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Earlier this week on SBS television, Jennie Brockie hosted an interesting Insight program that explored leadership. In particular she wanted to focus on the failures of both major political parties by asking the provocative question of why Australian Prime Ministers cannot hold on to their jobs.
With this particular leadership interest Brockie drew comment and insight from a diverse panel of leaders to glean both general leadership lessons and those that might be applicable to our political leaders. The panel included:
- Raelene Castle, CEO of the Canterbury Bankstown Bulldogs NRL
- Chris Evans former Labor Minister and Senate leader
- Peter Leahy former head of Army
- Clare Martin, former Labor Chief Minister for Northern Territory
- Ange Postecoglou head Coach of Australia’s national football team the Socceroos.
Notwithstanding the many excellent nuggets that Brockie extracted from these panel members, the point that struck me was the close alignment between what was needed in our political leadership and that which makes family business leaders successful. That is, our political leaders could learn much about long-term leadership not from leaders generally, not from just any business leaders but especially from family business leaders.
For me the emergent lessons for all leaders that politicians might need to take particular note of were:
- To focus on the long term
- To build trust and respect with your team
- To develop your personal capacities to cope with the rigours and challenges of the role
- To accept the accountabilities inherent in any leadership role
- To take the job seriously and not become ego focused.
These coincide closely with recent research that has highlighted that family business leaders, in contrast to their counterparts in more widely held corporations, are characterised by long-term perspectives, adopting stewardship orientations instead of acting out of self-interest and in so doing building trust and respect with all their stakeholders. Furthermore, in preparation for their long tenure roles they tend to serve apprenticeships that develop their capacities in which they not only learn core business capabilities but also develop insight – insight to their business, families, and importantly self. Their stewardship orientation, with its emphasis upon leading the business for future generations, ensures that they accept the accountabilities inherent in their unique leadership roles. Families tend to then keep the egos of all family leaders in check.
The specific panel observations that gave rise to this distillation follow.
Long term orientation
Former Army Chief Peter Leahy opened with an observation that political leaders are having trouble with seeing the big picture and that current societal and media expectations are for quick answers. The necessity for such rapid response tends to rule out consideration of all options and on occasions rule in ill-conceived options. Evans pointed out that these behaviours are often induced by political structures that tend to encourage the development of a short term focus.
Such leadership behaviour is associated with the rapid turnover of leaders that mitigates against the adoption of a long term focus. In contrast family business leaders on average spend about twenty years in the top job and clearly have the time resources to develop and refine long term perspectives.
Trust and respect
Kiwi Raelene Castle highlighted the necessity to earn trust and respect of team members. Perhaps her sports management background along with that of Postecoglou might have encouraged more emphasis of this point. However both were keen to point out that leaders need to maintain their distance in Castle’s terms “be close enough to earn respect but not too close that you can’t kick arse”. Equally Postecoglou felt that the necessity to make the big decisions that all leaders are expected to make called for maintaining some distance from the team. Leahy also reinforced that the Army leadership was not the place for being “mates” with your team of soldiers.
However all leaders emphasized that it was incumbent that they gave their staff the resources and information they needed to do their jobs thereby highlighting the significance of communication as a means by which trust and respect are earned.
Family business leaders face extremely challenging assignments in which they have to earn the trust and respect of not only employees but often relatives, some of whom might work in the business. Evidence shows that those that engage in active communication and education programs through family governance tend to be more successful leaders.
With deft questioning Brockie’s was able to ensure that the conversation did explore the personal qualities to be successful leaders. Given her political interest she was quick to pick up on references to ambition and its role in being a successful leader. While panellists did not rule out ambition as being influential they tended to favour more so self-belief and confidence as superior characteristics for leadership success. However self-belief needed to be contained such that one’s ego did not get out of control. As Evans observed family responsibilities helped keep his in check when after a heady week in the nation’s capital “There was nothing like flying home from Canberra and being told it’s your turn to clean the toilets. I think if you’re single in federal politics it can be quite tough. You don’t get that grounding, everyone treats you like you’re really important and you might just start to believe it.” Clare Martin did observe that in politics many of the leadership problems seemed to have their genesis in big egos.
