31.3 percent of family businesses surveyed indicate that the next successor is a female. Nearly 60 percent of all family owned businesses have women in top management team positions (Mass Mutual American Family Business Survey, 2007). Of the non-family firms in the Fortune 1000, only 2.5 percent are currently led by women (Fortune magazine, 2007).
- Between 10% and 15% of U.S. family firms are now managed by non-family executives (Barclays Wealth and The Economist Intelligence Unit, 2009).
For a video link of this tip, please go to: http://www.wcax.com/story/15007665/family-business-developing-future-business-leader.