The Eldest Son and the Family Business

Although the last post wasn't specifically about Family Businesses as much as it was about any tight-knit organisation, McKinsey and the LSE have done some very interesting research into the management of 700+ family-owned businesses in Europe. Their finding was that there was a high correlation between a business being run by the eldest son of the family and under-performance, at least viz-a-vis family-owned businesses run by professional managers.

You can read details of the study in the McKinsey Quarterly (2006 Number 3 or at www.mckinseyquarterly.com) but one of the key conclusions reached seemed to be that precisely because the OWNERS of a family-owned business are in a stronger position wrt accountability than, say, shareholders in a publicly listed business, they can throw their net more widely to get the right external managerial talent on board without fear of losing control of the business or losing the long-term intergenerational perspective that is one of the great strengths of a family-owned business. The underlying message is the same as the point I was making in the earlier post, namely that diversity of perspective, properly understood and managed, strengthens an organisation.

(One of the things that makes family-owned businesses so fascinating to work with is the fact that you can map three distinct and overlapping constituencies using a Venn diagram: family members, owners and managers. Some people fall into only one category, some into two and some into all three. Wise and successful family-owned businesses seem to have in common that they make pragmatic, evidence-based decisions about who fits into which circle...)

Keep it in the Family?

Succession is a central issue, not only for family businesses (although for them it is usually THE question), but also for close-knit organisations of any kind. What is going on in the heads of most of those in the second tier of leadership in such an organisation - or at least whenever they think of the top job becoming vacant - is "will it be me... or her?"

Such a situation can be immensely traumatic (to see that this isn't just a matter for family businesses, read Jack Welch on both his own succession to the top job at GE, and then Jeff Immelt's after him). Even so, things have to be pretty bad for the family to look outside (and following the theme of truly enormous but close-knit businesses, it took impending catastrophe for the IBM board to look outside for a Lou Gerstner).

While "growing your own", is generally a very sound proposition, more organisations may need to consider bringing in outside blood, not just for the very top job but sometimes to create a new layer near the top. This is particularly so for steadily (or strongly) growing organisations who have been TOO successful in reproducing after their own kind. If you have a Chief Exec and Senior Management Team who all see the world in much the same way... that is a very dangerous situation. It is even more dangerous when each of these people is a star performer in their own right.

It's the old story again of "what you can't see will most certainly hurt you". We map the perspectives of SMTs sometimes and then try mapping the issues they are finding the most troublesome against those perspectives; time and again with an SMT who have very similar perspectives, the problem areas are being MIS-DIAGNOSED. These tend primarily to be issues which fit in a domain the SMT collectively can't really see, so they reframe them - wrongly - within the field of vision they do have. That is double trouble: you have a problem you are not well equipped to solve yourselves; AND you have distorted it to make it seem more familiar (but it just won't respond to your usual approaches).

So to take a fairly bald example, a strongly sales-oriented SMT may not see that the issue is about inconsistency of service delivery, and they reframe it instead as an issue of service experience. Unfortunately, the fact that the customer's connection is only available 40% of the time will not ultimately be mitigated by the best call centre scripts and friendliest staff in Europe (although as I write this, I can't help feeling that would be a start!).

And that is when an SMT needs to bring in someone with a different view of the world - AND give them sufficient cross-cutting authority to blow the old consensus apart. (That is a different scenario from "we brought in an outside guy but he never made his mark")

Of course, you need to know what you are doing, and especially how to measure and map these perspectives. Otherwise it is very easy to simply bring in the absolutely wrong outsider - and noone wins when that happens...