A consistent findings 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. You cannot keep a family business performing well over many years just focusing on the business. Family unity, united ownership and ownership support of the business are just too important to ignore or take for granted.
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 do not make all the important decisions in these systems neither do they provide all the guidance. They do not allocate all the resources. But because they have considerable authority, influence, and control over resources, we rely on them to do their part in setting direction and guiding their group.
How do you design, structure, and allocate all the leadership roles you need?
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 all other 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 do not have adequate stability. The family business system absolutely must be governed, and governed well for success.
Good governance for any group 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.
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 (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.
Leading is a very personal activity where the leader connects with people and convinces them, making use of compelling ideas and character appeal. Followers follow the leader because of their loyalty, because they identify with the leader’s cause, and sometimes because of all of those things. Followers need compelling reasons to file 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. As the saying goes, you lead people into battle; you do not manage them into battle.
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. It is natural for CEOs, 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 business families 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.
In other words, more problems in families are 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 have not 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 have not 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.