Saving Your Company By Building Consensus

By Peter Davis

In some family enterprises, no one is in charge. But a leader who doesn't build support is just as dangerous.

We often hear it: In any business someone has to be in charge. Particularly in a family enterprise with many active members — parents, brothers and sisters, cousins — it has to be clear who has the final say. Who makes sure that the necessary decisions are made? Who provides the leadership that will prevent the business from self-destructing because of deep-seated family rivalries?

Like many parents, the late Malcolm Forbes of Forbes magazine gave stock to all his children. But you may have noticed that he gave 51 percent of the shares to his oldest son, Steve Forbes — just in case anyone wasn't sure who was to be put in charge.

In some family firms, no one is in charge. Fearing a loss of family harmony, the parents avoid selecting a child to lead the company in the next generation. This nonsolution only intensifies the competition between siblings and creates confusion throughout the company.

In other companies, someone may be too much in charge. Typically in a patriarchal family business, the father sees to it that the stock is divided equally among his children, then tells the oldest male: "Son, when I am gone, it is your job to take care of things." Patriarch Jr. then has a dilemma: While dad may want him to be in charge, some of the other children certainly don't. He may begin to feel that his siblings are constantly critical of him, and that they don't appreciate the burden he bears. So he will stop communicating with them and do things only his way.

That kind of leadership, of course, can only create resentment and result in a lack of cooperation. In the long run, families can keep the peace and insure business survival only by building a consensus on how they will make decisions and who will take the lead. To do that, the members must consciously move beyond childhood rivalries and develop, step by step, a mature family community.

What are the practical steps to clarifying and empowering leadership? For most families, the first decision requiring consensus should be on how decisions will be made.

I am familiar with a partnership in the Midwest that has survived for 35 years because both men made a solemn commitment in the beginning to this rule: "Each of us can do anything we feel is necessary for the success of the business; but if one disagrees with something the other wants to do, we don't do it." Like all such rules, of course, this one can work only if there is good communication between the partners. The consensus breaks down if one partner does a lot of things without informing the other partner in advance — and the other doesn't approve of his decisions. The excuse that "I thought you knew" can begin to wear thin.

One second-generation family business that I know illustrates all of the problems that occur when consensus does not exist. Six children share equally in ownership of the company, but most of them don't work in it. The oldest brother runs the company as if it were his private domain and rarely communimcates with his siblings. Everyone is frustrated. The brother feels that he carries too much responsibility; the siblings feel shut out and disenfranchised.

The first step in solving the problem is for family members to commit themselves to a process for forging consensus. The group must agree to hold a series of meetings to try to reach agreement on the goals of the family enterprise, to define the kind of leadership they want, and to establish some ground rules by which they will operate. They might agree to start with issues on which they can easily achieve a consensus and work up to more difficult issues.

Early in the process, the family has to resolve basic leadership issues: What kind of leadership, who will choose the leader, what kind of support can be given, and how management will be held accountable? Likewise, the leaders have to ask themselves: Am I prepared to operate under new ground rules? Do I trust the consensus process? How can I best communicate what is happening in the business to other family members in order to strengthen the consensus?

Many family business leaders have deep fears about opening up greater family participation. They are concerned about losing control, and see dangers in giving voice to potentially obstructionist elements.

If they don't do it, however, they may eventually face a split in ownership. When hostility mounts in the family, the disenfranchised members typically force a buyout or sale of the company.

A board of directors can play a useful role in helping the business leader overcome his fears. Outsiders who are brought into the consensus-building process take time to understand the issues and avoid "shooting from the hip." The family as a whole must establish its own order and discipline to prevent "troublemakers" from disrupting the process.

Establishing clear lines of authority and building a consensus is difficult in a family business when underlying emotional forces are in conflict. These forces become particularly intense when there are power struggles between generations or between siblings.

For example, the founder's need for absolute authority will often lead to bloody battles with a son or daughter over issues of control. In one of my studies of business founders, an aging father refused to give his son a promised bonus until, as he put it, "your attitude toward your stepmother improves." Not only was the father attempting to control the son's career and pay, but also his feelings. If the son surrendered to the old man's terms, he would be demeaned in everyone's eyes. So whatever his father ordered him to do, he resisted — or chose the opposite. His behavior became so reactive that he was not able to develop his credibility as a leader.

