Developing next generation leadership

April 01, 2012

Effective leadership of a family business encompasses much more than making business decisions. Equally important is having a personal passion for both the business and the family’s connection to that business, along with the ability to transmit that passion to other members of the family and management team.

Leadership is one of the foundations of a successful business. Too often, leadership just means power and control. However, leadership of a family business encompasses much more. Here are some of the often-forgotten aspects of leadership:

1.Future-focused. Leadership requires a focus on building the legacy of the family business. Leaders should be able to envision and describe where the family and the business can go – the horizon that is the ultimate destination. They also need to have the drive and ability to lead the family and business to that horizon. Good leaders not only understand and believe in the purpose of the business but are also able to articulate what the business could look like 30, 40, or more years ahead, and how the current and future generations will benefit from being a part of it. Leadership is also necessary to ensure the family remains intact during and after each generational transition so that succeeding generations enjoy the benefits of staying connected.

2.Purpose, Principles and Philosophy. Families should be clear around their
reason(s) for being connected to each other. They should understand the purpose for their wealth – whether or not that wealth is invested in a family business. A strong leader will be able to help family members articulate their philosophy.

More than likely, the reasons for the family to stay connected are based on their guiding principles. For many, it is a strong belief in stewardship. They believe it is their responsibility to take the wealth that has been created by a previous generation, use it and build on it during their reign and then pass it along bigger and better to the next generation. This principle applies even after a family decides to sell the business.

It is critical that the chosen leader truly believes in the family’s principles and can continue to nurture appreciation and sense of achievement about what they own.

3.Multi-generational. Leadership within each generation is very important to a successful transition. In entrepreneurially-led businesses, the founding generation is referred to as G1, their children as G2 and the grandchildren as G3. It is important to cultivate leadership in all generations, both within the family system and in the business system.

Grooming should begin at an early age. In one family, children are offered $1,000 to invest in a not-for-profit organization once they turn twelve. The child has to first select a cause that they consider worthwhile, and then defend their choice at a family meeting. When granted the monies, they personally follow through on the donation.

As these children mature, their leadership abilities become more evident. At one family council meeting, the three generations in attendance were divided over whether or not to maintain family control of the business. A 23-yr old G3 member demonstrated her leadership ability when she articulated what family involvement meant to her. While she is really proud of the family business, whether the family is in this business or another business was not important to her – it is just a business after all. Her priority is to maintain strong relationships among the people around the table. Sure, the prospect of family members willing and able to work together excited her, but it shouldn’t be the only way to maintain the family connection. Her statements had quite an impact on the group – showing them that G3 had a much longer-term focus than G1 or G2.

4.Complimentary leadership styles. There are many different styles of leadership, a number of which may be at work in a family-owned business simultaneously. The director-type person who drives the wealth engine may not be the best person to keep the family or principals communicating, while the visionary may not be best-suited to leading a team mandated to develop internal systems and processes. It’s highly unlikely that one person can provide all the leadership styles required to accomplish the parallel goals and objectives of the family and the business.

Leadership is not just stepping out and articulating the future. While there definitely needs to be someone with out-front leadership, other forms of leadership are required behind the scenes. People show leadership when they support those who are stepping out – by acting on items and following through. Consequently, people can also lead by following.

Business owners often comment that family members don’t have the necessary skills to lead the business. This can be the result of the family system overlapping the business system, where family members – particularly parents and siblings – put other family members in a box and label them.

Knowing someone growing up can influence how we define their abilities. This predefinition may or may not be true. Most of us are on life-long learning curves but we often forget that others also mature and learn new skills. So if a family member is lacking a specific skill set, it is important that they are given the opportunity to acquire that skill set.

It is also vital to assess each individual’s natural abilities and instinctive talents. Everyone should understand how they instinctively act in the work environment. The Kolbe instrument is a very effective tool to gain insight into how people naturally approach work situations. Kolbe goes beyond what people can learn to do and evaluates how they instinctively act. It also identifies their compatibility with a specific role or position. This can be a great foundation for growing a leader.

5.Mentoring and Development. Ensuring others are mentored, both inside and outside the business, is an important part of the leadership role. It is also critical for developing leadership in subsequent generations. G1 cannot fully understand what it is like to be G2 or G3 in a family business. As G1 is the creator, the business reflects who they are. On the other hand, G2 is defined by the business. G2 has to work twice as hard and be twice as smart to be accepted by those around them. It is tough to be G2 in a business. To ensure the continuity of the family business, G1 needs to show leadership by building future leadership through mentoring and support.

Family members are more likely to realize their full potential under the guidance of someone with more experience than themselves. Choosing a mentor – a trusted and experienced individual who can assist them with career, training and skills development – is certainly a key component of any successor’s Development Plan. This development plan should detail the leadership objectives, the current and desired skills and abilities, and the action steps for achieving the objectives. Each plan should be monitored and assessed on a regular basis.

Remember, a transition plan works when families understand why they are in business together and what they can do as a team as opposed to individuals. As a team, they have the opportunity to achieve greater heights and pass that opportunity to the next generation. This requires leadership future-focused leadership that incorporates both out-front leadership and behind-the-scenes leadership.

For assistance in planning for the transition of leadership in your business, contact your personal BDO advisor, or call our Business Transition Services team at 1.800.598.6400.

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