Many of our clients are family-owned companies whose owners expect to pass the business down to the next generation. As the time to transition nears, often we find that leaders aren’t sure the next generation is ready – whether they have spent years working in the business or are newer to the organization and still learning. How does this gap in leadership occur? And how should we be developing the next generation for success?
The Generational Leadership Gap
In our experience, the primary reasons family-owned businesses struggle with succession include the following:
- Families don’t adequately prepare the next generation for responsibility. Knowledge transfer is critical to transitioning leadership to the next generation, and strong leaders don’t always make good mentors. We often encounter entrepreneurial owners who owe their success to hard work and hands-on management. They can be so involved in operating activities that they don’t take the time or are unable to teach the next generation the skills necessary to successfully lead the business. They also may have a difficult time relinquishing responsibility and control to younger family members, who then fail to develop the expertise and leadership skills necessary to take command.
- Family relationships devolve into conflict and dysfunction. The interpersonal dynamics of all families have complexities, and the added complications of working together as boss/employee or as rivaling siblings can add strain to these relationships. We have witnessed painful family breakups over the generational transition – or lack thereof – sometimes impacting performance and earnings to the detriment of enterprise value, and in extreme instances requiring the sale of the business to external parties.
- Leaders fail to innovate and further develop the business. After building a business through hard work and sheer will, aging leaders may fail to innovate, such as by embracing best in class technological advancements or proven cognitive and behavioral assessment and talent optimization tools to support next generation leadership, resulting in the business lagging behind the competition. And at times, second-or third-generation leaders may not have the drive and work ethic to keep the business flourishing. Instead of supporting business improvement and growth, they rest on past success and believe the business exists to support them.
Developing Next Generation Leaders
The best way to grow any organization is through the development of leaders, and in a family business this often means development of the next generation. A company cannot grow unless its leaders and team members grow. Top performing leaders know that creating a positive culture centered on continuous improvement encourages and supports this development. While growing the next generation of leaders may be difficult, little is more satisfying than successfully developing others – especially family members.
The best way to develop the necessary skills and characteristics in the next generation is through mentorship. Like the relationship between a parent and child, the best mentorships are characterized by mutual respect, trust, shared values and good communication. Below we offer some mentoring guidelines for a multi-generational family business.
- Assess those being mentored. With one or more potential successors, a good starting point involves objectively assessing their potential. With a long family history together, objectivity can be elusive. Utilizing a proven talent optimization tool can provide significant insight into cognitive skills, behavior drivers and predictors for success in the role. Additionally, soliciting input from others willing to give honest feedback can complement perceptions of those being mentored.
- Determine required leadership skills and knowledge. Fundamentals of operating and product knowledge and delivering exceptional customer service are a baseline. Additional critical skills include the ability to articulate the culture of the company, optimize interpersonal skills and communication, and possess solid financial acumen in optimizing earnings and cash management.
- Identify expectations. Clarify what leaders and next generation leadership expect to achieve and reach consensus. Make sure you have correctly assessed the long-term goals of all stakeholders and ensure everyone has a realistic perception of expected effort and outcome. Misunderstandings are costly in terms of time and family harmony. In our experience, the most successful relationships are ones where both the current leader and leadership candidate fully understand and share a common vision for success.
- Establish a mentorship team. The exclusive, one-on-one relationship of mentor and mentee is less effective in developing next-generation leadership because of complex family dynamics and assumed expectations of ability – either too high or too low. Instead, consider creating a mentorship team, with members selected for their various areas of expertise including technical and people skills. The individuals chosen need to work and communicate well together and with those being mentored. The concept of mentorship teams is becoming more popular (read more in this HBR article, “Your Career Needs Many Mentors, Not Just One”) as leaders recognize that the myriad skills and knowledge needed in business are difficult to acquire from a single individual. Someone must lead the mentorship team. If no individual within the company has the skill set to mentor and lead this team, or if personnel are too busy running their area of the business to perform both their primary business role and take on these added responsibilities, organizations may want to engage an individual or company who possesses the required expertise. Often a skilled outsider can bring new and refreshing ideas that next generation leaders can adopt as they ascend into their leadership role.
- Schedule opportunities for communication. Establish a cadence for communication to stay apprised of the activities and development of those being mentored as well as share appropriate family business updates. Having a scheduled monthly meeting, for example, can reduce a flood of disruptive phone calls or emails over minor issues, and avoid having family gatherings morph into business meetings.
- Set standards for accountability. Make it clear that accountability isn’t optional. The mentorship team should educate those being mentored about the professional standards that are expected and ensure everyone lives up to them. If a potential next generation leader produces substandard or tardy work, or worse yet has a poor attitude or lacks interpersonal skills, both the owner’s and successor’s reputations suffer. At the same time, leaders-in-training must be given room to make mistakes and learn from them. Everyone should understand that the next generation leader is, in effect, a student. The leader-in-training should expect and welcome constructive criticism, and operate in an environment where they can learn from their mistakes without undue judgment or fear of retribution.
- Don’t let problems fester. It is not uncommon for parents, children and siblings to disagree, and arguments are fertile territory for bruised feelings or holding a grudge. In most cases it is possible to avoid or repair problems. Mentors must recognize that disagreements and misunderstandings are inevitable, and that the mentor, not those being mentored, is responsible for avoiding or repairing rifts. Smart mentors do not allow sores to fester, spats to escalate or arguments to become personal; they intervene early and evenly to keep the relationship on track.
The Roebuck Group has worked with many family-owned businesses in the areas of leadership development, succession planning, company culture, and profit optimization. If you’re interested in learning more about how we can help your family-owned business succeed now and for future generations, call us today.