Sibling rivalry is, of course, a major barrier to the acceptance of authority. A sister, for example, may be the brightest, most knowledgeable, and diligent of her siblings, but an older brother may find it hard to acknowledge her superior qualities. To accept a leader is to entrust one's interests to another, to give that person power over you in the specific context of the business. Many siblings who are on their way to becoming adults don't yet have enough self-esteem or feel secure about their own identity, and cannot willingly cede authority to a brother or sister.

To build a mature family community, family members have to realize the importance of preventing these older rivalries from intruding on the business. A clear distinction must be made between family and business relationships.

Stew Leonard of Stew Leonard's Dairy in Norwalk, Connecticut, tells the story of a son who wasn't performing well in the family business. After repeated attempts to get the son to improve his work, Stew calls him in and shows him two hats on the desk — one has "Boss" written on it, the other, "Dad."

Stew puts on the "Boss" hat and says: "I've given you plenty of warning about your poor performance, and you haven't improved. You're fired!"

Then he puts on the "Dad" hat and says: "Son, I've heard you've just been fired. What can I do to help?"

Keeping the two types of relationships separate, and learning how to act in a way that is appropriate to each, is critical to the success of a family business. But it's hard to do, particularly when it comes to issues of authority and accountability.

When older emotional issues can be set aside, the family's natural leaders can perhaps emerge more easily. Landmark studies such as those by John R. P. French and Bertram Raven, who research organizational and management issues, have described the qualities that elevate the chosen few to positions of authority. Of course, some rule by being formally or legally annointed: They have been chosen by a board of directors or, like Steve Forbes, given 51 percent of the stock. But others attract followers naturally, by their presence and style — that intangible "charisma."

A second source of authority is the respect that comes from "paying one's dues," from learning the business from the ground up and working hard along the way. A third source is plain likeability; people will take orders more readily from a leader with whom they feel comfortable. A fourth, obvious source is competence. To gain authority, and maintain it, leaders must produce results that benefit the firm; they also have to have the guts to make the hard decisions.

Beyond competence and guts is vision. The ability to formulate and communicate an inspiring idea of where the business is going, and what it can achieve, is essential to any business enterprise.

In choosing a leader, families should look for all, or some combination of, these qualities. The success of the enterprise, however, can never depend upon one person. The business can rise to new heights only with a consensus on values, and through cooperative effort. The family community is built on respect for each member's uniqueness, on support for each member's growth into a mature adult. By building a consensus, the family moves from paternalism and emotional immaturity to a sense of participation, ownership, and commitment to the business. Everyone has a voice; everyone's opinion is important; no one will be frozen out. And key decisions are made by consensus.

That kind of mature family conununity will surely get the leaders they deserve, the very best leaders.

Peter Davis is chairman of Family Business's advisory board, and is director of the Division of Family Business Studies at the Wharton School.

The spirit of consensus

The Quakers have perhaps studied what it takes to achieve consensus more deeply than any other group. Here is a list of fundamentals on "What Builds Consensus" from the Quakers' Pendle Hill Center for Study and Contemplation in Wallingford, Pennsylvania:

1. An understanding of, and unity with, the ideals of the organization which make consensus rather than majority rule preferable.

2. An understanding of the individuals constituting the group and their idiosyncrasies.

3. A deep commitment to listening.

4. A clear sense of trust in the validity, even the divine validity, of each member's contribution.

5. An openness to learn from those who may be better informed in an area of particular concern.

6. An acceptance of the fact that individual knowledge untempered by group wisdom is often very shallow.

7. A willingness to deeply examine one'sself, in particular, when a compromise between one's own point ofview and that of the group could leadto consensus.

8. A commitment not to compromisewhen the matter at hand involves amoral issue that appears to be in conflict with one's understanding ofone's own moral code.

9. A commitment to search actively andopenly with other group membersfor clarity.

10. The deep belief that earnestly laboring for moral clarity through theconsensus process often results inprofound leaps of personal growth.

11. A commitment not to view each issue before the group as having thepotential to change the course ofhuman events, but rather to maintain perspective.

12. A commitment to actively support aconsensus decision.

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October 1990

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