Tough transitions in family business: Secrets to success through the neurosciences (Part 2)

Wendy Sage-Hayward

Wendy Sage-Hayward

In my last post, we reviewed family business transition through the lens of our brain’s primary operating principles (status, certainty, autonomy, relatedness and fairness). Now let’s explore what we could do differently in a family business transition process to minimize the threat response and maximize our ability to respond effectively to change.

To recap, our brains are wired to look for threats rather than rewards. Transitions in family firms trigger our brain’s threat response system. During transition we tend to focus more heavily on dealing with any perceived threat until that threat is resolved. Our decision making abilities, our performance and productivity invariably suffer as a result – causing maximum disruption in a time when thoughtful planning and measured response is required.

Our goal during transition should be to shift the sense of threat from an unconscious to a conscious level so that we can make better choices around how to respond. To do that, family business leaders must mitigate the threat by eliminating it or generating a reward to compensate for it.

Here are some thoughts on how to mitigate threats and trigger a reward response during transitions in family firms:

Secrets to Success through Neurosciences (Part 2)

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Printable PDF version also available.

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Tough transitions in family business: Secrets to success through the neurosciences (Part 1)

Wendy Sage-Hayward

Wendy Sage-Hayward

We all know or have experienced the difficulty of transitioning a family business from one generation to the next. It is no easy feat at the best of times. Recent research within the neurosciences may provide some deeper insight and appreciation for why family firm transitions are so difficult.

Social neuroscience researchers believe our brain operates on five primary principles: Status, Certainty, Autonomy, Relatedness and Fairness (David Rock, 2011). When we consider what occurs in family business transitions, it is very likely that most or all of these operating principles are threatened during a transition process.

First, let’s consider status. A founder’s status (i.e., his/her importance relative to others) in a family business succession changes during a transition process. In fact, a founder’s status may be reduced significantly as he steps away from the CEO role and the next generation leaders step in. Depending on the status needs of the founder and what he has planned next for himself, this change in status may cause tremendous personal anxiety and stress. A founder with a strong status drive may be very reluctant to give up his status within the business especially if there is not a new role or activity “in waiting” that has the same or higher status associated with it (e.g., chairman role).

Our brain’s second operating principle is certainty. Again, during periods of transition within a family firm, there is often a significant amount of uncertainty both with the incumbent generation and the next generation. Uncertainty stems from the “not knowing” in the transition process and is different for the serving generation than it is for the next generation. For example, uncertainty for the incumbent generation includes things like: not knowing what life looks like post-CEO role for the founder, not knowing if the next generation can “handle” operating the business, not knowing how to exit the business and maintain the same lifestyle, and so on. Whereas uncertainty in the succeeding generation stems from things like not knowing who will be the next CEO (because no one is talking about it), not knowing when the founder will retire (because every year he says he will retire within the “next five years”), not knowing how to liquidate shares if desired, and so on. The threat of uncertainty triggers a threat response in our brains causing us to react negatively or even delay the transition process.

A third operating principle which is triggered during family business transition is autonomy (i.e., the extent to which we have choice). During family business leadership succession, collaboration and greater consensus is often required to build buy-in and engagement into the future direction and plan. The founder may feel frustrated because she is losing her ability to make decisions independently during a transition process. Transition requires the involvement of more family members to make the transition as smooth and effective as possible. The founder may not like the direction that the successors are headed but is no longer able to dictate the solution. Our need for autonomy gets triggered in the transition process causing a threat response when our independence is compromised.

The fourth operating principle, relatedness, may also get threatened or triggered during family business transitions.  Relatedness involves feeling a sense of safety and belonging with others. During a family business transition, a founder’s feeling of belonging may shift because she is no longer part of the team. She needs to find a new group to relate to or determine how to relate differently to the team in the business as she is no longer the leader per se.  Relatedness can also be threatened for the next generation because they may need to form new relationships with a non-family CEO or with each other because the team dynamic shifts when the founder steps away and a new leader steps in.

The final operating principle is fairness (i.e., the perception of impartial or rational decisions and exchanges between people). During a transition process – especially if shifting from a founder stage of ownership structure to a sibling partnership or cousin consortium – fairness issues can develop quickly. Anxiety and concern related to fairness issues include the following: Am I being treated fairly as a daughter or son? How do I treat my kids fairly when they all have different capabilities?  Why is it that I work harder than anyone else but I don’t get more shares? and so on. Our brain has a natural sense of fairness (although what seems fair varies from family member to family member) and thus we need to believe there is equity associated with where we end up.  Again, anxiety, frustration and a feeling of injustice can result when the brain’s fairness principle seems to be violated.

