Leadership Best Practices in Family Businesses

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Leadership Best Practices in Family Businesses
Anneke Zwart, Student (University), Netherlands, Moderator
Fernández-Aráoz, Iqbal and Ritter (2015) conducted research among 50 leading family-owned or family-controlled companies to find best leadership practices in family businesses:
  1. DEVELOPING A GOOD-GOVERNANCE BASELINE: Naturally, governance is a critical components for family businesses that desire to hire and retain the most talented employees to stay competitive on the long run. This is basically impossible without the establishment of good governance, especially in terms of separating the family from the business.
  2. FAMILY GRAVITY: Although successful large businesses often have a large share of non-family members within their business, the researched demonstrated it is critical to hold on to 'family gravity’, which means that they should focus on keeping what makes your particular business so special.
  3. COMPETENCIES OF FUTURE LEADERS: although successful family businesses with the aforementioned traits are usually attractive to potential managers, it is critical to find the best out of those. Frequently mentioned competencies that were considered important in a potential leader are:
    - Strategic/results orientation, market insights;
    - Collaboration and influence;
    - Experience with organizational development, team/change leadership).
    But also critical are:
    - An understanding of the organization’s ownership dynamics
    - An understanding of the responsibilities that come with leading a family business.
    However the most critical component in potential leaders is:
    - 'Cultural fit’ – which means the overlap in values between family- and non-family members.
  4. DISCIPLINED CEO SUCCESSION: The research revealed that only few companies followed an adequate and structured selection process, while most companies chose new leaders based on intuition. The best family businesses adopted a selection method based on disciplined processes , including
    a. Discussions and commitment by shareholders;
    b. Multiple candidates from which a selection is made;
    c. Integration and development of the successor.
Source: Fernández-Aráoz, C., Iqbal, S. and J. Ritter (2015) “Leadership Lessons from Great Family Businesses” HBR April 2015

⇒ Did you experience these or other leadership succession best practices? Please share….

On #1: Good Governance in Family Owned Businesses
Rana Mustansir, Analyst, Pakistan, Member
In the context of developing a good governance baseline:
  • It is essential for family owned businesses (FOB) to have outside, non-family, non-executive directors on the board.
  • Furthermore, as a FOB changes over time, so should its board composition.
  • FOB boards should also institute a regular assessment process of board and director performance.
Secondly, in order to establish a good work culture and discipline in FOBs, there should be an enhanced role for professional managers who can provide a wider business vision as well as the know-how and flexibility to adapt to new developments outside the business’ environment.

Introduce Outside Leaders in Family Owned Businesses
seechurn, HR Consultant, Mauritius, Member
I agree to my colleague Rana Mustansir that it is essential for FOB to have outside non-family, non-executive directors on the board so as to avoid conflict of interest.
Outside people from the business environment such as the Professional managers, Board directors can take a fair judgement in line with the objectives and goals of the business.

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Leadership Pipeline | Succession Planning | Leadership Development
Best Practices

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