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Developing Leadership in the Family Business

I recently came across an article in the Harvard Business Review that hit home for me as a family business consultant. Titled Turning Potential into Success: The Missing Link in Leadership Development, the article describes what corporations are doing to grow the next crop of leadership – and where they are failing to succeed in their mission.

Even though according to research from the Corporate Executive Board, 66% of companies invest in programs to identify and mentor high-potential employees for leadership positions, only 13% of senior executives at these companies have confidence in those rising leaders. In fact, 30% of new CEOs are hired from the outside.

Where is the disconnect? The authors contend that lack of talent is not the issue – as plenty of employees deemed future leaders tick all the boxes where talent is concerned. More likely, the inability to groom the next generation comes from a failure to execute a leadership development plan that considers the emotional aspects – including motivation. To be sure, there isn’t a lack of “motivated” leaders out there. Defining the right motivation, however, is the trick.

How to Develop Motivated Leaders

Family-owned businesses face the same pressing issue of identifying and grooming the next generation of leadership as corporations do – and both have given short shrift to the emotional aspects of building successful leaders. However, in my experience as a family business advisor, where corporations tend to eschew personal motivation in favor of more black and white statistics, family-owned businesses tend to overlook this important emotional aspect for a different reason – they’ve already “chosen” the next leader of the company.

Crowning a new leader on family affiliation alone can spell trouble if not executed properly, and most family businesses, unfortunately, do not invest in the necessary succession planning and leadership training needed to ensure the next generation succeeds. As a result, many run into complications that can affect a business for years down the road.

The authors of the article list four steps corporations must take to successfully identify and groom new leadership:

  • Defining crucial competencies
  • Assessing potential based on predictive qualities
  • Creating a growth map
  • Providing high potentials with the right development opportunities

All of these steps apply to family businesses, but I’d like to amend it to add a few more.

Define the Company Culture

Culture is the driving engine behind many family businesses. If the new leader doesn’t fit the company’s culture, their skill in other crucial competencies will be rendered moot. Successful family businesses are ones in which the new generation of leaders adopts the established values of the previous one. A change in leadership can be traumatic for employees. If that change includes abandoning the company culture they know and love, they may lose respect for the new leadership. Of course, this doesn’t mean a new leader can’t put their stamp on the company. Leaders who advance – but don’t abandon – the company’s culture will be successful and gain the respect of their employees.

Find the Right Fit

Depending on what your business does, there will be different crucial competencies the company’s next leader will need to excel in – be it finance, sales, etc. Identifying the core skills necessary to run your business is the first step in a grooming new leadership, but just because a future leader may not be an all-star in a certain part of the business, does not mean they cannot lead. Finding where in the business the future leader fits is crucial – and it might not be where you imagine.

As a family business advisor, I worked with a family engineering business in which the founder and CEO was a skilled and decorated engineer. His son, who was being groomed to take over when his father retired, was not an engineer – which caused the father some consternation. The son, however, turned out to be an expert in business optimization strategy and helped improve the company’s operations immediately. Finding the right fit – for both the new leader and the business itself – will lead to success in the long run.

Start Early

Succession planning should start early – at least 5 years before a transition of power. Use a portion of this time to give the next generation a chance to discover the commitment and passion necessary to lead the company into the future. Long-term planning will give your company the chance to choose the right leader, and put them on the right path to prepare them to take the reins when their time comes.

Conclusion

In order for a family business to develop future leaders, the existing leaders need to coach and mentor potential candidates, pair them with the right opportunities, and most importantly – give them the support they need to thrive.

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