by John L. Ward
A Financial Times article[*] about the sustainability of China’s leadership offers some ideas for family business successors. The article outlines several forms of legitimacy that are more or less sustainable.
First is procedural legitimacy. The people accept how the successor was chosen. Democracy is believed to be the most legitimate – “people chosen by the people.” That, of course, is not common in family businesses, nor China.
Then what other forms of legitimacy are there?
- Performance legitimacy – success provides better welfare for the people. Beware: this cannot always be assured; research suggests that 55-65% of company’s financial performance is industry, not leader dependent.
- Political meritocracy – it is clear that the leader is qualified. In China the Communist Party is setting ever higher standards of education for party leaders; honest competition for the best to be the successors also supports sustainability.
- Ideological legitimacy – the people accept the leader as virtuous and the best steward of the company’s future. In Confucianism, the important values are benevolence and harmony.
As procedure, performance and meritocracy can be unsure in family firms, then ideological legitimacy is the essence – how virtue and stewardship are assessed may depend on the local culture.
[*] “Real Meaning of the Rot at the Top of China,” Daniel Bell, Financial Times, April 23, 2012
by John L. Ward
Family organizations, such as family offices, face many paradoxical contradictions. Several follow; then a fundamental paradox will be examined.
- Centralized leadership or direct democracy
– Who makes decisions?
– How is leadership selected?
- Individual freedom or collective responsibility
– Is privacy protected or are there no restrictions on social media use?
– Is each mindful of the physical security of all?
- Engagement or emotional space
– What expectations are put on people for participation?
– How draining are family meetings?
- Voluntary involvement or remunerated roles
– How broad is participation?
– How appreciated are “doers” feeling?
- Direct costs or shared costs[*]
– Who pays for what?
– How much effort determines real costs?
Perhaps the most fundamental family organization paradox is Familial or ProfessionalWhen family members participate in family meetings or activities or governance they expect BOTH: informal, family-like feelings AND productive, effective progress.
One approach to paradoxes is to seek balance – when there are increasing efforts to professionalize put more attention on how to also emphasize more familiarity. Another approach to paradoxes is to seek a synthesis – “win win.” Perhaps a family will find that the more professional its meetings, the more time there is for just plain, casual fun?
[*] Sometimes the long-term view dissolves paradoxical contradictions. Perhaps in the long-term all costs are shared?
Kent Rhodes
In the context of the family enterprise, every conflict is further complicated because of the multiple roles and relationships of family members with each other. The CEO of a family enterprise may be the son of its founder. He may also be Dad to several children and Granddad to multiple grandchildren, some of whom also likely work in the company or serve in some kind of leadership capacity. He is likely the husband of a spouse who helped him build the business and raise those several children. He may also be a brother to a Vice President in the company or even a co-president with him or her. As if that were not enough, he is uncle to his siblings’ children and in some cases may also be their boss if they work in any aspect of the family enterprise.
All this inter-connectedness means conflicts in family businesses tend to not only be complex but also the result of long-term processes and relationships rather than one-time events. Although unaddressed events within a family can eventually cause an underlying way of relating between family members that then becomes an accepted norm in which family members view conflict with each other as “normal” for their family.
While most families have varying degrees of this otherwise harmless dynamic as core to their relationships with each other, the added weight of interacting within the context of the enterprise or business, can exacerbate conflict and even devolve into a destructive pattern of conflict over time that is not harmless.
When business conflict is properly addressed owners or managers tackle smaller challenges, managing them effectively in real time. But when events are not well managed or are accepted as normal or just ignored, they can become chronic, stack up over time, and become crisis points. In families with long or multigenerational histories together and with strong emotional ties, recognizing and managing conflict is more challenging than for non-family collaborators. Taking the time to think about those types of conflicts is worth the effort to do so in order to enhance family unity and business efficiency.
Kent Rhodes
To effectively address the interpersonal conflicts in family business, it is important to understand and address the unique challenges that occur when families simultaneously work to build a multi-generational enterprise, work to give back to their communities, and share financial assets that benefit both the family and its individual members.
Traditional approaches of conflict resolution have their roots primarily in the legal and family counseling fields and as such, tend to present overly simplistic ways to “resolve” conflicts that are common to families in business together. In order to figure out a realistic approach to these unique challenges, it can be helpful to first consider:
- Which conflicts need to be managed rather than “resolved”?
- Can we clearly define the conflict in a way that everyone’s perspective is included?
- Are we willing to explore every option to address a conflict?
- Can we think about long term “fixes” versus quick ones?
- How might we maximize opportunities for learning and increased relationships that addressing conflict can offer a family?
These questions require you to widen your frame and set yourself up to find lasting and comprehensive solutions.
Kent Rhodes
According to some experts, conflict is “a process that begins when an individual or group perceives differences and opposition between itself and another individual or group about interests and resources, beliefs, values or practices that matter to them”[1]. While that definition is accurate, it isn’t quite enough to accurately describe conflicts that are common to family business.
