All posts by Otis W. Baskin, Ph.D.

No one can ever be dad or mom

Leaders must be able to communicate with those they need to influence and often next generation leaders in a family business need to adjust their communication for effective leadership.  While founders often have a charismatic and legitimate “right” to leadership, next generation leaders must earn their right to leadership independently.  First, acknowledge that no one can ever be dad or mom again and you shouldn’t try.  Second, work on your listening skills to make sure others understand that you understand their point of view.  Finally, you can work on developing your own “charisma” in your communication to others.  Professor John Antanakis and his colleagues at the University of Lausanne in Switzerland have identified several communication habits that make a speaker appear more like a leader.  These discoveries are actually rooted in classical rhetoric as defined by Aristotle:  1. Establish your credentials and build rapport with those you are speaking to; 2. Use logic to present your arguments; 3. Use emotional appeals to persuade your listeners.  While people generally need a logical framework in which to “understand”, use emotional appeals to persuade your listeners.  While people generally need a logical framework in which to “understand” your appeal, they actually respond emotionally to the “goodness” of a proposal. Make sure you understand the emotional connection that will need to be made with those you want to lead.

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The Power of Persuasion

Otis Baskin

Leadership could be defined as the ability to exercise influence over others.  The success of a leadership transition in a family business is therefore dependent on much more than someone assuming the position of CEO or obtaining voting control in a shareholders meeting.  Leadership is really about how to avoid a power confrontation and still get things done – the power of persuasion.  One old definition of persuasion tells us that influence over others is purchased at the price of allowing one’s self to be influenced by others.  While this may seem counter-intuitive, the logic is obvious:  We are all more likely to follow someone whom we believe has listened to us and has truly understood our point of view (been influenced by us).  If others believe you have heard them and have incorporated their interests into your leadership they are more likely to follow.

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Do you have leadership ability?

Otis Baskin

One of the most daunting challenges of a new leader can be whether or not others perceive her/him as a leader.  This can be particularly true in a family business transition when other family members and company key executives see the next generation leader as “the boss’ son/daughter” or “our sibling/cousin that we used to play with in the sand box”.  The problem of perception is often more difficult for next generation leaders who have been excellent “second-in-command” executives.  The challenge of changing the perceptions of those you seek to lead can be daunting but one thing is certain – simply remaining the same is not likely to do the job.  When your role changes you probably need to change – but how? The first and most important change may surprise you – Listen More!  In a recent blog Rosabeth Moss Kanter, a well recognized expert in the field, argued that it is how well you listen rather than how well you talk that persuades people to do things.  Therefore, taking more time to listen to employees, executives and other family members may be the key to transforming the perceptions of others about your leadership ability.

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Stewardship and Management Expectations

Otis Baskin

The concept of stewardship in family business has its roots in the long-term view that family businesses take.  Building strength for the next generation not just the next quarter is the strategic advantage of family business.  Because family companies have different expectations than public companies regarding long-term planning they have the opportunity to create a culture of stewardship that pervades the organization.

This culture should begin with the family’s commitment to building value for future generations and be described in a family values statement.  These values then become the foundation for company values, vision, and mission that can guide management decisions and actions.  But these statements must not be just “window dressing”.  The guiding principles of the family should be translated to guiding principles of the business that can be lived every day.

Just having family members leading the business and working in the business will not be sufficient to accomplish the kind of culture discussed here.  It is too easy for even family members to compartmentalize family and business and in so doing fail to let family values consciously guide their actions.  If family and non-family executives are going to manage as stewards rather than agents they need the support of ownership.  Active owners who take the time to understand the goals, opportunities, and strengths of their business can give management the conviction to stand firm when peers in other companies are looking out only for their individual interests.

One of my clients, a fifth generation building products supplier, was hit very hard by the economic contraction of 2008.  While it was necessary to cut costs in the business, the owners did not expect the employees to bear that burden alone.  They worked with management to cut the distributions to owners significantly in order to preserve the strength of their business to take advantage of an upturn in the market that would surely come.  This was a lesson they had learned from previous generations and their commitment to preserving value for  future generations gave business leaders support and confidence in doing what was needed to respond to the challenges of the market.

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The Pygmalion Effect on Responsible Management

Otis Baskin

 

As Henry Higgins expectations of Liza Doolittle transformed her image of herself, our expectations of those in top management positions may explain their behavior.  

The ongoing revelations about the failures of chief executives to manage the companies they serve in the best interests of shareholders and society has caused many to pronounce greed as the driving force of business itself.  Yet, those of us who work closely with family businesses see a different picture.  We see executives, both family and non-family, who are loyal to the organization, its mission, the communities in which they operate, their employees and the owners.  Great leaders whose concern for others is demonstrated in everything they do.   

Of course, it is overgeneralization to say that all family business CEOs are somehow better and nobler than their public company counterparts.  There are truly excellent managers in all types of companies regardless of industry, size, or ownership structure.  But it has been my observation that family companies are better at spawning these “servant leaders”.  

