Do you look at passing on your business as a necessary dirty job or do you view it as a “fatherly” (or motherly) duty to your successors and employees? Interestingly, your leadership style may define your view. Recently released research in the Journal of Family Business Strategy sheds some light on which leadership qualities are most desirable in facilitating a business transition- and which ones are toxic.
Before we dive into the study, let’s remind ourselves of the failure rates among family business transitions. More than 70% of businesses fail into the second generation and the failure stats just skyrocket from there. As a leader in your business, you have the most influence over how the succession process will go and its success.
The recent research identifies three major types of leadership. These types translated directly into success or failure rates through family succession transition. The three types were:
1. Authoritarian- He or she asserts control and expects unquestioned obedience from subordinates.
2. Moral- He or she leads with superior personal virtues and by example.
3. Benevolent- He or she respects subordinates, cares for them, satisfies their needs, and provides with support and understanding.
Two of the leadership types are indicative of successful transitions and one is associated with unsuccessful transitions.
Any guesses on which one causes problems with transitions?
You guessed it. Business leaders who think they are the superior expert on matters and think they know best for all involved are the ones who stick a self-inflicted dagger into the long-term success of their enterprise. These leaders are characterized by their know-it-all juxtaposition and usually are unable to let go of the business and let the successors make it their own. Usually, authoritarians make decisions unilaterally and without input. These unilateral decisions usually lead to successors feeling dissatisfied and unmotivated to carry on. Authoritarian leadership works well in certain stages of the business cycle. Their tenacity and determination probably contributed to much of their success at this point, but when it comes to transitioning to the next generation or employees, authoritarians’ put, unknowingly, their reputation, their legacy and a very valuable asset (their business equity) at risk.
So, what do you do when your leader(s) shows some characteristics of an authoritarian and the company is in need of discussions of succession? Here are a few options:
1. Engage a business mentor.
Hire or enlist someone that is respected by the leader. Look for someone that has more experience with a bigger, more successful company. This mentor will have the ear of the authoritarian and the wisdom to impart the needed “honest truth” that the authoritarian may need to hear.
2. Hire an objective third-party professional to facilitate the transition.
An objective outsider can bring “fair process” to the planning process. This strategy is essentially bringing the benevolent leadership style of successful transitions from outside. These professionals know how to care for and listen to the needs and goals of all parties for the preservation of wealth and reputation of the authoritarian and his successors.
3. Speak up.
If you are the authoritarian, be honest with yourself and get the courage to have the tough conversations with your potential successors about their goals, needs, and wants. If you are the successor, stand up and speak up for your needs and desires. Look the authoritarian in the eye and demonstrate that you have what it takes to stand up to them and run the company. Although, they may not appreciate it at the time, it shows him that you have a backbone and are a worthy candidate for the job. Family business expert, Wayne Rivers writes, “Strong leaders appreciate and expect strength in their successors.”
4. Hug and say “No, thank you.”
Just like taking a job to work at or run a different company, the successor must evaluate if the opportunity meets his or her long term needs and goals. If not, you need to approach it just like it was any other opportunity. As successors, we think this is the best opportunity we will ever get and that “sucking it up” will be better for family relations. The truth is, however, a failed business transition breeds more resentment and dysfunction for both the business leader and the successor than the minor road bump of standing up and saying, “I love you, but no thanks.”
