How to cultivate leadership in a family business

Leadership is an elusive skill — one that many businesses spend a lot of time and energy trying to develop. It is also a critical function that can determine a business’ ability to survive and thrive.

This is particularly true for family businesses, the dynamics of which create a unique mix of challenges and opportunities. In a 2003 interview, family business guru and co-founder of The Family Business Consulting Group, John Ward, described leadership in family businesses: “It’s multi-faceted and it’s often all mixed up. It can take strange forms as structures are often invented to help the family stay in control — such as joint leaders or collaborative teams. Sometimes different balances of power are used to make it work. It’s also very public — heirs are known to all from birth.“

So, given how complicated and convoluted it can be, how can family businesses cultivate leadership in current and future generations?

Here are five tips I think might help.

1. Acknowledge there are many forms of leadership 

Given they are the most visible, it’s easy to think of leadership as strictly the responsibility of the business leader. After all, they set the business’ strategy, manage its direction and outcomes, and are often the face of the business.

However, there are many other opportunities for leadership ‘behind the scenes’ — such as managing the family office, heading the family council, and driving philanthropic and other projects. It’s also highly likely there is a group of people already filling these roles.

2. Celebrate the different forms of leadership

Different types of leadership require different skill sets and personality types.

For example, while the business leader may be authoritarian and focused on overall performance, the head of the family council might be more collegiate and committed to the development of future generations. This diversity of thought and approach occurs naturally within a family and can be extremely beneficial to the business. 

3. Ensure there are governance processes in place 

Separating the family and the business can be very difficult. Family dynamics often spill over into business relationships and business decisions can create friction among family groups. Younger generations can also develop a sense of entitlement, as family lines create expectations of future opportunities.

Good governance practices can help manage this, by establishing a baseline and framework for all business decisions. Creating an advisory or supervisory board, or having another form of independent oversight, will also help ensure sound decision-making and management practices.

4. Embrace ‘familyness’

One of the main advantages family businesses have over publicly listed companies is that they are, in fact, a family.

This usually means there are a set of core values shared by most (if not all) of the members. It also means that it is easier to attract, develop and retain leaders (both from within the family and externally), as there is a clear culture and ethos.

5. Apply discipline when planning for succession

Succession is one of the biggest threats to the ongoing operation of a family business. In fact, it is said only 13% of family businesses survive through to the third generation — though, these statistics are contested. 

There are many lessons to be learnt from the small number of family businesses that survive multiple generations — including the importance of adopting a structured approach to succession.

A great example of this is Lee Kum Kee, the Hong Kong-based food and health product giant that invented oyster sauce.

As outlined in a 2016 case study, Lee Kum Kee established a comprehensive governance system following a series of issues in the early-2000s. This has been adapted over time, to increase the involvement of the fifth generation, who had shown little interest in joining the company.

Succession planning activities implemented by LKK included the following.

1. The creation of a family council, which helped establish a family constitution, family foundation, and family learning centre.
2. Inclusion of strict succession rules in the family constitution, such as restricting share ownership to those in the bloodline, not hiring in-laws, and requiring younger generations to spend some time working outside the business.
3. Using certain business units (such as the venture capital arm) as training grounds for future leaders, by having them sit in on meetings and joining deal sourcing and ‘innovation’ trips.

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