Today, many enterprising families also collaborate in managing family offices, overseeing philanthropic endeavors through established family foundations, or sharing control of other public/ private enterprises. While all collaborations will run into their share of disagreements, the unique qualities of family at the intersection of these enterprises bring special challenges to effectively managing conflict. The dynamics that can produce conflict within a family simultaneously intersect with the challenges of owning and operating a business, introducing emotional and historical dynamics that complicate solutions and opportunities.
It is important to bear in mind that when managed correctly, some conflicts can be beneficial – for example spurring important new ideas, innovations and energy for the business. While knowing how to manage conflict and leverage it into an advantage may not be immediately clear, and the emotional load of conflict in a family business can feel threatening – it is important not to avoid conflict, but to work to address it effectively for the benefit of the family and the business.
[1] De Dreu, Harinck, & Van Vianen, (1999). Conflict and performance in groups and organizations. In Cooper & Robertson (Eds.), International Review of Industrial and Organizational Psychology (Vol 14, pp. 369-414). Chichester, UK: Wiley.
Craig Aronoff
In a static or relatively stable socio-economic system, the ability to identify, sustain, and defend a niche in the marketplace creates tremendous value to pass from generation to generation. When the socio-economic system is in ever accelerating flux, creativity and adaptability rather than defensive stability may be the key to longevity. The specific corporate form of the enterprise may be far less the issue than the values, knowledge and assets passed from generation to generation.
by Albert Jan Thomassen
Albert Jan Thomassen
Recently a family business owner asked me if he should step down now. “Why do you ask me this”, I replied. He told me he had planned his succession very carefully and was supposed to hand over the CEO seat to his successor. But he has since developed serious doubts because the recession is hurting the company rather badly.
There are pros and cons to handing over the reins in recession time.
Reasons to step down during a recession:
- A young successor has new ideas and a lot of energy which can boost innovative thinking and change
- The drive and energy of the incumbent might not be enough to take the company through yet another recession
- It may be too difficult to make some of the ‘hard choices’ after many years of building up the company – there may be a lot of baggage.
- There is no better learning opportunity for a successor than taking over in bad times
Reasons to stay during a recession:
- To leverage the experience with previous recessions to help navigate this one
- Staying on demonstrates commitment and strengthens loyalty of key people in the company
- To be able to leave the company in stronger shape for the successor
- To protect the successor from an unrealistic and unachievable task
What is wise to do depends on the specific situation. As I have seen families in business so often do, the owner in this particular case came up with an original solution. He decided to stay but realized that he wanted to control too much. He was worried that instead of giving his management, including his two children, more responsibility and freedom to take the measures they think are right he would become a real control freak. To counter this, he created a task force with the powers to decide and himself as an advisor to the task force.
We would enjoy hearing from others about how they have managed the challenge or opportunity that is a succession during this ‘great recession’…
By Albert Jan Thomassen
Albert Jan Thomassen
In today’s world companies are much more vulnerable to opinions and statements from a wide range of sources. These can harm their reputation and credibility very fast. Take the example of McDonalds a few months ago. They claimed on Twitter that their food is healthy. Within a few hours there were a lot of negative reactions. The company withdrew their Twitter campaign immediately because the credibility of the McDonalds brand was at stake.
This is but one illustration that building and nurturing a brand has become a necessity for companies. However, when the company name is the same as the family name – brand management has an extra dimension: the family.
Some business owning families are well aware of that extra dimension and have what I call a ‘Family Brand Manager’. The Family Brand Manager is not about branding the companies’ products or services. It is about branding the family’s role and the value the family brings to the company and its stakeholders. Usually a family member takes on the role of family brand manager although he or she may not always be aware of this role.
Some of the tasks of an effective family brand manager are to:
- Identify and cultivate the unique values and personality of the family
- Determine how to execute their role as visible and positive owner and to make that tangible for both family members as well as other company stakeholders
- Make explicit what their long term aspiration is, e.g. ‘no intention to sell’ or ‘if we enter a market we intend to stay’
- Uncover and communicate the family and business stories that really matter to the success of the company
- Provide guidance to the board and the management with a clear owners’ vision
To think about the family as a brand and make the effort to uncover that brand can be a real challenging job but very rewarding for family and company. Done well it really helps to maximize the advantages of family ownership.
by John L. Ward
You likely noted the news that Google is doing a stock split – doubling its shares, but without the new shares having a vote. The rationale: The two partner founders argue that they can be more long-term. Together they control and assuredly will secure 58% of the votes.
The move reminds us of the article we wrote about Google when it first went public in 2004. Read the article. Click Here
by John L. Ward
What do Zara, H&M, Uniqlo, Benetton, Topshop and C&A have in common? They are all family businesses and they are the largest fast fashion retailers in the world.
This curiosity was recalled reading recently about the strategic challenges facing Benetton. To permit time to address their problems they announced they are taking themselves back private again.