Check out the FBCG blog on Thursday for how families in business can mitigate threats and maximize success in the transition process.

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The natural fit of emotional intelligence in family business (Part 2 of 2)

Kent Rhodes

Kent Rhodes

In my last blog post, I shared how Emotional Intelligence (EI) has become a core piece of the discussion about effective business leadership in recent years. I describe it as “the ability to monitor and understand the impact of emotions – from one’s self and others – on one’s own behavior and others’ behavior, all in a way that guides wise decision making.”

As a part of building this discussion, I am highlighting some recent research conducted by one of my graduate students at Pepperdine University, Emily Spivey, and how important it is for family businesses to be able to build in these insights as a part of good continuity planning for subsequent generations.

Emily was curious about the role emotional intelligence plays in how successful entrepreneurs build an organization from the ground up. The results of her work revealed Seven EI Qualities Important in for Entrepreneurial Success:

  1. Reading the room. Described by one study participant as the ability to understand “interpersonal dynamics that are taking place in a group or social context,” or by another as “understanding what people are experiencing at any given moment,” the importance of “reading a room” was identified as a characteristic of an emotionally intelligent leader necessary to effectively build an organization.
  2. Decision making. EI plays a role in the entrepreneur’s ability to make decisions, often quickly, creatively, and decisively, usually in the midst of uncertainty or under pressure. It even included their ability to accurately anticipate the responses and reactions of people around them and to adjust decisions as necessary.
  3. Hard leadership. EI plays a role in being able to lead in a crisis, including leading through brokenness, conflict or stress. In relationship to the uncertain and often chaotic nature of starting up an organization, study respondents talked about not only having the capacity to lead through hardship going on with other people, but the necessity of leading through their own personal challenges or conflicts as they came up. Managing and tolerating stress was also mentioned multiple times as key to effective leadership in the context of “hard leadership.”
  4. Risk taking. Another theme identified was the ability to express entrepreneurial leadership and take risks themselves, while simultaneously inspiring others to take risks as well. This role seems to be particularly important in terms of gaining financial stability by securing investors, loans, and financial security.
  5. Leadership in self and others. EI plays a role in being able to build leadership skills in others while simultaneously sustaining one’s own effective leadership over the long term. According to the entrepreneurs in the study, effective leadership includes both empowering and cultivating leadership in those around you and also having the self-perception to know your own leadership limitations or signs of burnout, and to course correct when mistakes were identified.
  6. Interaction. EI plays a role in being able to interact with others in a way that builds the confidence of people in their various roles and develops other leaders. The study respondents emphasized the importance of strong interpersonal relationships in starting the new venture.
  7. Trust. EI plays a role in trusting and building trust. This role of EI was discussed as an expression of emotionally intelligent leadership and also as an outcome. Emotionally effective leaders both trust themselves, and also inspire and build trust in others.
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The natural fit of emotional intelligence in family business (Part 1 of 2)

Kent Rhodes

Kent Rhodes

I’ve always been fascinated with the internal workings of leadership in family businesses and how founders of a successful family enterprise seem to have so much in common around their understanding of people. One of the roles I play in my life is that of a research advisor to graduate students at Pepperdine University. This means I see first hand how smart students explore and test interesting questions and how their discoveries can be applied to all kinds of organizations, especially to family businesses.

One of those recent studies by graduate student Emily Spivey explored the role that Emotional Intelligence (EI) plays in how effective entrepreneurs grow an organization from the ground up. I got excited about the results and implications for how EI and “entrepreneurialism” might be built and passed along as a part of effective continuity planning in the family firm. This is the first of two blog posts in which I’ll share the study along with the seven ways emotional intelligence can be perpetuated in family firms for future generations.

In recent years, emotional intelligence has become a core piece of the discussion about effective leadership in business. Essentially, it the ability to monitor and understand the impact of emotions – from one’s self and others – on one’s own behavior and others’ behavior, all in a way that guides wise decision making.

It will come as no surprise to anyone affiliated with a successful family business that this study verified previous research results (Barczak, Iassk, and Mulki, 2010; Cross and Travaglione, 2003, etc.) that there are clear links to the health, survivability, and overall effectiveness of entrepreneurial ventures to the personal qualities and leadership capabilities of the founder. It also bore out the notion that effective entrepreneurs naturally create an environment or culture of trust which fosters everyone collaborating more naturally, developing creative solutions, and achieving better overall results (more about that in the next post).