Leahy then highlighted that successful leadership was more about humility – more “we’ and less “I” as he put it. Others were a little more guarded in their support for humility emphasising instead that having and maintaining your confidence to lead were key. For example Martin observed “We want leaders who do show us some vision for the future and I don’t know whether that quite works with being humble.” However the caveat to this was that leaders should not become isolated from their team.
The panel then revealed other qualities that they observed needed to be developed to function in their roles. Castle introduced the element of the “loneliness (of the long distance runner)”. How it was necessary to develop a capacity to cope with issues that could not be discussed with staff and to this end she and others highlighted how developing trusted networks was a sensible way forward. Complementing this willingness to share problems was a preparedness to admit when mistakes had been made. This too was central to earning the trust and respect referred to above.
Other personal qualities mentioned were a capacity to cope with ambiguity, not compromising your beliefs and planning your succession so that you can leave at the right time when you have not run out of ideas or energy.
Evidence shows that successful family business leaders do develop self-insight and have the confidence and courage to lead in decisive ways that does not undermine the clan orientation of their enterprises. Typically their values and beliefs strongly influence their decision making and some are beginning to be more active in planning their succession.
The panel lead by Chris Evans’ comments generally conceded that it was getting harder to lead especially in highly visible roles that politicians fill. Societal expectations and media focus were isolated as key causes of these greater challenges. But notwithstanding these wider responsibilities Ange Postecoglou was quick to point out that he believed the “biggest thing about leadership is accountability”. He felt there was too much emphasis on collaborative approaches – leaders have to accept responsibility to decide.
Interestingly, family business leaders with their arguably wider range of responsibilities to owners, managers, and families have developed command capacities that enable them to make quicker decisions than their non-family business counterparts. Equally they work more co-operatively with their boards to formulate and implement unorthodox strategies that deliver competitive advantages.
Job not self
Arguably the most telling point made by panellists, especially in contrast to political leaders, was that of taking the job seriously and not yourself. The Socceroos’ coach stressed that often there is “too much focus on keeping your job and not enough on doing your job”. This in turn leads to focusing on personalities especially so in politics.
Again these sentiments resonate with family business leadership where because of the longer and typically more secure tenures, leaders can devote their time and energy to getting on with doing the job over the longer term in the belief that achieving the long term vision for all (stewardship) will not be interrupted by any short focus to gain another appointment.
A very interesting and thought provoking program in which the panellists freely expressed their views and guided through the space with thoughtful questioning. The lessons for real leadership however are those that the family business community have mastered over generations and have not been seduced by the currency of short termism.
For our family business readers it is important that they sustain their leadership edge by ensuring appropriate structures and processes are in place. In particular business and family governance processes integrated by strategic planning. By this tripartite coalition they can remain focused on the long term building trust and respect within their family and business teams by developing the next generation to accept their accountabilities to lead as stewards.
Ken Moores AM
- Bulldogs CEO Raelene Castle is the only woman leader in the NRL. She says leadership is about finding consensus, and is not into unilateral decision-making.
- Chris Evans is a former Labor minister who resigned in 2013. He says he was quite consultative as a leader and not a micro-manager, but was interrogative and always insisted on testing advice he received.
- Peter Leahy retired from the Army in 2008 after a 37 year career as a soldier. He concluded his career with the rank of Lieutenant General after a six year appointment as the Chief of Army and was awarded the Companion of the Order of Australia in 2007. Leahy says a leader needs to consult with their team and be friendly but not too familiar.
- Former Northern Territory chief minister Clare Martin broke 27 years of Country Liberal Party reign when she was elected in 2001. She believes political leaders will always make unpopular decisions and sometimes will need to find a compromise between what the experts tell you, and what your advisers suggest.
