What World Leaders Can Learn From Family Business Leaders
Politicians have evoked some of the least flattering stereotypes of family business leadership, but the reality is that many of the most successful companies in the world are owned and lead by families—including approximately 35% of Fortune 500. Enterprises like Walmart, Estée Lauder, and Tyson Foods exhibit exemplary leadership and carefully designed systems of governance. Leaders within these systems know that they cannot function in isolation; they seek knowledge and input from trusted advisors – particularly if their path to leadership comes from outside the company. Whether it is through formal or informal avenues, successful family business leaders work to counter insular decision-making and use checks and balances to monitor their own exercise of authority and power. The best among them even engage in a process of “self-disempowerment” whereby they deliberately seek to formalize an independent Board with top executive talent that can challenge them and improve their decision-making. Pundits in Washington should be careful not to paint the entire world of family enterprise with the same brush.
We have worked with hundreds of family business leaders over the last twenty years and disagree fundamentally with negative stereotypical depictions of family companies and their leaders. There is certainly a distribution of leadership style and talent in the marketplace, though if tenure is any indication (Tsai, Hung, & Lopin Kuo, 2006), family controlled companies seem to choose their leaders more thoughtfully and successfully than their non-family controlled peers.
Within these systems, leaders often integrate the perspectives of all key stakeholders across the business, the ownership, and the family. These leaders then design and execute a roadmap based on objective data, and submit themselves to governing architecture that will meet the unique needs of their family enterprise now and into the future. For instance, some will champion the creation of an Owners’ Council to give voice and representation to all shareholders, carving out a role for the Council in the appointment of corporate board directors and the review of strategic planning in alignment with the values, risk appetite, and liquidity needs of family owners. Others will create rules regarding the appropriate use of social media, and a conflict of interest policy to prevent shareholders from inappropriately billing services from a side venture to the family enterprise. Many create family employment policies to carefully select members of the next generation who have the appropriate education and experience and values to become involved in the business. And still other leaders use this vehicle to acknowledge mistakes made, as one controlling owner told us, “Yes, I did well by the business, but I forgot about the family….”
These same family business leaders have embraced a concept that we call “ambidextrous leadership” – or tending to the needs of both the business and the owning family at the same time. This is very much a part of any successful family enterprise leader’s job. Instead of fostering divisiveness, leaders recognize the need to develop a capacity for “ambidexterity” – for competently leading both the family and the enterprise – and understanding that this ability is essential for effective and sustainable leadership in their systems. For years family business and succession literatures have placed most of the emphasis on the importance of developing and selecting strong leadership for the business. This bias is completely understandable given how prone family companies can be to nepotism and the disastrous consequences of choosing successors who are incapable of effectively leading an enterprise. However, as the stories of such notable companies as Viacom, Hyatt, Hunt Petroleum, and Market Basket show, numerous family companies can be torn apart not by their competitors but from nasty battles among their family shareholders. These breakups often result from a failure of family (rather than business) leadership.
Family enterprise continuity requires more than effective economic performance – it also requires sustaining the unity and commitment of family shareholders to the proposition that a future together is better than a future apart. This does not happen by osmosis; it results from the tireless dedication and forbearance of one or more individuals who understand the critical importance and value a unified family brings to the sustainability of a family enterprise.
In sum, we urge political analysts to use caution with analogies that depict family business leaders in a negative light and as loathe to embrace governance, rules, and self-disempowerment. The best among them, in fact, embrace many of the same elements espoused by the US Constitution, including the concept of informed and educated shareholders, and of respected governing bodies that provide needed checks and balances to one’s personal exercise of power and decision-making. The best among them would understand that, in fact, “A house divided against itself cannot stand” (Lincoln, 1858).