One explanation may lie in the expectations that are communicated to executives when they accept positions and as they work their way into roles of greater responsibility.  As modern organization theory developed the problem of agency theory emerged as a chief tenent taught in every business school and economics course.  Agency theory depicts top managers in the modern corporation as “agents” whose interests may be different from those of shareholders because both are attempting to maximize their own personal gain.   

If executives understand their role as maximizing their own personal gain it is no surprise when they take unreasonable risks with the capital of shareholders to increase the potential of their own bonus plans.  Therefore, complex compensation schemes and onerous accountability mechanisms have been devised to assure that executives manage with the interests of their shareholders in mind.  However, these mechanisms only serve to highlight the underlying theme that “agents” are not expected serve the interests of shareholders.  Thus, the more “protections” we put in place the more we may be contributing to the cause of the problem.  

Why the difference in family business?  I propose that, at least one reason is the generally accepted concept of stewardship.  In successful family businesses executives assume their roles as heirs of a great tradition and understand that their primary responsibility is continuity.  The same is true for good owners of family businesses.  They understand that this is not “my business” but rather ours to nurture, grow, and deliver to another generation.  The expectations communicated in a successful family business are shared values and a common future that serve to align the interests of executives and owners.

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Parallel Planning for Family Business

Otis Baskin

Planning for the business and family in an interrelated and systematic way can seem artificial and uncaring from a family perspective.  Planning structures, decision processes, policies and procedures for family relationships in the way you would design business relationships may seem unnecessary and uncaring at first glance.  However, when a family owns valuable assets together that benefit from a synergistic relationship, like a functioning enterprise, it is important to plan both family and business relationships. 

The relationships within the family can have a powerful impact, positively or negatively, on the success of the business.  Divisions within the family can lead to divided and even competing interests within the business.  Likewise, differences that arise from business relationships can destroy family harmony.  When families attempt to avoid these problems by disassociating their business and family they only make things worse.  The business and the family that owns it are unavoidably linked.

For example, many business owning families pass ownership down through generations based upon family branches.  This is a reasonable and logical way for parents to distribute their wealth among their children.  However, if this is done without parallel planning on the family side it can have the unintended consequence of dividing the family.  If family branches develop into voting blocks that elect “champions” to positions on the board of directors they may not feel a fiduciary responsibility to all shareholders.  Similarly, family branches that are larger tend to have individual owners with smaller percentages of the voting or beneficial shares.  This can create an atmosphere where members of a large family branch become disinterested because they do not have the same influence and benefit as members of smaller branches.

Good structures, policies and decision making processes for both the family and business can serve to strengthen family ties, support good business governance, and allow estate planning to benefit the family branches as businesses are passed successfully from generation to generation.

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Family Business Leadership: Beyond the Business

Otis Baskin

Many business-owning families focus their attention on the transition of leadership in the business without thinking of what will happen in the family when the current family leaders are no longer present. For example, what will the siblings do to keep the family together when Mom and Dad are no longer around? All businesses need committed owners, a family business needs family unity behind it, and family unity requires good family leadership.

Too often, more people in the family system go along for the ride instead of stepping up and providing leadership.  Old patterns, often developed under the tutelage of a strong leader in one generation, leave the next generation still functioning in the “its dad’s business” mode long after ownership has passed to them. Yet it’s incredibly important for virtually everyone in the business-owning family to be looking for opportunities to make contributions, and when they do, opportunities will appear.

Suppose, for example, that you accept an assignment to serve on a committee to develop policies about the employment of next-generation family members in the business. You may not be the CEO of the business or chairman of the board or family council, or even head of the committee. Nevertheless, if you take your role seriously and take an active part in the committee’s work, you have a tremendous opportunity to be a constructive force in the family for generations to come. Your actions may include doing thorough research, or visiting other family businesses to gather valuable information. That’s leadership, too.

At almost any family meeting, you’ll have an opportunity to provide leadership by saying, “Here’s an issue that we need to deal with.” When you pay attention, make yourself knowledgeable, prepare yourself to be able to recognize opportunities, say something when an opportunity presents itself, and are prepared to invest the time, effort, and energy to resolve the issue, you are providing family leadership.

Some family leaders, often members of the senior generation, due to their experience and credibility take on difficult and sometimes thankless tasks because they know it will help the current or next generation succeed.  This “Servant Leadership” often occurs without titles or other forms of personal acknowledgement in families.

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The Leadership of Ownership

Otis Baskin

Leadership is not confined to an individual’s set of attributes and skills; leadership can be a process that is shared within a group.  It is extremely rare that a single person will have all the attributes necessary to provide leadership in every possible circumstance.  Leadership groups are able to depend upon the various abilities of their members to provide the right leadership needed at the right time. 

Owning a family business implies leadership no matter what your role in the business or even if you don’t work in the business.  Being a member of the owning family group carries the responsibility to provide leadership – not in day-to-day direction of the business but in vision, values and strategy.

The ownership group needs leaders in the form of a chairman of the board and other directors who bring the needs of the business together with the wishes of the owners and the values of the family. The leadership of family directors moves the assets of the family forward in relation to moving the family forward. It has a foot in both arenas—family and business—and needs to have a great deal of understanding about both of those systems. On the family side, the board’s leadership is related more to the values and the goals of the family for the business than on relationships within the family. On the business side, it means translating family goals and values into forms that management can respond to and that represent the best interests of the owners. Management’s job is to meet the goals of the owners.

