THOUGHT LEADERSHIP CORNER
This month Thought Leadership Corner discusses one of the most interesting topic on both leadership and managing family business. Family businesses are the corner stone of many economies in Asia. It is interesting, complicated and also challenging to keep good performance of a family business.
Next month’s topic for our Thought Leadership Corner will be on How Company Can Capitalize on Innovation and Manage Innovation well.
Structuring Leadership Role in Managing the Family Business
Creating a high performing family enterprise will need a very capable leadership. Whether you adopt the one-leader model for your own family enterprise, or whether you build a team of leaders, you still need to design, structure, and allocate all the necessary leadership roles. Why? Because poorly designed, and badly structured leadership roles in action, the decisiveness and unity that a family business system needs for long-term performance will be at stake. Thus, how do you design, structure, and allocate all the leadership roles you need?
To begin with, let us recognize that for any group or organization to be successful, it needs to be led, managed, and governed well.
Leading, Managing, and Governing
Governance provides a broad sense of purpose or mission for the group and gives the group a sense of stability. Without stability, we cannot plan long-term. Family business systems have an enduring advantage over many kinds of enterprise in large part because of their long-term goals, plans, and commitments. Without stability, you lose your built-in advantage. Without adequate governance, you don’t have adequate stability. The family business system absolutely must be governed, and governed well, for success.
Good governance assures us that plans can be made, problems solved, leaders developed and chosen, and disputes settled in a way that preserves the purpose and unity of the group. Discipline and trust grow. Good governance is the product of having useful rules, policies, agreements, and plans, as well as forums (like boards, family councils, and annual meetings of the owners) to develop the plans, agreements, rules, and policies, to address important issues and to work out differences.
In one-leader systems, governing well almost always requires that key stakeholders join together into one or more groups:
• A shareholders’ council and an annual meeting of the owners to serve the governance needs of the owners.
• A board of directors to serve the governance needs of the business and owners.
• A family council to help provide governance for the family.
These groups all need their own good leaders to function well.
So you can see that a family business system leadership team could number four or more people: a leader of each governance forum plus an ultimate leader. The business leader could be different than the chairman of the board. The leader of the owners tends to be either the business leader or a group of leading owners.
In many instances, the family council leader is different than the real family leader. Often the family leader is also the business leader, but not always. Even where there is a strong unitary leader of the family business system, there are usually deputy leaders that lead the different parts of the system in close coordination with the ultimate leader.
Besides developing, supporting, and participating in the governance system, leaders need to lead people, and this is different from managing their work. Leading is fundamentally about identifying where the group needs to go by developing a compelling vision for the future, strategizing how to get there, and getting people to change in order to get there. This is done by inspiring, persuading, and motivating people to work together to reach important goals, and by building coalitions to support needed change.
Followers need compelling reasons to stand in behind any leader for the long-term, or for difficult missions. Since family business is focused on the long term, the family business leader or leaders must be personally compelling, not just good at making plans and managing activities. Effective leaders can have a charismatic style, or a more quiet approach.
Regardless of style, John Davis, lecturer at Harvard Business School, believes the most effective leaders in family business systems are clearly “servant leaders” or more to the point, “servant partners.” These leaders typically have strong ideas and principles about how their companies should be run, what their co-owners should invest in, and how their families should behave. They also have egos, personal needs, and sensitivities. At the same time, they want to do their best for their followers. They believe in partnering with others and treating partners fairly. And they behave like servants of the greater good, doing stewardship. Finally, they are able to make tough decisions to protect the standards and aspirations of the group.
Managing, as opposed to leading, is about getting a group to operate efficiently and effectively. Managing is done by planning and budgeting, organizing, analyzing problems, building and using management systems, prudently allocating resources, and providing performance feedback. Managing is a complement to leading.
So much of business and family success has to do with good execution–getting jobs done well, on time, and on budget. A good team of the professionals who works in tandem with the families will be critical in good execution. Like all CEOs, the CEO of family business is also expected to get involved in developing the efficiency and effectiveness of particular aspects of the business. They are expected to do a lot of planning, organizing, and problem solving.
It is quite common that CEOs in family businesses, particularly family members who grew up in the family company and know it well, to become focused on its operating effectiveness. But too much focus here generally means they give too little attention to the leadership and governance needs of the organization.
Many family businesses could do a better job of managing their financial life by setting clearer goals and by controlling spending better. They usually need to devote more attention to the development of the next generation. And business families, like all families, are typically poor at giving performance feedback to their members. These are all management issues.
Many problems in families are usually due to their lack of governance and leadership. In the governance area, family members are not clear about the family’s mission or core values; or they lack adequate rules and policies to guide behavior; or maybe they haven’t developed a forum and process to discuss important issues and mediate differences among family members fairly. In leadership, they lack a clear vision for the future; or they haven’t accepted the need to change in order to adapt to the environment; or they are uninspired. It takes deep inspiration to tackle important challenges.
Governance, leadership, and management: businesses, families, and ownership groups need all three of these activities. The amount of time spent on each activity or group will vary with the leader and circumstances. Some leaders favor leading and let others manage; some leaders spend most of their time governing the system. A parent also does these three things in the family he or she leads. A good Chairman of the board or family council leader also does an appropriate amount of all three.