Multi-dimensional leadership in family-owned businesses: What to consider

12/42
Leadership development, family business, enterprising families

The following post is a guest post that I worte for Think Beyond. Think Beyond supports leadership development. This and other posts can also be found at: Think Beyond Leadership Blog

 

Family business is not just business. No matter if you are part of the family or an “external” leader working within a family-owned business, you will face a multitude of special challenges that significantly differ from other corporates. Here’s what to consider for successful leadership in a family business.

„The special world of family-owned businesses“

At a first glance, family businesses differ from other forms of companies only by the addition of the word «family». However, this addition has decisive consequences for the understanding of leadership within this special form of enterprise. Family businesses are characterized by the significant influence of a family on a company. The family and the business enter into a reciprocal relationship. As a result, the company is essentially shaped by the family’s understanding of leadership and influenced by their values; in turn, the family is shaped by the company and its requirements. Therefore, both spheres of life are bound to each other in their development; they develop co-evolutionarily.

But in practice, the extent to which the reciprocal relationship takes shape is very individual. Family businesses have many forms: From the small grocery shop around the corner to internationally active companies with thousands of employees. The spectrum ranges from full inclusion of the family into the enterprise to family businesses where the family «just» concentrates on its own role. Therefore, a leadership function by a family member within the company is not a necessary criterion for the definition of a family business; it is their ownership. In this case, the family concentrates on its function in supervisory or advisory boards. But this does not mean, that their influence on the management of the company is any less relevant.

„3 forms of family business management & according to challenges“

If we now look at the management of a family business, we must always consider the interaction between family and business. That means in which generation the family business is, the size of the business, its business purpose, the industry, but also the quality of how the family is connected to it, as well as the number of family members. Family businesses are complex systems. The context in which leadership takes place is very important. In general, management in family business can take three different forms:

  1. Pure: Key leadership positions engaged by the family members or just one family member.
  2. Mixed: Leadership team is a combination of members of the family and external managers.
  3. External: Leadership by external managers, where the family just focus on their ownership role.

The challenge of the management by family members is that the leaders must always consider the needs and expectations of the enterprising family. They have to fulfil dual roles, they wear two hats so to say: they are both family members and leaders within the company. Due to the different basic structures of the family and the company, the expectations placed on them can sometimes contradict each other. Do they make decisions for the good of the company and thus violate family expectations or the other way around? This inevitably triggers ambivalence in them. This puts them under stress, physically and psychologically. Another challenge arises from the emotionality of the relationships within the family. This can extend to the level of the company. Which can override the rationality required in companies. Conflicts in families can very quickly influence the company and significantly block its ability to function and, in extreme cases, bring them to its downfall.

But even if the family only focuses on its role as owner, external managers must always consider the enterprising family and its emotionality. Decisions that are not supported by the family will not be enforceable. External managers, therefore, need a deep understanding of the respective enterprising family and their dynamics. Furthermore, they in particular have to be congruent to a considerable degree with the family’s understanding of values. If the differences are too big, they often will not have a long-term future in the company.

„Transgenerational leadership & decision-making“

Another special feature of family businesses is their long-term perspective. Enterprising families think over generations. Leadership on the company level is therefore not focussed on (short) periods, as it is common in other non-family businesses. The acceptance of decisions within the family business must take this long-term horizon into account. Through the transgenerational perspective, however, the descendants in particular also play an essential role in ensuring the continuity of the family business. Due to family influence, succession is often a very critical phase that determines the future failure or success of the company. During succession, different generations lead the company, who may have different views of the way leadership should be done. Through the family-related relationship between the generations emotions quickly break up the necessary factual level, which could disrupt business operations. Therefore, succession not only affects the company but always the family as well. But succession often leads to a different understanding of leadership on the part of the successors and requires cultural changes in the company. This also has an impact on the employees. If changes in the leadership style happen too quickly, it can overwhelm the employees and their identification with the company gets lost, which can lead to resignations.

„Holistic perspective for successful family business leadership“

Summing up, leadership in family businesses is multi-dimensional. Depending on the size of the family and the size of the business, it is very complex, as a wide variety of family stakeholders have to be taken into account. Above all, the family component/influence is an essential factor here. This should not be underestimated. Family businesses, therefore, have an advantage and a disadvantage: both are the family. Conflicts within the family often have their venue at the level of the business, which makes management considerably more difficult. On the other hand, a family at peace is an essential source of strength for the business and its long-term existence. If leadership in family businesses should succeed, the enterprising family, their (emotional) relationships and their needs must always be taken into account.

#familienunternehmen #nachfolgestrategie #nextgen #persönlichkeitsentwicklung