- Socceroos coach Ange Postecoglou thinks Australians don’t like leaders who are too outspoken. The former football player says leadership requires self-belief, and the ability to make strong decisions and stick by them. Postecoglou reckons it’s hard for Australians to deal with outgoing leaders which in turn stops some from becoming leaders, or others achieving their best when they are in the top position.
I recently attended the Family Firm Institute conference in Washington DC as we (Moores Family Enterprise) were presenting one of the conference sessions. Our session was focussed on one of the potential competitive advantages that family businesses can leverage to their benefit, specifically innovation or innovative behaviour. Using an illustrative case we integrated new evidence with best practices to distil guidelines for families wanting to ensure they encouraged innovative behaviour in their businesses going forward.
Another of the speakers at the conference was Charles Duhigg, a reporter with The New York Times and author of the recently published book, The Power of Habit. This book is about the science of habit formation in our lives, companies, and societies. He was a very engaging speaker and made his point about creating and changing habits sound very simple and effective.
According to Duhigg researchers at MIT discovered a simple neurological loop at the core of every habit, a loop that can be broken down into three basic components (see Figure 1).
- A prompt that puts your brain into automatic pilot mode is a cue. The cue can be internal, such as a feeling or thought, or external, such as the company of certain people or a specific time of day. To be habit forming a cue must trigger a routine and elicit a craving for a reward.
- A routine then is the behaviour that leads to the reward. It can be physical, cognitive, or emotional.
- Finally, a rerward can also be physical, cognitive, or emotional and determines if a particular habit loop is worth memorising. They are powerful because they satisy cravings.
Figure 1 Habit loop
To understand your own habits you need to identify the components of your loops. If you have developed any bad habits that you would like to change then Duhigg suggests you can do this by identifying the routine, experimenting with different rewards, isolating the cue, and having a plan to change your behaviour.
Change might not be fast and it isn’t always easy. However, with time and effort, almost any habit can be re-engineered or changed.
Changing family business habits
This got me thinking… What if we were to take Charles’ ideas about creating and changing habits at an individual level and use these insights to understand how to promote innovative behaviour at an organizational level? Specifically can families-in-business build their competitive advantages by creating cultures that promote habits of innovative behaviour?
More specifically, how could we apply the framework mentioned above and provide a practical guide to reshape the behaviours we identified in our presentation regarding innovation in family firms in order to build competitive advantage?
If a family firm wants to grow, be innovative and entrepreneurial its leadership (style) needs to configure its strategy and structure to be reflective of its family influence and culture. The complex and constantly changing interplay of environment, entrepreneur, strategy and structure creates an “optimal configuration” for the family firm to generate cues that will foster routines that produce innovative behaviours.
Figure 2: Configuring to create routine innovative behaviour
The rewards here are clearly the enhanced performance that arises from exploiting a competitive advantage and these rewards require routine behaviour that is innovative. The cues that we identified from a single-case study that will drive such behaviour we have labelled as STARS:
- Reputation via relationships with customers, suppliers, community
- Long-term orientation (LTO)
- Lower monitoring costs
- Financial capital …patient capital, concentrated ownership
- Organizational capital
- Human capital (overstaffing, slack/capacity to innovate)
- Shared values
Further details of these STARS and how to leverage them for your advantage are outlined in greater detail in our upcoming Knowledge Insights #3. Access to our Knowledge Insights can be obtained by subscribing to our mailing list via our website www.mooresfamilyenterprise.com
 Charles Duhigg is a Pulitzer prize-winning reporter at the New York Times and author of The Power of Habit: Why We Do What We Do in Life and Business, which has sold over 1 million copies worldwide and spent over 90 weeks on New York Times’ best seller lists.
Finally, succession of ownership is another stage of transition from one generation to another. This often represents the severing of a technical connection to the business for the incumbent in place of one that is more emotional. While it can occur at one point in time it is often preferable if it occurs over an extended period. Depending on prevailing regulations tax consequences may make transitions very difficult. Family relationships are often impacted at this point as well that can often add stress to a new leader. If the business represents the largest asset of the current owners, there is often an inclination to share ownership with the next generation in the business as well as those who are not in the business. This can lead to sibling power struggles and frustration for all.
