When democracy works

We learned last week that when family businesses are just starting out and founders have more knowledge, skill, and experience than the employees, a dictatorship leadership style may work best.

When decisions need to be made quickly and decisively, dictators can ensure that businesses avoid waste and maximize efficiency.

Under a benevolent dictatorship, run by charismatic father and mother figures, employees readily give their trust and loyalty in exchange for stable jobs and other benefits promised them by the founders.

When the business grows

When family businesses grow, and employees are skilled and motivated, a dictatorship does not work well.

Skilled employees demand to be heard. They also want their suggestions to be taken into serious consideration and implemented, if necessary.

In a democracy, leaders provide employees as much information and resources as possible for them to do their work effectively.

They allow, and even encourage, employees to make decisions and to take initiatives.

They have no problem with debate and free flow of ideas, believing that freedom of expression can lead to innovations and fresh solutions.

In a democracy, leaders allow and even expect employees to set their own goals, as long as these are aligned with the business.  Leaders encourage self-development (e.g. they give time off with pay for employees who become leaders in church groups) and reward achievement.

Just like in a political democracy, leaders give their employees freedom to do their job in whichever way they choose, as long as they are aligned with company objectives.

Instead of micromanaging, democratic leaders encourage innovation and initiative, and trust employees to achieve aims through sensible ways.

A democracy works when employees have sufficient skills, knowledge, experience, education, and motivation.

When employees find meaning in their work and take pride in what they do, then they do not need detailed instructions or commands.

When employees have a stake in the mission and vision of the business and trust that the owners have their wellbeing in mind, then they are more likely to be self-motivated enough to do their jobs well.

It seems as if democracy is best for family businesses, just as history has shown that political democracies are the longest lasting of all national systems.

When democracy does not work

“Although [democracy] seems ideal, this kind of leadership style is not always suitable,” say Jakarta Consulting Group’s A. B. Susanto and Patricia Susanto in their book “The Dragon Network.”

“It must not be used when roles are not clearly defined and there is a time limit, because it will create problems in communication and hinder project completion.  It must also not be used when mistakes and failure will cost the company a huge loss (not just financially), and when safety and security are at risk.”

Democracy does not work as well when “followers do not feel safe when their leaders are not around, when leaders cannot make suggestions regularly, and when followers do not understand their responsibilities.  If a … family business leader wants to adopt this style, he or she needs to instill a sense of pride in both the family members and the non-family employees.”

A good mix

A judicious mix of dictatorship, paternalism, and democracy likely works best for family businesses.

Most family businesses expect family members to retain control of the company, and do not reveal every bit of information even to trusted employees.

But instead of being absolute dictators, many founders today encourage discussion and debate among employees, and listen to their suggestions.

They provide guidance and support, and do not react negatively when employees disagree with their ideas.

They expect their would-be successors to be well-trained and experienced, studying in top universities and working for top companies before entering the business, which means they welcome fresh ideas and innovations.

Wise founders empower employees by encouraging them to develop themselves and promote them accordingly.

They are available to help employees in the business sense, and sometimes even in personal ways. They give employees both the freedom to work well and the guidance not to abuse that liberty.

Wise patriarchs, instead of acting like dictators, become wise parents who also “provide emotional support, keep communication open, protect family values, make sure that the family get together to socialize and have fun …[and] act as mediator for any conflict.”

Next Friday: A conversation with the scion of one of the country’s top business families.

Queena N. Lee-Chua is on the board of directors of Ateneo de Manila University’s Family Business Development Center. Get her book “Successful Family Businesses” at the University Press (e-mail [email protected].) E-mail the author at [email protected].