The dynasty dilemma: Secrets to balancing family and external leadership in family businesses

ILLUSTRATION BY RUTH MACAPAGAL

As a “global management guru,” as Bloomberg has called me, I deal with family businesses, their owners and their top management teams every week in many different parts of the world, together with my team. We’ve observed that one of the most significant and common challenges these businesses face is to find the right balance between family and external leadership.

This balance ensures the longevity and prosperity of the business. By following a few practical steps, family business owners can create a dynamic and sustainable leadership structure that propels their business forward across generations.

Understanding the challenges

Balancing family and external leadership in family businesses is a multifaceted challenge, primarily because it involves not just business decisions but also family dynamics. The emotional attachment, differing visions among family members and the pressure of preserving a legacy can complicate the process. Statistics suggest that only about 30 percent of family businesses survive into the second generation and a mere 12 percent make it to the third. This stark reality underscores the importance of effective succession planning.

Walmart: A practical lesson of the world’s largest retailer

Walmart offers a compelling case study in managing succession planning in a family business. Founded by Sam Walton in 1962, Walmart has successfully navigated leadership transitions while maintaining its family influence and values. Rob Walton, Sam’s eldest son, succeeded the founder as the chair, maintaining the family’s presence in leadership. However, the CEO role has often been filled by nonfamily professionals, exemplifying a strategic approach to blending family involvement with professional management.

It’s a case in point that the positions should be filled by merit and competence, and by matching the unique skills of each individual with the right positions. I have worked with and advised many families where the chair was a family member, but the actual CEO running the day-to-day operations was not.

Ford Motor: Balancing family and external leadership

A classic example of balancing family and external leadership done right is the Ford Motor Company. It’s a company where leadership has successfully transitioned through multiple family generations. Ford’s strategy has been to blend family leadership with external expertise. For instance, Alan Mulally, an outsider, was brought in as CEO to revitalize the company, while William Clay Ford Jr., a family member, served as executive chair. This blend ensured that while the family’s values and legacy were preserved, the company also benefited from external perspectives and skills.

At Ford, balancing family and external leadership was evident when Alan Mulally was brought in as an outsider CEO, while the Ford family maintained significant influence. Mulally’s fresh perspective was crucial in turning around the company during difficult times. However, the family’s presence, particularly through William Clay Ford Jr., ensured continuity of the company’s core values and long-term vision.

Ford’s forward focus

Ford’s model teaches us that balancing family and external leadership can be a key to successful succession. Family members can maintain strategic positions, ensuring that the family’s values and vision continue to shape the business. Simultaneously, external leaders can bring in fresh perspectives, professional management skills and industry-specific expertise.

Balancing family and external leadership in a family-owned business is a nuanced and vital strategy for ensuring long-term success and innovation. This approach helps maintain the family’s vision and values while leveraging the diverse perspectives and expertise of external professionals.

This requires thoughtful planning, clear communication and a commitment to blending the best of both worlds. This approach not only preserves the family’s legacy but also infuses the business with fresh ideas and practices necessary for modern success.

Practical steps

Here are practical steps business owners can take to implement this strategy:

Step 1: Assess business needs and leadership gaps.

Objective: Identify areas where external expertise is needed.

Conduct a thorough business analysis: Evaluate the strengths, weaknesses, opportunities and threats (SWOT) of your business.

Identify skills gaps: Determine what skills, experiences and knowledge are missing in your current leadership team.Step 2: Define roles for family members.

Objective: Establish clear roles for family members based on their strengths and interests.

Develop a family employment policy: This should outline the qualifications and experience required for family members to hold key positions.

Encourage professional development: Support family members in gaining education and experience outside the family business.

If family members are still not qualified and not coachable or just lack the drive, the motivation and the desire to lead, don’t force-fit them into positions because it could cost your business dearly. Positions should always be filled by competence, not by having the right name.

Step 3: Integrate external expertise.

Objective: Bring in external professionals to fill specific leadership roles.

Recruitment and selection: Focus on hiring nonfamily executives who share the company’s values but bring diverse experiences.

Create an inclusive culture: Foster a work environment where both family and nonfamily members feel valued and heard.

Step 4: Establish a governance structure.

Objective: Create a system that balances family and professional management interests.Set up a board of directors: Include family members, external executives and possibly independent advisors.

Define decision-making processes: Ensure clarity in how decisions are made, with input from both family and external leaders.

Step 5: Facilitate effective communication.

Objective: Maintain open lines of communication between family and external leaders.

Regular meetings: Hold routine strategy meetings where all stakeholders can share insights and perspectives.

Conflict resolution mechanisms: Establish clear procedures for addressing disagreements or conflicts.

Step 6: Plan for succession.

Objective: Ensure a smooth transition of leadership roles.

Succession planning: Continuously update your succession plan, considering both family and external candidates.

Mentorship programs: Pair up-and-coming leaders with current leaders (both family and nonfamily) for knowledge and experience transfer.

Step 7: Measure and adjust.

Objective: Continuously evaluate the effectiveness of this balanced leadership approach.

Performance metrics: Use key performance indicators to assess the impact of leadership on business success.

Feedback loops: Create mechanisms for regular feedback from employees, customers, and other stakeholders. INQ

Tom Oliver, a “global management guru” (Bloomberg), is the chair of The Tom Oliver Group, the trusted advisor and counselor to many of the world’s most influential family businesses, medium-sized enterprises, market leaders and global conglomerates. For more information and inquiries: www.TomOliverGroup.com or email

[email protected].