Recently, 2nd generation family business leaders weighed in on the family business issues that they find toughest to resolve. The top three on their list were: creating an effective board, addressing performance issues within the business, and infusing long-range thinking into their organization. On the surface, these three issues may seem distinct. However, when they elaborated on their concerns, the root causes come back to some common themes.
Let’s examine the desire to have an effective board. The participants in the survey were all aware that gaining independent insight into their business practices is widely regarded as a determinant of family business success. But, they were hesitant to put a board in place. The primary reason behind their hesitation came down to the fact that they felt like they were “going it alone”. While they would value the strategic insight that board members could bring, they didn’t feel their management team could support them in pulling together the information needed for the board and executing on ideas the board might suggest. In the same vein, they didn’t feel they could take the time away from the business to think about building a board. Finally, they were concerned about lack of buy-in by other family members, both 1st generation founders and 2nd generation peers, concerning the value of a board.
A similar set of concerns were expressed about long-range thinking. Again, all understood that a key determinant of business success, not just for family businesses, is strategic planning – which is the essence of long-range thinking within the business. Beyond a written strategic plan document, these leaders were concerned their business cultures did not promote making decisions with the long-term impact in mind. The roadblocks to long-term thinking mirrored those that get in the way of developing a board – namely the lack of management team members with a long term perspective who could participate in the planning process and execute on long-range plans; as well as the lack of resources to gather information and develop a plan and the lack of time to get it done. Again, these leaders were concerned about lack of family buy-in, particularly from 1st generation founders, about the value of long-term planning. And, they also had a fear that the process would force family members, both 1st and 2nd generation, to articulate their desires for the future – and they feared the Pandora’s box this could open as they knew consensus on long-term direction could be difficult to achieve.
Finally, the leaders admitted that they did not do an adequate job of addressing management performance issues. They knew that there were underperformers in their organizations but had avoided dealing with them.
They weren’t ready to deal with the disruption to the organization – the potential impact on employee morale, the conflict within the family if the manager was a favorite of another family member, or the guilt of letting go a long-term employee who had shown loyalty to the family. In this case, the similarity with other challenges was that they might not have family unity about the need to let go of a particular manager, or more broadly about the need to develop a culture of accountability, where performance is evaluated and performance issues are addressed.
A final central issue leaders faced in all these challenges was a need to change the culture of their business, from one that was predominantly entrepreneurial, short-term focused and based on relationships to one that was more structured, invited outside input, planned for the long-term and based success on objective measures. They needed to move out of their comfort zone with the status quo, and get willing to confront disagreement within the family to change the culture.
While these business leaders were concerned about how to enact these changes, all agreed that they were issues they needed to confront. The first step was to get buy-in from stakeholders that change was needed. In the case of some, that meant getting support from the founder generation. In others, it meant support from a sibling team. In still others, it meant support from a management team whose buy-in would be needed to implement change. As leaders, it was their responsibility to make the case for change and paint a picture of the future that helped these stakeholders to understand that the change would be worthwhile.
The second step was to enlist support in planning for and making changes. In many cases, they had to move beyond their management team and family members to find support in peers outside the business that could help them think through the changes needed. The confidence to move forward, however, came from the knowledge that it was their responsibility, as leaders, to acknowledge that the challenges were there and create a plan to address them.