THOUGHT LEADERSHIP CORNER

 

This month Thought Leadership Corner discusses one of the most interesting topic on both leadership and managing family business. Family business 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.

Two Basic Leadership Model for Family Business

A consistent finding about family business systems—the business, its owners, and the family in control—is that strong, long-term business performance also requires strong performance by the family and by the ownership group. In many occasion, to keep a family business performing well over many years, the focus cannot be just solely on  the business. Family unity, united ownership and ownership support of the business are just too important to ignore or take for granted.

Strong performance of the business, the ownership group, and the family depends on the effective leadership of each group. This shouldn’t be surprising: good performance of any group always depends, on capable leaders.

Because there is not only a business, but also an ownership group and a family that need capable leadership, a family business system is much more complicated than other kinds of business organizations. Leading these systems is also much more complicated.

Family business systems have a number of formal leadership roles. The CEO and board chairperson lead the business and usually the shareholder group. Family council leaders, parents, and grandparents are the formal family leaders. These leaders don’t make all the important decisions in these systems. Nor do they provide all the guidance. They don’t allocate all the resources. But because they have considerable authority, influence, and control over resources, the family businesses rely on them to do their part in setting direction and guiding their group.

Important question to ask is “Would it better to have one ultimate leader of the family business system or a team of leaders?”

There are two basic models. A family business system can either consolidate leadership with one person, or it can choose two or more people to lead different parts of the system. Each model can work well, as long as it’s clear and supported by the stakeholders. Both models have some potential weaknesses: unitary leadership can lead to excesses; leadership teams can be slow and hobbled with rivalry.

But there is no doubt that one model dominates. Having one person serving as the ultimate leader of the business, ownership, and family is the natural choice for most families (and most nonfamily groups) around the world.

One-leader systems are also somewhat more common in younger and less complex family business systems; these systems are either in the founder stage. The parent-founder-business leader-controlling owner generally has most of the power in his or her family business system. As family business systems approach or reach the cousin stage (the third-generation), with diversified businesses and big ownership groups,  you find more systems having two or three leaders who lead different parts of the system and collaborate to keep the system united. Sibling systems have the hardest time working out who should have what leadership role and power.

The person chosen for this role is generally the business leader. In some cases, the family business system leader is the chairman of the family holding company and the clear leader of the family owners. In general, family business system leaders are the individuals with the most resources under their control; typically, they are middle aged or family elders. Effective ones are appreciated for their wisdom but are not necessarily liked by all their relatives. Many successful family business leaders spend half of their time working to address family and ownership issues and to maintain unity.

That is why an accurate drawing of the one-leader model usually shows that the ultimate leader has strong deputies or allies helping to lead the business, family, and ownership group.

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