LESSONS FAMILY BUSINESS LEADERS HAVE FOR OUR POLITICAL LEADERS

Earlier this week on SBS television, Jennie Brockie hosted an interesting Insight program that explored leadership. In particular she wanted to focus on the failures of both major political parties by asking the provocative question of why Australian Prime Ministers cannot hold on to their jobs.

With this particular leadership interest Brockie drew comment and insight from a diverse panel of leaders to glean both general leadership lessons and those that might be applicable to our political leaders. The panel included:

  • Raelene Castle, CEO of the Canterbury Bankstown Bulldogs NRL

  • Chris Evans former Labor Minister and Senate leader 

  • Peter Leahy former head of Army

  • Clare Martin, former Labor Chief Minister for Northern Territory

  • Ange Postecoglou head Coach of Australia’s national football team the Socceroos.

Notwithstanding the many excellent nuggets that Brockie extracted from these panel members, the point that struck me was the close alignment between what was needed in our political leadership and that which makes family business leaders successful. That is, our political leaders could learn much about long-term leadership not from leaders generally, not from just any business leaders but especially from family business leaders.

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Saul Edmonds
THE POWER OF HABIT

I recently attended the Family Firm Institute conference in Washington DC as we (Moores Family Enterprise) were presenting one of the conference sessions. Our session was focussed on one of the potential competitive advantages that family businesses can leverage to their benefit, specifically innovation or innovative behaviour. Using an illustrative case we integrated new evidence with best practices to distil guidelines for families wanting to ensure they encouraged innovative behaviour in their businesses going forward.

Another of the speakers at the conference was Charles Duhigg[1], a reporter with The New York Times and author of the recently published book, The Power of Habit. This book is about the science of habit formation in our lives, companies, and societies. He was a very engaging speaker and made his point about creating and changing habits sound very simple and effective.

According to Duhigg researchers at MIT discovered a simple neurological loop at the core of every habit, a loop that can be broken down into three basic components (see Figure 1).

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Saul Edmonds
SUCCESSION OF OWNERSHIP

Finally, succession of ownership is another stage of transition from one generation to another. This often represents the severing of a technical connection to the business for the incumbent in place of one that is more emotional. While it can occur at one point in time it is often preferable if it occurs over an extended period. Depending on prevailing regulations tax consequences may make transitions very difficult. Family relationships are often impacted at this point as well that can often add stress to a new leader. If the business represents the largest asset of the current owners, there is often an inclination to share ownership with the next generation in the business as well as those who are not in the business. This can lead to sibling power struggles and frustration for all.

If the ownership transition is not structured well, the outgoing leader may not have sufficient capital to sustain his or her lifestyle, or the successor may not have a business sufficiently capitalised to continue successfully. There are many considerations and strategies that can lead to successful succession of ownership, which accountants, lawyers and financial planners can address as they organise the business and plan for such effective transitions.

When leaders of family businesses think about succession planning, typically they are thinking of who will replace the Chairman or CEO – i.e. who will manage the family business. Some go further to think about who will own the business when the current owners are gone: succession of ownership. But we have found that what differentiates succession in a family business context is that it is defined by seven dimensions, not just two.

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Saul Edmonds
SUCCESSION OF AUTHORITY: COST/REVENUE CENTRE TO PROFIT CENTRE RESPONSIBILITY

The distinction between power and authority is subtle but important. power is the capacity to influence the behaviour of others, while authority is the extent to which a person’s power is viewed as legitimate. Successors in family business often have power as a result of being members of the family, but they may lack the authority needed to effectively lead the firm.

As noted below succession essentially has next generation leaders moving from learning about the family business to learning to lead the business. This of course requires incumbent leaders to move from leading the family business to learning to let go and one of the challenges of family business, particularly entrepreneurial ventures, is the inability of a leader to let go of control. The leader may recognize the need to have a successor; that he/she won’t live forever. However, identifying a successor and letting him or her have the power and authority to take the business in new and different directions is another matter!  In our experience there are two important aspects to this letting go: having something else to do and having confidence and trust in those taking over.

