It’s impossible to overstate the importance of an effective leader in sustaining a business — or to measure the damage possible when an ineffective leader takes the reins of a business. Strong leadership can determine whether or not a business survives a recession, a global pandemic or some other economic shock.
In a family business, the challenge is even more intense, as leaders must manage myriad overlapping personalities, issues and opportunities within both the company and the family.
“As a leader in the family business, whether you're in the first generation or the fourth generation, if you don't put time and effort and strategic thinking into your leadership responsibility to family dynamics and the company culture, you will not be able to achieve the potential or maximization of your leadership role,” says Ken Gilbert, a founding partner at Business Consulting Resources.
While some leadership traits are innate, most of them are skills that can be learned and honed over time. Family businesses set up to support and develop their current and future leaders have a competitive advantage over their peers. Here's a look seven keys to leadership excellence in the family business:
1. Model the behavior you want to see.
Aside from making business decisions, one of the most important roles that business leaders play is setting an example around the company's values and culture.
“The most important thing is really just modeling what appropriate behavior and respectful communication looks like,” says Carolyn Stern, CEO of EI Experience, an executive leadership development and emotional intelligence training firm, and author of The Emotionally Strong Leader. “In companies with good leadership, everyone is aligned and moving in the right direction.”
The best leaders create an environment of “psychological safety,” where all employees (family members or not) feel comfortable bringing their whole selves to work and sharing their ideas without fear of ridicule.
“How people feel at work affects how they perform at work,” Stern says. “If you feel connected to your team and appreciated for your efforts, you're going to engage. It's more complicated in family businesses, because your relationships with your family are deeply rooted and can impact your emotions.”
2. Work to keep family conflict outside of the family business.
When multiple generations and multiple family units work together, outside issues inevitably creep into the workplace. Cousins might have a strained relationship dating back to competition for a grandparent's attention, for example, or a grown daughter might struggle to get her mother to treat her as an adult.
“The number one challenge for family business leaders is often simply working with your family,” says Sabrina Stimel, a partner at KPMG. “Some people are very successful when working with family members, and others find it challenging.”
It's crucial to be alert for signs of family conflict — before it begins to impact the company. It's the job of a leader to identify such situations and remind those in conflict that they must treat each other as coworkers – not as family members – when they're at work. The leaders themselves must remember this, too.
“Once you start running the business like you're running a family, the lines get blurred, and that's when conflicts arise,” Stimel says.
Another important way to minimize family conflict within the business is make sure that all family members have clearly defined roles at work. It's easier for people to stay in their lanes when they know where those lanes are — and it's easier for them to point out when someone else is overstepping their bounds.
3. Bring in outside advisers.
Smart leaders know their limitations. Bringing in specialist advisers can help broaden the leader's expertise and provide an objective, non-family viewpoint on a variety of issues. Once a family business has grown to the point where it has a formal board, having non-family directors is simply good governance.
“It's important to have fresh, outside advice because everyone in the family has their own biases and a reflexive approach,” says Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale School of Management. “The outside adviser is able to take a look at a larger, global systemic view of the strategic and staffing and cultural issues the enterprise is confronting.”
While bringing in outside advisers can benefit a family business enormously, it's also important to keep an eye out for “Rasputin-type” figures who take more of a divide-and-conquer approach with family businesses, Sonnenfeld says.
“You want to make sure the adviser is objective,” Sonnenfeld says. “You also want to make sure that the family talks without the consultant or adviser there from time to time to make sure they're not being spun or having wedges driven, inadvertently or consciously, by the adviser.”
4. Work on EQ.
Emotional intelligence (EQ) is important in all businesses, but in family businesses it's even more important for leaders to be able to recognize and understand their own feelings and those of others.
“Good leaders need to learn how their emotions can impact their decisions, their relationships, their confidence and their fulfillment,” Stern says. “If you just got in a fight with your wife, and then you both head into the office, if can be hard to separate those hurt emotions.”
The solution for business leaders is to practice recognizing that feelings are not facts, but rather emotional triggers you can choose not to engage with, Stern says.
“The specific challenge is just understanding how your emotional makeup can help or hurt the organization, and then setting rules of engagement at work versus at home.”
5. Have development programs in place for future leaders.
One of the biggest challenges that family businesses face is smoothly transferring power from one generation to the next. The key is to begin preparing future leaders as early as possible and to be as transparent as possible about the expectations they'll have to meet in order to take on a leadership position.
Those requirements are different for every company, but many family businesses require family members to complete a certain level of education, spend some time working outside the business and serve in more junior level positions at the company before moving up.
“There needs to be an action plan, in writing, that the current generation of leaders as well as future leaders all understand and agree to,” Gilbert says. “Then you have to hold them accountable to meeting the terms of the agreement.”
Having such structure in place can also go a long way toward appeasing non-family members who might have misgivings about the qualifications of a family member who gets promoted before them. It can also keep younger family members involved in the business, rather than pushing them out.
“Many families, instead of giving the younger generation the respect that they deserve and giving them training and guidance and being inclusive, exclude that generation from the leadership discussions, and then they leave,” Gilbert says.
6. Over communicate—in the family and in the business
The more transparent a business leader can be with both family and non-family coworkers, the more trust they'll engender over time. The more that business leaders can explain the reasoning or the policy behind business decisions, the less time workers spend questioning and discussing them.
Some topics, like succession planning or salaries, can feel more touchy when the conversations are between family members, but the more that you talk about such subjects, the easier such discussion become.
It's important to have regular family meetings, in which you discuss the business and any related topics. That way, family members who have something they need to talk about know that there's a venue for these kinds of conversations. It's up to family business leaders to make sure such meetings happen regularly and that all members have an opportunity to be heard.
Family business leaders also need to prepare to have difficult conversations.
“One of the most difficult challenges for the leader of a family business is to be frank and blunt in assessing all of the family members' capabilities and talents, and dealing with them when there's a misconception of what those talents are,” says Mark Bosswick, a managing partner at the advisory firm Berdon LLP.
The best way to approach such conversations is with transparency and honesty, he says. If a family member is not going to get a promotion or have the career path they expect, the sooner you can tell them, the better.
“One of the biggest pitfalls is to create unreasonable expectations,” Bosswick says. “If everyone has fair expectations and objectively knows what the future will hold, that makes them able to manage their lives better.”
It's also important to have regular conversations with family members who don't work in the business but have an equity stake. Keeping them apprised of current business opportunities, challenges and strategies can help them understand why the business leaders might choose not pay dividends this year or why they need additional capital.
7. Embrace flexibility.
The past few years have provided a vivid example of why companies must be agile. Even as we emerge from the pandemic, it's clear that the pace of change in business will remain swift, as companies continue in their quest toward digital transformation.
The most successful family businesses leaders understand that company growth often requires evolution as well.
“Oftentimes some folks might lose sight of the fact that the way that things have worked for them in the past might not continue to work for them as their company grows,” Stimel says. “That kind of change and adaptation can be a struggle for family businesses.”
The ability to adapt and make changes within the business can also help family businesses compete in a tight labor market.
“Family businesses can be a lot more accommodating and flexible with employees, and that can make family businesses treasured by the employees,” Sonnenfeld says.
Beth Braverman is an award-winninng writer and frrequent contributor to Family Business magazine.