Keeping it in the family

Leaders from different generations in a family business don’t have to see eye-to-eye on politics, social values or other matters to share a vision of success for the familybusiness.

Creating that shared vision makes it more likely that the next generation of family leaders will develop the skills they need to help the family business survive the transition from one generation to the next.
 
Those are some of the findings in new quantitative research by Steve Miller, a strategy and entrepreneurship professor and co-founder of the Family Enterprise Center at UNC Kenan-Flagler. He surveyed hundreds of family business leaders to discover factors important in developing next-generation leadership talent.

Miller writes about some of his research findings in “Next-Generation Leadership Development in Family Businesses: The Critical Roles of Shared Vision and Family Climate” in Frontiers in Psychology. He examines the central role of shared vision for the family enterprise in fostering next-generation leadership effectiveness and engagement with their work in the family firm. He also identifies factors that contribute to the development of a shared vision.

The vast majority of businesses around the world and in the U.S. are family businesses. They employ more than three-quarters of the global workforce and generate half of the gross domestic product in the U.S.

However, family businesses – companies in which members of the business owning family have a significant impact on the strategy and operation of the firm – have a poor track record when it comes to surviving through multiple generations of family ownership. Only about 30 percent of family businesses survive from the first generation to the second, about 12 percent from the second generation to the third, and just 4 percent beyond the third generation.

“Lack of a shared vision among family owners is one of the top reasons they fail to survive,” Miller says. “Another reason is weak next-generation leadership.”

Miller’s research revealed a strong relationship between these two key survival factors, as shared vision turned out to be one of several factors that contribute to the effectiveness of next-generation leaders.

Other keys to effective next-generation leadership include:

•     Their emotional and social intelligence
•     The degree to which they accept personal responsibility
•     The nature of their motivation for working in the family firm

Miller also discovered that companies in which senior family leaders exercise unquestioned authority and make all the rules were less likely to produce effective next-generation leaders.

“This kind of autocratic leadership style is pretty common among strong entrepreneurs who build family businesses,” Miller says. “Some of the characteristics that help an entrepreneur – self-determination, a take-charge approach – and serve them so well in building a family business, actually begin to work against them when it comes time to prepare the organization for leadership succession."

Both of those findings seem intuitive or perhaps unsurprising.

Miller’s unexpected discovery was that “cognitive cohesion” did not contribute to the family’s ability to craft a shared vision for their business.

Cognitive cohesion is the degree to which family members share norms and values, including attitudes, interests and beliefs. Miller’s research showed that cognitive cohesion had no significant effect on the presence of a shared vision for the family firm, which in turn was important to next-generation leadership effectiveness.

In other words, even if Junior and Dad don’t see eye-to-eye on politics, they can still work together and agree on a shared vision for the family business. Developing that shared vision gives Junior a better chance of leading the business successfully into the next generation.

In fact, Miller thinks that having somewhat different worldviews might lead senior and next-generation leaders to engage in more diverse conversations about the nature of the marketplace and customer and employee motivations. Those conversations, in turn, might result in strategic shifts that help the firm adapt to changes in the business environment.

Open communication in the family is critical
While identifying the impact of factors like emotional and social intelligence on leadership effectiveness is not new, Miller’s research is the first attempt to quantitatively measure the effect of a shared vision for the family business on next-generation leadership effectiveness.

Miller administered 360-degree assessments of next-generation family leaders to people working in family businesses – both members of the business-owning family and non-family members. That allowed him to gather data about how next-generation leaders are perceived, as well as the climate within the family and the business itself.

He surveyed 450 individuals —100 next-generation leaders and 350 family business leaders and non-family managers. He used those survey results to determine the degree to which open communication, autocratic senior-generation leadership and cognitive cohesion in the business-owning family affect the presence of a shared vision for the family business. He then measured the effect of shared vision on the perceived leadership effectiveness of next-generation leaders and the degree to which they are engaged with their work in the family firm.

For every 1 percent change in open and transparent communication in the family there was a 0.24  percent change in the degree to which family business leaders shared a common vision across generations. And for every 1 percent change in shared vision, there was a 0.54 percent change in next-generation leader’s perceived effectiveness.

Putting insights to work
Miller’s research suggests steps family business owners can take to improve the chances that the firm will survive and thrive from one generation to the next. Creating a climate of open communication in the family about the business is one of the most important implications. For something that seems fairly obvious, it’s not all that common.

“What’s amazing is how often family business owners don’t talk openly about key issues like strategy and succession,” Miller says. “One of the most effective things business-owning families can do is create an environment that encourages open communication about the future of the business.”

Even if those discussions reveal differences in opinions and values from one generation to the next, that doesn’t mean that family members can’t work together to develop a shared vision for their business. In fact, the opposite scenario – one in which the senior generation doesn’t discuss decision-making or vision – is more likely to result in next-generation leaders who aren’t well equipped to lead the business in the future.

Steve Miller is adjunct professor of strategy and entrepreneurship and co-founder of the Family Enterprise Center.

[This article has been reproduced with permission from research from the UNC Kenan-Flagler Business School: http://www.kenan-flagler.unc.edu/]