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Key Leadership Practices for Family Businesses

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92 views5 pages

Key Leadership Practices for Family Businesses

Uploaded by

Hafsa Kamous
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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hbr.

org

Leadership Lessons from Great Family


Businesses
by Claudio Fernández-Aráoz, Sonny Iqbal, and Jörg Ritter

4–5 minutes

A new study points to four best practices.

Fredrik Broden

According to the Family Business Institute, only 30% of family


businesses last into the second generation, 12% remain viable into
the third, and 3% operate into the fourth generation or beyond.
Those that do continue often see their value decline significantly as
a result of mismanaged succession.

The authors, all associates of the global executive search firm Egon
Zehnder, partnered with Family Business Network International to
analyze 50 leading family firms. Through interviews with both family
and nonfamily executives, they discovered that the most successful
of these companies do four things well: (1) They establish good
governance practices that separate the family and the business and
ensure oversight from a professional board. (2) They are careful not
to lose what makes them special—a quality the authors call “family
gravity.” (3) They assess future leaders on alignment with company
values as well as on competencies. (4) They follow a disciplined
selection process when considering candidates for the top post,
and take care to provide meaningful support during the integration
process.

HBR Reprint R1504G


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Idea in Brief

The Problem

Family-owned and -controlled businesses play a critical role in the


global economy. But as a result of poor talent management, many
fail to thrive or even survive.

The Research

In search of best practices, Egon Zehnder and Family Business


Network International interviewed executives and studied recent
leadership transitions at 50 leading family firms around the world.

The Solution

They found that top family-led companies do four key things:


establish a baseline of good governance, preserve “family gravity,”
identify future leaders from within and outside the family, and bring
discipline to their CEO succession.

It’s no secret that family businesses can struggle with governance,


leadership transitions, and even survival. Consider a few high-
profile examples: Banco Espírito Santo was rescued by the
Portuguese government last year following the resignation of its
CEO, the great-grandson of the bank’s founder, amid allegations of
financial improprieties. The Doosan Group, a South Korean
conglomerate, was thrown into turmoil when the clan that runs it
replaced one brother with another in the chief executive role. Fiat,
the Italian auto group run by the heirs of Gianni Agnelli, went
through five CEOs and three chairmen in two years before bringing
in an outsider to lead it. And in the United States the New England
grocery chain Market Basket faced employee protests and lost
$583 million in sales as two cousins—one a board member, the
other the chief executive, both grandsons of the founder—publicly
vied for control of the company.

A version of this article appeared in the April 2015 issue (pp.82–88)


of Harvard Business Review.

• Sonny Iqbal is a partner at Egon Zehnder, and the former co-leader


of its global family-business practice.

• Jörg Ritter is a partner at Egon Zehnder and coleader of its global


family-business practice.

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Common questions

Powered by AI

Successful family businesses establish good governance practices, which include separating family and business interests and ensuring oversight from a professional board. These practices contribute to stability by preventing conflicts of interest, enabling objective decision-making, and assuring the long-term vision and strategy of the business are maintained .

Successful family businesses use strategies such as mentoring, structured orientation programs, and gradual responsibility transitions to integrate new leaders effectively. This integration is critical for ensuring continuity, preserving core values, and executing strategic objectives without disruption .

Socio-cultural factors in family businesses influence decision-making by prioritizing legacy, tradition, and familial values over purely economic considerations. This can result in strategic initiatives that emphasize sustainability and long-term growth but may also introduce biases that hinder innovation and adaptation .

Family businesses balance leadership assessments by considering alignment with company values as equally important as competencies. This approach results in a leadership that not only possesses necessary skills but also upholds the family principles, fostering a coherent corporate culture. Potential outcomes include enhanced organizational integrity and long-term sustainability .

Unresolved leadership disputes can lead to severe consequences such as operational standstills, financial losses, and reputational damage. The Market Basket case exemplifies this, where public disputes over leadership led to employee protests and significant revenue loss, illustrating the critical impact of familial disputes .

A lack of disciplined CEO succession can lead to power struggles, leadership vacuums, and strategic misalignments, which may deteriorate a company's market position. Successful companies avoid these pitfalls by implementing structured selection processes and ensuring thorough support during leadership transitions .

Maintaining 'family gravity' is crucial because it ensures that the business maintains its unique identity and core values that gave it its original competitive edge. Losing this quality can result in a lack of direction, diminished trust among stakeholders, and a weakened brand identity, which could ultimately lead to business failure .

Without a professional board, family businesses risk poor governance, biased decision-making, and inadequate crisis management. This can lead to turbulent transitions, financial scandals, or public controversies, as seen in the cases of Banco Espírito Santo and Market Basket, which faced significant operational disruption and loss .

Family businesses can mitigate value decline by implementing robust succession plans, maintaining 'family gravity,' enforcing strict governance structures, and regularly refreshing their strategic approaches to adapt to market changes. These actions help preserve both the financial and intrinsic value across generations .

The historical significance of a family business provides a foundation for its strategic direction by shaping its values and brand legacy. Neglecting this aspect can result in strategic misalignment, loss of customer trust, and identity crises, affecting long-term success .

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