by John L. Ward
A Financial Times article[*] about the sustainability of China’s leadership offers some ideas for family business successors. The article outlines several forms of legitimacy that are more or less sustainable.
First is procedural legitimacy. The people accept how the successor was chosen. Democracy is believed to be the most legitimate – “people chosen by the people.” That, of course, is not common in family businesses, nor China.
Then what other forms of legitimacy are there?
- Performance legitimacy – success provides better welfare for the people. Beware: this cannot always be assured; research suggests that 55-65% of company’s financial performance is industry, not leader dependent.
- Political meritocracy – it is clear that the leader is qualified. In China the Communist Party is setting ever higher standards of education for party leaders; honest competition for the best to be the successors also supports sustainability.
- Ideological legitimacy – the people accept the leader as virtuous and the best steward of the company’s future. In Confucianism, the important values are benevolence and harmony.
As procedure, performance and meritocracy can be unsure in family firms, then ideological legitimacy is the essence – how virtue and stewardship are assessed may depend on the local culture.
[*] “Real Meaning of the Rot at the Top of China,” Daniel Bell, Financial Times, April 23, 2012