All organizations, regardless of their ownership structure, need to have a strong leadership hierarchy in order to withstand the test of time. Two reasons commonly cited for family-owned business failure are poor succession planning and lack of next-generation leadership development. Since only 30% of family-owned businesses report surviving into the second generation, family business owners should certainly recognize the importance of solid leadership development and succession as well as formal hiring and promotion processes to attract and retain the highest quality talent.

Family-owned businesses are unique in that their leadership team(s) are often part of the immediate or extended family; in other words, there’s a high probability that they all share the same last name. Determining the right family member to take the reins can often easily be identified, but there are instances when a son, daughter, or other family member just isn’t interested in working for the family business or the right candidate simply isn’t within the family name.

Read Family Business: Grooming the Next Generation.

How Do Family-Owned Firms Find the Right Leaders?

According to a Family Business Survey, fewer than a third of those business owners expecting to retire in the next 11 years have selected, or groomed, a viable successor. Almost half of all family businesses do not have a proper succession plan or leadership team in place. If this sounds like where you’re at in your lifecycle as a family business owner, know there are key items to consider:

1. Like all worthwhile positions, leadership should be earned. Like all top talent, leaders at all levels should be trained, educated, and experienced. This experience should also include positions held outside of the family business. Competition in business is fierce, so having a leader who is well-versed is critical to the longevity of your organization.

2. Don’t assume the next leader will be a family member or that all members of the family will be fully vested in the business. Assuming someone within the family will want to take over responsibilities for the family business or a division of the family business isn’t the best manner in which to choose a leader. This type of obligatory leadership can lead to discontentment and lack of interest in the long-term success of the business you’ve worked so hard to build. Read What if No One in the Family Wants the Family Business.

3. Realize that not all family members will make great leaders. Although a potential successor for the Chief Executive Officer (CEO) title or other management role may be a family member, do not expect this individual or group of individuals to automatically be great leaders. Great leaders are often developed, trained, and mentored.

According to Cynthia Brendel, Vice President and Director of Talent Development at First Bank, “Everyone does have the ability to become a great leader. To do so, the individual needs to be honest about his or her own personal strengths. In addition to strong technical skills, leaders need excellent verbal and written communication skills, good decision making,

Don't Dilute Leadership B/c of Family Name

the ability to coach and influence others, and a desire to build strong, trusting relationships with their employees, vendors, and clients.”

4. Utilize tools and assessments to evaluate leadership. Potential leaders must be willing to learn and grow to become as effective as possible. “One recommendation is to complete the self-assessment found in the book Strength Based Leadership by authors Rath and Conchie,” said Brendel. “ This book, along with the self-assessment, helps the future leader understand his or her own natural abilities to lead. Extraordinary leaders understand who they are and what they are good at and then capitalize on their natural abilities to build strong teams.”

5. Adopt formal hiring and promoting practices. Although smaller firms may not have this luxury, establishing a qualified human resources (HR) department or role and formal hiring, promoting, and talent development processes are all keys to attracting and retaining leaders at all levels. Qualified and engaged employees, even if they are a family member, should be required to apply for any position within the organization, especially if it’s a leadership role, and compete for it alongside other qualified applicants.

Brendel recommends that if you’re unable to establish a formal human resources department, to consider joining a qualified HR talent development organization. “Many of these types of external organizations offer various resources and services at fairly inexpensive prices,” she said.

6. In choosing a qualified successor or hiring for a critical leadership role, stay observant. “To determine who is most successful at leading others, watch for followers. Great leaders always have a pipeline of people who want to come to work for them,” she expounded. “They have a natural ability to build strong teams and are like magnets to people who want to be successful in the workplace.”

Qualified leaders, leadership development, and proper succession planning are all critical to the longevity of your business. Contact the trusted advisors at First Bank to help you establish a long-term growth and succession plan for your family-owned or privately-held business.

Family Business Institute