Defining a meaningful role for the outgoing leader is extremely important and those associated with passing on values to grandchildren, being a brand ambassador, or serving in the industry groups and associations can all provide meaning to post- executive roles. 

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Saul Edmonds
SUCCESSION OF LEADERSHIP: OPERATIONAL MANAGEMENT TO STRATEGIC INSIGHT

Once the successor has aquired some basic business skills, he or she can move on to developing the capabilities and qualities associated with leadership. The successor’s focus at this stage stretches beyond the present - to when he or she will be ultimately responsible for business operations.

Our experience is that effective family business leaders have insight: to business, to family, and to self. Many of the prior steps to succession planning will serve to nurture and develop successors through various operational roles build insight to business and self.

Engaging with the family, especially if the family business has also embraced governance that involves both business and family governance, will serve to develop the necessary insights to family. If the family governance processes involve education and communication over time then those ultimately selected for leadership will be those that know how to manage the dynamics of both family and business.  Securing the commitment of family as owners, successors need to be able to articulate strategic visions for the family enterprise driven from the family’s values and shared by all.   

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Saul Edmonds
SUCCESSION OF MANAGEMENT: MICRO TO MACRO

In previous posts we have talked about the succession of values, knowledge, relationships and networks. Each of these is laying the groundwork for next generation leaders by helping them learn about business and more importantly about OUR business. The next stage takes us into the next quadrant of the learning phases - management of the family business.

 A strong successor development programme provides the best chance of maximising the potential of the next generation talent pool for leadership selection. It can assure the business of management depth and breadth into the future. It also provides the family the best chances of retaining talented members of the next generation. And it can also support the development and retention of important non family managers as the business grows. 

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Saul Edmonds
SUCCESSION OF RELATIONSHIPS AND NETWORKS

Our third stage of succession follows neatly on from the previous and involves the perpetuation of the family firm’s relationships. These relationships are important for the successors in creating their professional networks.

An important component of knowledge that can be passed on to advantage in family firms is relationships. In fact successful transitions require key relationships to be turned over to successors. These relationships can be both internal and external. The external relationships are the networks that prior generations have established over extended periods.  While it is important not to assume all families are the same evidence has emerged that in their efforts to create trans-generational wealth enterprising families behave more like family groups. Their networks of relationships are both close and are often with other family businesses.

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Saul Edmonds
SUCCESSION OF KNOWLEDGE

The second of seven stages of succession we have identified is that of knowledge and the conversion of theoretical to practical proficiencies.

Incumbent leaders often struggle with letting go because they feel their successors do not know enough to run the business. Trust and respect for their leadership abilities has been inadequately developed. Are they proficient in the knowledge and skills to lead the business? The next generation may have learned a lot over time, and have undertaken formal education that helped, but the transition from theoretical to practical knowledge takes patience and mentoring. The transition of knowledge and wisdom from elders may have been sporadic.

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Saul Edmonds
SUCCESSION OF VALUES

Our last post introduced the idea that preparation for leadership of the family firm and successful succession requires not only the acquisition of knowledge and skills to lead a business but also the internalisation of values and visions of the family to be able to maintain their commitment, support, and harmony.

Succession of Values: continuing differently

We commence with an exploration of the underlying values that represent the cornerstone of the family’s operation of the business so as to emphasise the necessity for these to be passed on in the interests of continuity as a succession of values.   

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Saul Edmonds
SUCCESSION IN FAMILY BUSINESS: WHY AND HOW DIFFERENT

Succession planning is an important process, particularly for family businesses. While family businesses often outperform nonfamily businesses, succession planning can be more complicated due to the need to address issues of both ownership and leadership in the context of the family dynamic. This complexity and the sensitive nature of the issues that surround it requires strong alignment among stakeholders for success. Based on our experiences as consultants and mentors to many family businesses we share in this series of blogs not only why succession is different in family businesses but how it can be made a positive process that contributes to building business continuity and family harmony.

It is the twin obligation associated with achieving both business and family outcomes that makes succession in family businesses a more challenging assignment; one that cannot be copied from the practices of non-family organizations. Importantly it is a lengthier process and one that often has to begin with laying foundations that establish the necessary preconditions for successful successions.

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Saul Edmonds