The chairperson of the board should be a real job and a real leadership challenge. It shouldn’t be used as a means of putting an aging CEO out to pasture. Frequently, family businesses combine the roles of chairman and CEO, but there is wisdom in separating the two responsibilities. For one thing, the CEO already has his or her hands full running the business. A separate individual serving as chairman can give full attention to the leadership of an active board representing the interests of owners in a way that a CEO cannot.

One of the most valuable leadership roles the chairman and the board can play is to build shareholder loyalty, awareness, and cooperation, and to encourage the notion of “patient capital”—that is, family owners’ willingness to leave their funds invested in the company so that long-term business goals can be met.

After the founding generation has passed from leadership of the family and the business, no sibling or cousin is likely to have the same “moral” authority.  It requires the commitment of the entire ownership group to provide the full range of leadership necessary to take both the family and the business to the next level.

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Managing to Lead the Family Business

Otis Baskin

A business needs a Chief Executive Officer (CEO) and other senior executives to develop strategy and move the business forward. Leadership in a family business, just as in any business, requires knowledge, experience, good judgment and credibility relative to the business.

But, in many family businesses that have succeeded in several generations, leadership becomes a team process where no one individual is saying, “I am the boss and you will do what I tell you to do and you should show loyalty to me.” Instead, a group of siblings or cousins says, “We are a team of executives and owners. Each of us is here not just because of our last name or because of who our grandfather was, but because we have prepared ourselves to be here, because we’re motivated to be here, and because we bring skills and talents needed by our business. We have worked together to develop a common vision and a common strategy that we are implementing together to for the benefit of all owners in keeping with our family values.”

While, one family member might be CEO, another might be CFO, and still another might be a senior vice president heading up sales or production, they function as a team.  In addition, one or two members of the team might be key non-family executives who supplement needed skill and knowledge not present in the family. Critical to their success as a leadership team is their “profound process knowledge”, their collective skill, and experience combined with their commitment to leading for the benefit of all involved, not just for themselves.

One family I know in the health care business had to deal with the sudden death of their father and the business founder.  The business, created by a physician who was also an exceptionally gifted entrepreneur, floundered for a while until each sibling realized that each had an ability to lead but none of them could be their father.  When this sibling group consisting of a clinical physician, a medical researcher, and a health care attorney finally came together as a leadership team, they paid less attention to hierarchy and developed more concern for vision and values.  The result was a business that grew far beyond the vision of the founder but remained within the scope of his legacy.

Although the words “leadership” and “management” are often used interchangeably, it is helpful to realize their separate connotations. Leadership needs to be focused primarily on vision and on a strategy that will fulfill or attain that vision while creating a way to move forward.

Management is more concerned with implementing tasks that need to be done. Management is more concerned with control and reporting relationships.  Management implies organization; leadership does not – it can be messy and chaotic. Managers can be leaders and leaders can be managers, but the two abilities don’t necessarily go together.

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Family Businesses Often Need Leadership Transformation not Succession

Otis Baskin

Often when good succession planning occurs in a family business the next generation leader is told (or at least understands):  “we need you to lead us just the way mom or dad did.”  Certainly this expectation seems logical if the business had been successful.  After all, dad or mom’s leadership has put our family in a strong financial position and passed along a great legacy to the next generation.  However, this expectation on the part of mom and dad, brothers and sisters, cousins and key non-family executives may be setting the new leader up for certain failure.

The least effective way for new leaders in a family business to prepare for their role may be to follow the example of their predecessors, no matter how successful.  While it is certainly important to set a good example for the next generation to follow, new leaders must be developed with the awareness that the next generation will face different challenges and must therefore, lead differently.  This principle is true of course in any organization because of the rapid rate of change all businesses experience today.  However, because of the unique nature of family business the temptation for the next generation to model the previous leadership is very strong.

The tendency to “lead as we have been led” is supported by the naturally strong bonds between parent and child.  The admiration of a child for their parent can make it difficult to see and acknowledge shortcomings that need correcting.  Even when the need for change is intellectually acknowledged, the psychological tendency to emulate our parents has been demonstrated to be very strong.  How many adults have you heard reflecting:  “I can’t believe I have become my mother or father”?

However, even when parents have done an outstanding job of leading the family business it is important to understand the next generation cannot and should not lead the same way:

  • Children and their parents are different people and do not have the exact same gifts and abilities.  What works for one as a leader may not work for the other.
  • Business environments change and leadership must be prepared to respond accordingly regardless of what has proven successful in the past.
  • Families and ownership structures change and leadership must be relevant for their needs. 

Generational transitions in family business call for leadership transitions that are much more than just leadership succession, often what is required is transformation.  Leadership development must be a part of the planning process to acknowledge that changes will occur at key transition points and the demands these changes will place on leaders and the process of leadership will be different than what the previous generation has faced.  Businesses and business owning families grow and develop with each generation in ways that require changes in leadership processes as well as the people who lead – not merely succession but transformation may be needed.

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