When dictatorship works

Democracy is better than dictatorship, right? Not necessarily, at least in the case of family businesses.

In the early years, when the family business is just struggling to survive, many founders by necessity ruled by dictatorship. Their power is unchallenged, and they expect employees to obey without asking too many questions.

Instead of consensus, founders make decisions based on their experience or even gut feel. Not only are they the founders, they are also the patriarchs or matriarchs, the prime entrepreneurs, the dominant owners. They manage day-to-day affairs with strict supervision, in the belief that only under an authoritarian system can employees be most productive and profit be maximized.

Founders do what we call “micro-managing,” mainly because they practically have no other choice. Through detailed instructions, they expect employees not to ask too many explanations for how and why things are run. At times they may listen to trusted and loyal employees, but they do not necessarily have to implement the latter’s suggestions.

If the founders believe that only they can do things well, they then tend not to share much information with anyone. They dole out bits and pieces (for example, financial statements that leave out a lot of transactions) to others so that no one else can see the big picture. Since employees do not control the flow of information, they have to rely on the founders’ directions.

Dictators often set business goals on their own. Communication is primarily downward and one-way. But founders often cite efficiency as the reason for their being autocrats.

Advantages

The biggest advantage of a dictatorship is it enables quick and decisive decision making, as compared to consensus-building. “Too many cooks spoil the broth,” as the saying goes. A dictator believes that only he can make the broth taste the way it should, and he brooks no interference.

Since only one person sets goals and makes choices for the entire family business, then decisions can be arrived at quickly, a boon when the business needs to act fast.

A dictatorship is also a boon when the family business consists of mostly unskilled or inexperienced employees. “Authoritarian leadership is effective when there are new or untrained employees who need to know which task to perform or which procedures to follow, when new or untrained employees need supervision with detailed orders and instructions,” say Jakarta Consulting Group’s A. B. Susanto and Patricia Susanto.

When resources, such as time, are at a premium, a dictatorship gets things done fast, if not well. The Susantos give as examples situations “when there are high volumes of production needed and only limited time to make a decision.”

Just like in a nation or a region, when crises erupt and chaos results, sometimes martial law is imposed, though for a limited time. The same is true of family businesses. Sometimes, for whatever reasons, employees do not respect any leadership style (especially democratic) and keep on challenging authority for no valid reason, resulting in chaos for the business. In this case, a (temporary) dictatorship can be established to prevent the business from going under.

Benevolent dictatorship

In a democracy like the Philippines, strict dictatorship in family businesses seldom exists. Instead, founders act as benevolent dictators, with overall control over the business and decision making, but with genuine concern for the individual and group well-being of employees.

These father or mother figures take care of employees the way parents do their kids. Paternalistic leaders look out for their workers, but in exchange, they expect and receive complete loyalty and deference. Employees are expected to stay with the family business for a long time, and treat each other like family inside and outside the business. Employees under benevolent dictatorship are less likely to be pirated by competitors or even to work outside on their own.

Several disadvantages exist, of course. In a benevolent dictatorship, founders may be accused of favoritism, much like parents in a family.

Under a dictatorship, whether benevolent or not, employees may resent the fact that their voices are not heard.   Fear or tension results, leading to absenteeism or outright defiance.

When a business grows and relies on more people with diverse personalities, it may be time for democracy.

Next Friday: When Democracy Works

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