Interestingly enough, when asked about their understanding of emotional intelligence during the study, respondents were vague about their ideas. They tended to associate EI with “soft skills” and yet as they described their day-to-day work, the importance of using those skills became clearer. As a result, the group identified seven qualities that are important in their own leadership effectiveness when building an organization from the ground up.

They include:

  • Reading the Room
  • Decision Making
  • Hard Leadership
  • Risk Taking
  • Leadership of Self and Others
  • Interaction with Others
  • Trust Building

In my next post, I’ll share how these seven qualities apply to family businesses and the continuity of building “entrepreneurialism” in subsequent generations.

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What it means to be values driven

Jennifer Pendergast

Jennifer Pendergast

Many people associate my home city of Atlanta with our airport (home of frequently missed layovers!), traffic (if you’ve had the misfortune to drive our highways), or the Georgia Aquarium, the world’s largest. Recently I had the opportunity to visit one of our newest landmarks, and one that I hope will grow to be one of our most popular: The National Center for Human and Civil Rights.

While the role of Martin Luther King and others in the civil rights movement is well known in Atlanta and around the world, the information on human rights is less well documented. As a consumer, I was particularly struck by the information on human rights violations in the production of chocolate, flowers, soccer balls, and mobile phones.

So, how does this relate to family business? Unlike the disconnected minority owners of public companies, who invest solely to make money, owners of family owned businesses can choose to purse objectives that balance ethics and values with profits. They can choose industries, customers, suppliers and business practices that may not be the most profitable, but are choices that they can be proud of.

I recently worked with an ownership group that articulated their driving shareholder objectives as: “How we make money is as important as how much money we make.” Owners of family businesses have a unique opportunity to shape how they make money, and in doing so, shape the lives of their owners, employees, communities and other stakeholders.

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Creating meaningful leadership transitions

Jennifer Pendergast

Jennifer Pendergast

A few weeks ago, I attended the installation of the new senior minister at my church, the church’s version of the CEO. It gave me cause to reflect on leadership transition. This transition was very significant for our church. It is a large church in a large city which has played a pivotal role in support for the inner city homeless and abused, as well as globally through mission work. Our prior leader, a truly charismatic CEO, had a significant impact on our city and our church over 30 years of service. Our new minister, unknown to the congregation before his selection, was coming with a mandate to build upon our strengths and expand the church population.

What struck me was the significance of the installation ceremony. It was a joyful and very personal celebration, where several peers of the new minister flew in from around the country to participate alongside his family and senior leaders of our church. Our leaders charged him with answering a set of questions about what he would commit to us, in front of the entire congregation. And, then the congregation and his leadership team responded to questions where we voiced our support and commitment to him.

The sense the ceremony conveyed was that we are all in this together – we have a responsibility to support him and he has a responsibility to us to move our church forward. We are working as a team to create success. It really felt like we were ushering in a new era.

I then compared that to the first day of a new CEO. Perhaps, he or she addresses the employees, shares a vision and requests their support. But, rarely is there a sense of partnership, shared expectations and aspirations. Rarely is there an explicit commitment from employees and owners to support the new leader and from the leader to steward the organization’s legacy and carry it forward.

I left thinking there were lessons to be learned about the transition to a new family business CEO.

Unlike CEOs in the public company realm, who often have a short tenure and limited capacity to impact the organization’s culture, family business CEOs are more committed for the long-haul. Wouldn’t it be nice to honor and memorialize the transition, to set mutual expectations and to foster a true sense of commitment to a shared future?

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Why executives seek service on family business boards

Kristi Daeda

Kristi Daeda

As leader of FBCG’s Governance Practice, I often interview executives pursuing board service. Their stories are always interesting – full of career twists and turns, successes and lessons learned.

One thing I always ask is what their goals are for future board service. What kind of company excites them? What’s the contribution that they hope to make? The answers to these questions are telling – both in their perceptions of board service in general and their ideas of what it means to be a director for a family business board.

These successful men and women come from a mix of backgrounds. Most have worked in family firms within their careers, either as a family member or a trusted non-family leader. Many have served on other boards in the past, including public company boards. Regardless of their experience, many of the themes that move them to serve on a family business board are the same:

“I’m excited by a business that has a strong focus on values and vision.”

“I want to serve on a board where I can share my expertise and make an impact.”

“I like a board that can take a long-term strategic view.”

“I want to keep learning.”

“I want to work as a team with others for a common cause.”

