Pass the Baton

Choosing a leader to help your family business thrive in turbulent times


Author: Claus Fischer

 

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Unexpected events can make or break a family business. Turbulent industry dynamics, volatile economics, and changing societal expectations all have the potential to undermine the ability of family businesses to thrive across generations.

Surviving shifts like these—for which we don’t always have a crystal ball—requires family businesses to remain agile and embrace constant evolution. Yet family businesses are often designed to strive for stability and to resist transformation. Members typically operate on the basis of security, continuity, and control: “We are doing pretty well, so why should we change?”

Yet we know that the most enduring family businesses always keep one eye firmly focused on the future.

Earlier this year, we partnered with Bocconi University to understand how 10 European family businesses had managed to survive for four generations or more than 100 years. One of the key things we found was they spent significant time and energy looking 5 or 10 years ahead, so could anticipate new challenges and opportunities, not just react to them.

While their scenario and risk assessments focused on staying ahead of external events, these families also made sure they were prepared for internal shifts too. And nowhere was this more important than working out who was going to become their next leader. All the firms we spoke to had clear processes in place to not only build a pipeline of potential successors—but also ensure these people had the right skills to steer their business into the future.

Succeeding with succession

In many family businesses, everyone just assumes that the next CEO (and the one after that) will be someone in the family—often the eldest child. But not everyone has the right qualities or skills to be a great business leader. And even natural-born leaders need the right training and experience to develop their potential, and/or the desire to be the next family leader.

The family businesses we studied recognized this fact. Their succession strategies included spotting younger members with leadership potential early on—and trusting them with serious responsibilities from the start so that they develop the necessary skills and experience to lead one day.

But they’re also perfectly willing to hire top talent from outside the family if no one within the family is right for the role. That ensures that nobody in the family expects to walk into a job for life. They know, from an early age, that if they want a place in the family business then they have to work hard to earn it and keep it.

Some of our families have gone even further and barred family members from holding top management positions altogether. In doing so, they’ve ensured that no one person or branch within the family can be seen to have a larger say or stake in the business than any other.

Lessons on longevity

Finding the right leader—today and tomorrow—is one of the most important determinants of whether a family business will sink or swim during turbulent times. Each of the 10 family businesses we analyzed had successfully navigated transformations during their histories—whether that was industry crises, doubling the size of the business, or the sudden death of the most senior business leader.

Our advice for family businesses to navigate transformations like these is to focus on the following key areas:

  • Carry out an explicit check of possible future events when making important family and business decisions. For example, families can adopt a formal “decision chart” beginning with a discussion of “Expected future trends” that are relevant to the specific issue under discussion (e.g. strategic investments, the appointment of board members, and next-generation leadership policies, etc). 
  • Complete regular risk assessments and stress tests of all the main areas of family and business longevity, including those relating to business lifecycles and diversification into different industries and countries, technologies, management, governance, and succession.
  • Establish clear succession strategies, including spending time identifying who among next-generation members may have leadership potential.  This includes nurturing potential leadership candidates and eventually taking on the burden of appointing—through shared and fair processes—the actual future leader or leaders. 
  • Inform next-generation members about leadership opportunities early on to foster their interest and gradually bring them closer to the family’s businesses. And give them significant responsibilities early, empowering them to learn the skills they need to take the family business to the next level, rather than just maintaining the status quo.

 

 

 

 

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Click here to discover more about how family business owners can navigate other common tensions, including how to choose their next leader and balance cultural challenges.

 

 

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