Governing a complex family enterprise is not just a matter of designing structures like family councils, committees, trusts, and boards. Some of the world’s most unruly societies have well-written constitutions and elaborately defined governing bodies that simply don’t function. The same is sadly true of some family companies. Even the most thoughtfully designed governance structure depends on the capacity of its participants to make it work. That’s why there can be no democracy without an educated citizenry committed to working through their differences within the established order.
Families in business are often quick to embrace the need for structure but slow to grasp that there is no “governance” without effective process. Boards, councils, formal rules and policies—all seem neat and orderly and appeal to our rationality. Process, in contrast, feels ephemeral and messy. Working well with others is an acquired skill that involves developing the capacity to empathize with others’ needs and to listen and communicate effectively. It means learning to manage and reconcile inevitable differences in point of view. It calls for courage to deal with the powerful emotional undercurrents that are part of every business family’s experience.
Structure is the engine of governance, process is the oil. No oil, no movement.
And perhaps nothing is more important to the functioning of the engine than the willingness of members of the group to accept the authority and leadership of others. With the numbers of sibling- and cousin-owned companies on the rise, more and more business families are having to confront authority issues that are vital to the process of any work group. Unfortunately, I have seen quite a few family councils and boards bog down because the members consistently refuse to grant sufficient authority to the siblings and cousins who must perform the work.
Let the cousin who’s leading the business stand up in a family council meeting and propose an agenda he knows is necessary to deal with a looming issue, and the level of tension rises palpably in the room. “Who appointed him to chair this meeting?” one of the cousins may murmur. “Just because he’s head of the company doesn’t mean he’s going to rule us, too. Aren’t we all equal shareholders?” Likewise, I have seen committees stall for weeks on taking any action because the chairperson fears that if she appears to be exceeding her authority she will be cut down by criticism from her siblings or cousins.
Who should lead the family after the parents are gone? Do we need leaders at all? Is leadership in the family different from leadership in the business? How much influence should those in leadership roles have? What checks and balances can prevent abuses of power? How can the family hold those in leadership roles accountable for their actions?
These questions go to the heart of any governance discussion in complex family businesses. Why is dealing with them often so difficult for sibling and cousin groups?
The answer lies in primal struggles over dominance and submission that are central to every child’s experience. Typically, young people struggle long and hard to differentiate themselves from others and find their own adult voice (no easy developmental task in a prominent business family!). To then give generational peers authority over them—and over key decisions that will affect their lives—thus becomes very threatening. Siblings and cousins often view authority as if it were a scarce resource: If one of them is “authorized” to act on the others’ behalf, there won’t be enough left for the rest. It is hard enough for people to have to learn to deal with parental authority. But at least parents are supposed to be “in charge.” Conceding authority to leaders within the same generation, by contrast, is experienced as a violation of the natural order of things.
And yet this is precisely what the work of governance requires. To expect to include every member of the group in every decision is an invitation to paralysis. And even if every sibling or cousin could be included, they aren’t all equal in ability, skills, or experience. Some may be more qualified to lead the group accomplishing certain governance tasks, such as setting up a family investment fund or organizing educational activities for family members, while others will be better able take the lead in different tasks. Recognizing the need for a good fit between the tasks and the available talent is critical for good governance.
While power without checks and balances corrupts, it is powerlessness that most often undermines the capacity of sibling and cousin partnerships to govern themselves. The work of governance simply cannot proceed unless some people in the family are empowered to act on behalf of the group. The first step is for the family to learn to talk about authority issues more openly. The second is not just to accept the need for leadership but also to appreciate its special requirements within the context of family governance. Leadership in the family cannot be conferred either by a parent or anyone else. It must be earned through trustworthy behavior. Effective family leaders are servant leaders who put their self-interest aside and demonstrate they will work to safeguard the long-term interests of all the members.
Inevitably, if leaders are competent, they will make decisions that are at times unpopular. If they pay close attention to the process, however, they can usually retain the confidence of the group. The most effective among them will be consultative leaders, who see it as part of their mandate to continuously educate the rest of the family about the hard choices endemic to the governance process.
Large families are quite diverse and the leadership skills required to forge a common agenda and resolve differences among the members should not be underestimated. Are we running our business by our values? What are the values that we hold most dear and would like to pass on to our children? Whose values should predominate? How much are we willing to compromise for the sake of economic efficiency? What is an optimal mix of risk and return? What should be the qualifications of membership on the family council? Should in-laws be included? How do we select family members to serve on the board? How do we monitor their performance and hold them accountable?
Family leaders must mobilize the family to answer these and other fundamental governance questions. They must continuously monitor the family’s solutions to these issues because the work of governance is never done; each solution opens up new dilemmas that must be addressed.
The willingness to empower leaders is a necessary but not sufficient condition for successfully governing a complex family enterprise. Governance also requires responsible followership. The governance system of a family enterprise falls apart if the rest of the family turns over all the responsibility to those in charge and does not actively contribute. Nothing is more frustrating to the leaders than family members who complain about being excluded but when appointed to a board or committee don’t do any work—or relatives who turn down invitations to take part in discussions of family issues and yet complain that their opinion is never sought. Indeed, leadership and followership are two sides of the same coin. Learning to discuss and manage the complex interaction between the two is the secret of effective governance.
Ivan Lansberg is an organizational psychologist and a senior partner in Lansberg Gersick & Associates LLC in New Haven, CT.