If the ownership transition is not structured well, the outgoing leader may not have sufficient capital to sustain his or her lifestyle, or the successor may not have a business sufficiently capitalised to continue successfully. There are many considerations and strategies that can lead to successful succession of ownership, which accountants, lawyers and financial planners can address as they organise the business and plan for such effective transitions.
When leaders of family businesses think about succession planning, typically they are thinking of who will replace the Chairman or CEO – i.e. who will manage the family business. Some go further to think about who will own the business when the current owners are gone: succession of ownership. But we have found that what differentiates succession in a family business context is that it is defined by seven dimensions, not just two.
These seven dimensions of succession planning should be addressed in a process that begins with a vision: what is the future that the family envisions for itself and its assets? When the family considers its future together (rather than just the family leader), it increases the prospect that the transition to the next generation will be successful. Having an open dialogue that includes the individual and collective vision and goals of family members helps everyone consider how they can support each other in achieving individual aspirations and how the family assets play into this future. This open dialogue should be continued in exploring what talents and perspectives are needed in all roles in order to achieve a shared vision for the family and the business.
The distinction between power and authority is subtle but important. power is the capacity to influence the behaviour of others, while authority is the extent to which a person’s power is viewed as legitimate. Successors in family business often have power as a result of being members of the family, but they may lack the authority needed to effectively lead the firm.
As noted below succession essentially has next generation leaders moving from learning about the family business to learning to lead the business. This of course requires incumbent leaders to move from leading the family business to learning to let go and one of the challenges of family business, particularly entrepreneurial ventures, is the inability of a leader to let go of control. The leader may recognize the need to have a successor; that he/she won’t live forever. However, identifying a successor and letting him or her have the power and authority to take the business in new and different directions is another matter! In our experience there are two important aspects to this letting go: having something else to do and having confidence and trust in those taking over.
Defining a meaningful role for the outgoing leader is extremely important and those associated with passing on values to grandchildren, being a brand ambassador, or serving in the industry groups and associations can all provide meaning to post- executive roles.
Establishing confidence and trust in a successor’s ability to lead the family firm can be facilitated by progressing the aspirant(s) through various levels of managerial responsibility prior to any hand-over. These progressions need to move beyond authority for just cost or revenue centres in the business to those that have profit responsibility. That is where trade-off decisions have to be made even if it is only for part of the business the experience with this level of authority is an essential part of the preparation for both incumbent and aspirant.
Once the successor has aquired some basic business skills, he or she can move on to developing the capabilities and qualities associated with leadership. The successor’s focus at this stage stretches beyond the present – to when he or she will be ultimately responsible for business operations.
Our experience is that effective family business leaders have insight: to business, to family, and to self. Many of the prior steps to succession planning will serve to nurture and develop successors through various operational roles build insight to business and self.
Engaging with the family, especially if the family business has also embraced governance that involves both business and family governance, will serve to develop the necessary insights to family. If the family governance processes involve education and communication over time then those ultimately selected for leadership will be those that know how to manage the dynamics of both family and business. Securing the commitment of family as owners, successors need to be able to articulate strategic visions for the family enterprise driven from the family’s values and shared by all.
However in family businesses, the functions of leadership may be shared among owners and/or family members who run the business (these may or may not be the same people). Thus, transitions in leadership can be complex in that it may not be one leader passing the baton to a single successor. The presence of an effective board of directors working in conjunction with a family council can however alleviate much of the difficulty. The Board of Directors and the CEO can share the leadership function. The Board, when informed of family expectations conveyed through family governance mechanisms can help create the vision and formulate the strategic plan business. The CEO is typically responsible for implementing the agreed strategy.
In previous posts we have talked about the succession of values, knowledge, relationships and networks. Each of these is laying the groundwork for next generation leaders by helping them learn about business and more importantly about OUR business. The next stage takes us into the next quadrant of the learning phases – management of the family business.
