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The issue of succession is critical for any family business. Yet research shows that few have in place a clear plan for leadership succession that includes a talent development program. The desire to preserve harmony and avoid conflict can result in families being taken “hostage” to their fears of new leadership and the challenge of succession can be so emotionally charged that many family business leaders avoid confronting this issue in an effort to preserve family unity at all cost. Fearing that the discussion will cause damage to the company and to the family members, they choose instead to put their head in the sand creating open or hidden power struggles. Professor George Kohlrieser, Professor of Leadership and Organizational Behaviour at the International Institute for Management Development (IMD), Switzerland, and author of the internationally bestselling book “Hostage at the Table: How Leaders Can Overcome Conflict, Influence Others, and Raise Performance” (Warren Bennis, 2006) writes of the fears of change in succession and of the leader’s role as a secure base for family and business.
“The first test of greatness in a CEO is how well he (she) chooses a successor and whether he (she) can step aside and let his or her successor run the company.” Drucker, 2004.
The ultimate legacy of great family business leaders is to: firstly, ensure that the company and the family can survive leadership transitions and, secondly, serve as a secure base to family members and employees as the baton is passed to a new generation. The reality is that often the opposite happens in that family business leaders block or even unconsciously sabotage the effective transfer of leadership and the related power.
Business succession can bring with it uncertainty and doubt; family members and employees can be anxious because they do not know what lies ahead. Succession is particularly challenging in family businesses, where personal attachments are more dominant and therefore more vulnerable. The balance of power changing can affect existing relationships between parents and children, siblings, and extended family members. The long tenure period typical of a company founder and/or leader can result in company identity being too closely intertwined with their persona. According to Ernesto J Poza (2010) the average tenure of CEOs in family-owned businesses is more than double that of CEOs in management controlled companies (17 versus 8 years). After such a long time, the positive transition of leadership is the ultimate test of a great leader who wants to leave an enduring successful business legacy.
The Period of Transition
There are typically three stages during a family business leadership transition:
1. An ending that involves a certain form of loss, a need to let go of many things, and a saying good bye to former structures and habits.
2. A period of confusion and disorganisation as everyone struggles to find and adapt to a new order.
3. The final stage is characterised by a look toward new beginnings with new identities and new mindsets that will emerge following the succession phase.
Many family businesses going through succession get stuck in the ‘grief process’ – grief for the loss of roles, territory, people, structure, control, the past ways of doing business. The process is emotionally charged, with family members both personally and financially linked to the business transition. Often the company’s identity is so intertwined with the leader’s identity that it seems impossible to envision a new order. Change is seen as a criticism or disloyalty to the outgoing leadership.
The success of outgoing leaders in managing a business transition depends on their ability to acknowledge the many emotions and uncertainties involved in this change and then to help everyone involved in the family and throughout the company to cope with the consequences. The key problem is often denial of the emotional impact and the refusal to know when to let go and pass the power to the next generation with trust and ultimately with joy and enthusiasm. You cannot fully welcome a new leader until the past leader has been attributed a different position in the family business system. The question is how successfully everyone goes through these changes. It ultimately paves the way for successors to move forward, to forge new bonds, and to create a new identity for themselves and for the organisation. Failure to go through the emotional and business change process can doom the new leader to failure, massive stress, conflict, and ultimately result in lost opportunities for the company to thrive and grow. The best-case scenario is for the former leader to let go, and to find a new mindset and a new identity based on being a guiding force rather than an active operator. Wise leaders realise that there comes a time to let go and move on.
Leader as a Secure Base
The best leadership transitions occur when there are secure base leaders who create trust.Great leaders create a sense of security, even in the most uncertain environment; followers feel protected from the negative consequences of uncertainty and the related anxiety. Once the correct mindset is in place, the behaviour and language of the leader becomes their most powerful tool to influence and persuade others to collaborate and stay fully engaged to the new leader.
For change to be successful a key condition is that people feel secure even in an insecure environment. It is then critical that the outgoing leader provides a sense of protection to family members and employees, and to communicate the benefits of the change. Neuroscientists now recognise that the brain’s natural instinct is, in fact, to search for every negative aspect it can find to protect itself; the natural human impulse is to remain in a state of alert during periods of stress and change in order to identify danger. However, when trusted leaders give a sense of security, that instinct towards negativity is shut down and the brain looks for opportunities in the change. During the succession process, the outgoing leader must demonstrate that change, and not fear, is what should be embraced as the new leader takes over. To accomplish this transfer of trust and protection, there must be a focus on resolving conflicts, both personal and organisational. Contrary to popular belief, people do not naturally resist change – they resist the pain of change and the fear of the unknown. When past leaders and new leaders create that sense of protection, others are likely to follow. In order to move forward, an outgoing leader in any family business must work to create positive attitudes in family members, employees and clients to embrace the new order and look at the advantages of change and not the losses.
Family businesses need to use the bonding cycle – recognising the need to acknowledge and experience grief – to lay the foundation for a successful new chapter in the life of the leadership, the family, and the company.
Dialogue is key
The naming of a successor can result in jealousy and blame, leading to polarisation and weakened bonds within the family. A plethora of negative emotions and suffering can ensue; feelings of being overlooked, of sibling rivalry, of disloyalty to the older generation. In this situation, it is not enough for the outgoing leader to use authority and hierarchical power. The transition requires instead the use of persuasion, influence and thoughtful dialogue to recreate or maintain a bond with all parties involved.
It is this process of bonding that lays the foundation for a successful transition. Leaders during a transition must maintain the bond between those involved in the succession, keep a positive focus on the desired outcome, and end with a successful transition. By mastering this process the outgoing leader can focus on the positive and look beyond the present and help others refocus on common goals – the ultimate well-being of the family and the business.
Identity and talent development
There are many advantages to being part of a family business, including the high emotional bonding and security. However, there are also psychological costs. If the next generation has not developed their leadership talent, serious problems can result. Often next generation leader’s efforts to test their own strength, to innovate, and to risk trusting their own judgment is met with opposition and hostility. The generational difference can become a chasm dividing parents and children.
In many cases, succession is a transfer of power from parent to son or daughter. Here the role of secure base is of particular significance. As a parent, the role is to provide safety, security, comfort and reassurance. However, there is a second critical dimension to being a secure base; it enables and encourages exploration in taking risk and seeking change. The final test of the family business leader is allowing the next generation to take risks, test their strengths and competencies, and to contribute to the evolution of the business. All these experiences in fact start in childhood and over time wire the brain to be a leader. Parents in leadership positions within the family must allow their next generation to test their wings – which will naturally include failure. By allowing the new generation to express their identity, the outgoing leader is allowing them to take calculated risks. Former leaders must allow successors the freedom to write a new future. When that happens, succession is working at its best to ensure success generation after generation, with each generation respecting and adding to the legacy.
Tharawat Magazine, Issue 7, 2010