From legacy to leadership: How structure drives family business success
ILLUSTRATION BY RUTH MACAPAGAL
A lot of our clients around the world are family businesses. They face unique challenges and opportunities. In the realm of business, few endeavors are as complex and rewarding as a family-owned enterprise. With its roots entwined in shared history, values and aspirations, the family business is a unique blend of tradition and innovation. Yet, beneath the surface of familial harmony lies a potential dilemma—the lack of structure.
My team and I have witnessed first-hand the dance between familial bonds and business acumen. We see this again and again with our clients when owners ask us to “professionalize” their business because they lack structure and a high level of professional organization. This even applies to multibillion-dollar conglomerates at times. In my journey, I’ve encountered a wide variety of family businesses across many industries, each with its own tale of triumphs and challenges.
Picture this: a family business rooted in generations of heritage, fueled by entrepreneurial drive, yet adrift in a sea of ambiguity. Without clear delineation of roles, responsibilities and decision-making processes, such enterprises often find themselves grappling with a host of challenges.
Ambiguity surrounding authority and leadership
Foremost among these challenges is the ambiguity surrounding authority and leadership. In the absence of a structured hierarchy, power dynamics within the family business can become a breeding ground for conflict and confusion. Sibling rivalries, parental favoritism and generational clashes are often common, eroding trust and undermining cohesion.
Moreover, the lack of structure can impede strategic planning and execution. Without a formal framework for setting goals, allocating resources and measuring performance, the family business may struggle to adapt to changing market dynamics or capitalize on emerging opportunities. Decisions may be driven more by emotion than by rational analysis, leading to shortsightedness and missed chances for growth.
One of our clients, the ultra-high- net-worth owner of a highly profitable family business conglomerates spanning across several industries, often found himself in such a dilemma. He wanted to “hire and fire” on a whim, without properly thinking things through. After he requested our support to grow his profits 10x, we established a clear system of checks, balances and structure so he would have a foundation to make his best strategic decisions. On top of that, we coached him and analyzed his best professional decisions to date and their commonalities. This empowered him to distinguish better between good and bad decisions and allowed him to optimize his strategic moves.
Family feuds
Another critical aspect affected by the absence of structure is succession planning. In a family business, the transition of leadership from one generation to the next is a pivotal moment fraught with complexity. Without a clear road map for identifying and grooming future leaders, the business risks facing a leadership vacuum or succumbing to discord among family members vying for control.
Furthermore, the lack of structure can hinder professional development and accountability. In a meritocratic environment, individuals should be rewarded based on their performance and contributions, rather than familial ties or personal relationships. However, without transparent processes for evaluation and advancement, resentment and disillusionment may fester among talented employees who feel their efforts go unrecognized.
Prominent examples
Here are a few famous real-life examples of structurelessness causing issues in family businesses:
- Ford Motor Company: One of the most iconic family businesses in history, Ford Motor faced significant challenges due to structurelessness during the mid-20th century. The company was founded by Henry Ford and later led by his grandson, Henry Ford II. However, internal power struggles among family members and executives led to inefficiencies and conflicts. The lack of a clear succession plan and governance structure resulted in turmoil within the company. Eventually, in the 1970s, the Ford family brought in professional management to restore stability and drive the company forward.
- The Redstone family and Viacom: Sumner Redstone built a media empire that included Viacom and CBS Corp. However, as he aged and his health declined, conflicts within the family over control of the business intensified. Redstone’s daughter, Shari Redstone, and other family members clashed with executives and board members over strategic decisions. The lack of a clear succession plan and governance structure led to legal battles and public disputes, ultimately impacting the company’s performance and shareholder value.
- The Koch Industries: One of the largest privately-owned companies in the world, Koch faced challenges related to structurelessness in its early years. Founded by Fred Koch and later expanded by his sons, Charles and David Koch, the company initially struggled with family infighting and disagreements over business strategy. The lack of a formal governance structure and succession plan led to tensions among family members and executives. Over time, the Koch brothers implemented corporate governance reforms and professional management practices to address these issues and ensure the company’s long-term success.
Practical steps to sustainable success
So, how can family business owners navigate the treacherous waters of structurelessness and steer their enterprises toward sustainable success?
The first step is to acknowledge the problem: Denial only exacerbates the underlying issues, while proactive recognition enables the family to confront challenges head-on and initiate meaningful change.
Second step, establish a clear organizational structure: Define roles, responsibilities and reporting lines to provide clarity and accountability. Embrace professionalism and meritocracy, rewarding competence and commitment above nepotism or favoritism.
Third step, communication is key: Foster an open and honest dialogue among family members and employees, encouraging feedback and collaboration. Cultivate a culture of transparency and trust, where concerns can be addressed constructively and conflicts resolved amicably.
Fourth step, invest in professional development: Provide training and mentorship opportunities to empower individuals to fulfill their potential and contribute effectively to the business. Encourage continuous learning and innovation, fostering a culture of adaptability and resilience.
Above all, prioritize the long-term sustainability of the family business. Develop a strategic vision and road map for growth, aligning the interests of the family with the needs of the business. Embrace change as an opportunity for evolution and renewal, rather than a threat to tradition or legacy.
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].