A strong successor development programme provides the best chance of maximising the potential of the next generation talent pool for leadership selection. It can assure the business of management depth and breadth into the future. It also provides the family the best chances of retaining talented members of the next generation. And it can also support the development and retention of important non family managers as the business grows.
In family businesses, the same person often serves as leader and manager of many functions. But oftentimes, he or she fails to step back and work on the business (i.e. leadership) vs. work in the business (i.e. management). While the transition to leadership needs to be marked by the ability of aspirants to move from a focus on the micro dimensions of managing to more macro considerations of where the firm as a whole is headed it is imperative that aspiring successors can demonstrate their ability to manage others to achieve these desired outcomes before being considered for higher (leadership) office. Simply put, management is getting things done through other people. This capability highlights the prior proficiency of self-management on the grounds that it is difficult to manage others if one cannot manage oneself. In short, managers assure that proper steps are taken to achieve desired outcomes within the constraints of allocated resources.
Our third stage of succession follows neatly on from the previous and involves the perpetuation of the family firm’s relationships. These relationships are important for the successors in creating their professional networks.
An important component of knowledge that can be passed on to advantage in family firms is relationships. In fact successful transitions require key relationships to be turned over to successors. These relationships can be both internal and external. The external relationships are the networks that prior generations have established over extended periods. While it is important not to assume all families are the same evidence has emerged that in their efforts to create trans-generational wealth enterprising families behave more like family groups. Their networks of relationships are both close and are often with other family businesses.
Following succession customers, suppliers, employees, owners and advisors must all see that the successor is truly in charge and leading the firm. If he or she is CEO in name only, the relationships will stay with the predecessor and the transition will likely fail. Successors of course have to earn the trust of all of these stakeholders, but this can be facilitated by the previous leader as part of the transition process.
The second of seven stages of succession we have identified is that of knowledge and the conversion of theoretical to practical proficiencies.
Incumbent leaders often struggle with letting go because they feel their successors do not know enough to run the business. Trust and respect for their leadership abilities has been inadequately developed. Are they proficient in the knowledge and skills to lead the business? The next generation may have learned a lot over time, and have undertaken formal education that helped, but the transition from theoretical to practical knowledge takes patience and mentoring. The transition of knowledge and wisdom from elders may have been sporadic.
It is critical that the succession planning process include an assessment of what competencies and knowledge a leader will need to take the company where it is going rather than where it has been. In our experience the proficiencies that family business leaders need to develop is dominated by self-management, people skills, practical knowledge, and on-going learning. These generic skills ranked ahead of technical knowledge of accounting and marketing. For aspiring leaders the development of these generic skills is generally best commenced by some time working outside of the family business.
Our last post introduced the idea that preparation for leadership of the family firm and successful succession requires not only the acquisition of knowledge and skills to lead a business but also the internalisation of values and visions of the family to be able to maintain their commitment, support, and harmony.
Succession of Values: continuing differently
We commence with an exploration of the underlying values that represent the cornerstone of the family’s operation of the business so as to emphasise the necessity for these to be passed on in the interests of continuity as a succession of values.
For leadership succession to occur a successor must demonstrate that his or her values are congruent with that of the dominant coalition that could well be led by the predecessor. That is, are they capable of perpetuating the values of the family in business? If the firm has built a reputation for taking good care of its employees and customers alike that has engendered loyalty enabling the firm to grow and prosper, then it is imperative that the successor places the same importance on caring for these stakeholders. But in this case it is the philosophy of stakeholder care that is to be internalised and not necessarily the practices of the past as “the way we do things around here” that have to be perpetuated. Indeed the paradox implicit in this succession of values is the notion of continuing differently. Incumbents and broader stakeholders need to tolerate this difference provided that the underlying values are preserved because constancy of reliable values has been found to generate value in the market place.
Have your family articulated your values? Are they widely communicated to all stakeholders?