Laura is the second-generation CEO of a successful beverage company started by her father 25 years ago. She exudes a contagious enthusiasm for the business and articulates a clear vision for growing the family firm. When her father began thinking about leadership succession, the employees asked him to recruit Laura as their next CEO, and they love working for her.
Joe is a third-generation senior leader in a large manufacturing firm founded by his grandfather nearly 75 years ago. Joe is burned out and seems weighed down by the burden of overseeing the family enterprise. Employees don’t want to work for Joe, and one division of the family enterprise recently failed under his leadership.
Both Laura and Joe were educated at top universities, got work experience outside the family business, and are highly intelligent – three characteristics most often mentioned in the family business literature as important to next-generation leader success. So what’s the difference between Laura and Joe?
A recent article in Harvard Business Review suggests that how next-generation leaders are developed has an important impact on their success in the family firm (Fernández-Aráoz, Iqbal, & Ritter, 2015). The interviews on which that article was based revealed that the best family firms execute a thoughtful development plan for future leaders that includes real job responsibilities at varying levels of responsibility. Where that experience is gained – inside or outside the family business – did not seem to be a key factor.
One CEO indicated that his family firm no longer requires next-generation leaders to go outside the family business to establish a track record, but rather encourages them to work for the family business from the start. This finding is consistent with my own recent research of 100 next-generation family leaders which showed no statistically significant relationship between experience outside the family business and next-generation leadership effectiveness. My study showed that the more important factor was having experiences at work that challenged and stretched the developing next-generation leader.
A closer look at Laura and Joe supports this conclusion. Laura’s outside experience was gained in a job that required her to grow a business line for which she was responsible. She had to learn a wide variety of leadership skills including planning, influencing others, and adapting to changing market conditions. Joe, on the other hand, received superb training in a technical skill important to his family business, but in a position without real leadership responsibilities.
Here at The Family Business Consulting Group, we think gaining outside experience is often the right course for many next-generation leaders. It can increase the likelihood that they will receive objective feedback on their performance and provides an opportunity for them to prove themselves in a setting where their family name is not an issue. But in the right circumstances, they can also develop successfully working inside the family firm. It is not so much where the experience is gained, but rather the nature of the experience that makes the real difference.
Fernández-Aráoz, C., Iqbal, S., & Ritter, J. 2015. “Leadership lessons from great family businesses.” Harvard Business Review (April 2015).