They often see a family business board as a better route to these aims than public boards. They expect – and find – that family business boards will allow them to build rewarding working relationships with family ownership, have a long-term effect on the business, and derive more satisfaction from seeing the business impacts of their work than other board settings.

This is good news for all involved. Family business directors get an environment where they’re accepted as strategic contributors and they see the fruits of their labors on the bottom line. The businesses they serve get access to expertise from engaged, passionate contributors dedicated to the larger vision. In a well-functioning governance system, the outcome can be a meaningful and valuable partnership.

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Why family businesses build stronger boards

Kristi Daeda

Kristi Daeda

Boards in family enterprise can be as diverse as the families they serve. And just as the family changes, the board must change to respond to and stay ahead of new circumstances – both predicted and unforeseen.

In the early stages of the business, a board is often comprised of a founder, one or more other family members, and maybe a key non-family executive or two. Their conversations are often unstructured and decisions may or may not be communicated to other stakeholders, such as other owners or future owners or key management. This “board” may evolve to include paid advisors, like an outside attorney or accountant. Sometimes, close friends, business partners, or other trusted supporters are invited to participate.

As time moves on, a family business may reach an inflection point – a place where the board structure as it exists may not be suited to address the challenges or questions the business is facing. This is where we begin to engage with families in board development, the process of defining appropriate business governance structures for their unique situation.

What brings family businesses to build stronger boards?

  • Professionalization of the business. As the family strives to improve their business approach across the enterprise, it’s natural to look also at improving the board function. Shareholders, employees and the community may perceive the business more favorably that has developed criteria for board service and recruited well-respected leaders to serve.
  • Generational transition. Many founders seek to formalize a board to provide impartial guidance on succession planning, support the successor and provide a structure with which the next generation can effectively interact.
  • Issues with business growth or performance. If a business has plateaued or is struggling, leaders often look to independent directors for a fresh look at strategy.
  • Market opportunities. As with those that are struggling, businesses experiencing rapid growth or seeking to capture market opportunities can seek perspective from independent directors that have done similar things in their own careers.
  • Family conflict or disagreement. Tensions in the family may make board discussions unproductive or impossible. The board development process can be the conduit for better understanding of the role of governance and trust in the board. Plus, the board itself can be an impartial and safe venue for discussing challenging issues.
  • Changes in management. A capable board can provide oversight and accountability through the management transition.

A well-constituted board is an advantage at any stage. When the normal and predictable challenges like those above appear on the horizon, the advantages of a strong board become even more compelling. If you don’t yet have a board, or are unsure of whether your board is functioning as well as it should be, it may be time to begin questioning what that board would look like, and how it can support your family enterprise.

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The power of essentialism

Kelly LeCouvie

Kelly LeCouvie

I recently read the book Essentialism by Greg McKeown. It is an insightful read for those who feel chronically time-starved, stressed, hurried, and dissatisfied with how much remains undone. McKeown suggests that we adopt a “disciplined pursuit of less” in an effort to ultimately be more productive, and to contribute to our personal and professional world in the most meaningful way.

This does not mean doing less as much as making more discerning choices from options that matter most to us. He describes a process of learning to identify between the “vital few and the trivial many.” Working in a family means diverse source of stress, and this book provides some very helpful considerations that may help you make optimal choices in your management of life!

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The Board Chair role: More than navigating through the agenda

Kelly LeCouvie

Kelly LeCouvie

When people think of the Chair’s role during a board meeting, they often think of responsibilities such as introducing each topic on the agenda, asking managers to make pre-arranged presentations, soliciting comments from the directors, and managing the time used for each topic. Those responsibilities indeed typically belong the Chair of the board. However, if that is all the Chair is managing, he/she is potentially missing opportunities to create optimal value from directors’ participation. In addition to those responsibilities the Chair should consider the following questions when conducting his/her own self-evaluation.

  • Am I really listening, in an active, engaged way to what is being said?
  • Am I able to distinguish input that is truly strategic and critical from the many comments that are much less impactful to the business?
  • Can I synthesize the information and comments being shared at the board meeting and distill them into appropriate, resonant themes?
  • Do I effectively share back with the board (and management when appropriate) the meaning or impact various discussions and suggestions may have on the business moving forward?
  • Can I communicate this in a way that is actionable to the appropriate people?

If your answer to these questions is “yes”, then congratulations, you are likely a very effective board Chair! If your answer to some or all of the questions is “no”, then you have some opportunities to strengthen your own performance, and ultimately enhance the value of your board.

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