Is it better to lead a family
business with one ultimate leader or a team? John A. Davis, an expert on family
business management, kicks off a series of articles with a look at governance
models.
PART ONE: GLOBAL NORMS AND
THE ONE-LEADER MODEL
A consistent finding about family business systems—the business, its owners, and the family in
control—is that strong, long-term business
performance also requires strong performance by the family and by the ownership
group. You can't keep a family business performing well over many years just
focusing on the business. Family unity, united ownership and ownership support
of the business are just too important to ignore or take for granted.
We also know that strong performance of the business,
the ownership group, and the family depends on the effective leadership of each
group. This shouldn't be surprising: good performance of any group always
depends, to a surprising extent, on capable leaders. If boards of directors of
public, anonymously-owned companies didn't believe that leadership mattered so much,
they wouldn't pay such huge salaries to their CEOs. (By the way, I don't think
they are worth that much, but the point is: having the right leader does
matter.)
Because there is not only a business, but also an
ownership group and a family that need capable leadership, a family business
system is much more complicated than other kinds of business organizations.
Leading these systems is also much more complicated.
Family business systems have a number of formal
leadership roles. The CEO and board chairperson lead the business and usually
the shareholder group. Family council leaders, parents, and grandparents are
the formal family leaders. These leaders don't make all the important decisions
in these systems. Nor do they provide all the guidance. They don't allocate all
the resources. But because they have considerable authority, influence, and
control over resources, we rely on them to do their part in setting direction
and guiding their group.
Because the performance of people in these roles is so
important to the success of the family business system, we need to understand
what capable leaders in family business systems actually do. I've spent much of
my professional life figuring this out.
I've gotten to know a number of excellent family
business leaders in my long career, along with some weak ones, and a couple of
awful ones. To illustrate my profile of a great family business system leader,
I'll use one of my favorite examples: Nelson Sirotsky, chairman of Grupo RBS,
his family's world-class media company based in Porto Alegre in the south of
Brazil.
I met Nelson and his cousin Marcelo Sirotsky at a
seminar I led on family business management in Santiago in 1999. I've worked
with their family business system ever since. Nelson, then CEO of RBS and also
leader of his family branch, attended the seminar to develop plans for his
family business system and to reconsider his own leadership role. As the
program unfolded, Nelson came to new understanding. He realized that he needed
to give more attention to his family and the owners, in order to keep pace with
his tireless focus on the business.
What Nelson and his family accomplished over the last
decade is very impressive. They recently celebrated Nelson's successful and
smooth transfer of his CEO role at age 58 to his very capable nephew, Eduardo
Melzer, 40. Nelson remains chairman of the board with clear responsibilities.
RBS is stable and poised for more great performance. My colleague Vicky Bloch,
a superb coach and advisor, helped them throughout this process. But much of
this good work stemmed from Nelson understanding his role as a leader of the
business, family and ownership group, and from his performing so well as a
leader, including through the CEO transition.
Which brings me to a question I am often asked:
"Is it better to have one ultimate leader of the family business system or
a team of leaders?"
UNITARY LEADERSHIP VS.
LEADERSHIP TEAMS
There are two basic models. A family business system
can either consolidate leadership with one person, or it can choose two or more
people to lead different parts of the system. Each model can work well, as long
as it's clear and supported by the stakeholders. Both models have some
potential weaknesses: unitary leadership can lead to excesses; leadership teams
can be slow and hobbled with rivalry.
But there is no doubt that one model dominates. Having
one person serving as the ultimate leader of the business, ownership, and
family is the natural choice for most families (and most nonfamily groups)
around the world.
The preference for one leader seems only slightly
culturally driven; it's very common in Italy, for example, but only slightly
less common in Finland-comparing two European cultures that couldn't be more
different.
One-leader systems are also somewhat more common in
younger and less complex family business systems; these systems are either in
the founder stage or trying to emulate it. The parent-founder-business
leader-controlling owner generally has most of the power in his or her family
business system. As family business systems approach or reach the cousin stage,
with diversified businesses and big ownership groups, as RBS now has, you find
more systems having two or three leaders who lead different parts of the system
and collaborate to keep the system united. Sibling systems have the hardest
time working out who should have what leadership role and power.
“THE
ONE-LEADER MODEL STILL DOMINATES EVERYWHERE AND AT ALL STAGES”
With those few exceptions, the one-leader model still
dominates everywhere and at all stages. Inertia keeps families in business
wedded to it, and in some situations there are measurable benefits that tip the
scale in favor of unitary leadership.
So let's take a closer look at this model.
UNITARY LEADERSHIP
The person chosen for this role is generally the
business leader. In some cases, the family business system leader is the
chairman of the family holding company and the clear leader of the family
owners. In general, family business system leaders are the individuals with the
most resources under their control; typically, they are middle aged or family
elders. Effective ones are appreciated for their wisdom but are not necessarily
liked by all their relatives. Leaders tell me that they have a gratifying but
tough and often thankless job.
Many successful family business leaders tell me that
they spend half of their time working to address family and ownership issues
and to maintain unity. If the business leader tries to control too much of the
power in the system, he or she will often weaken and destroy it. Even founders
seem to understand this. At the founder stage, I often see the wife-mother
wielding significant power over the family¾and significant influence on her husband
the founder, whom she advises.
That is why an accurate drawing of the one-leader
model usually shows that the ultimate leader has strong deputies or allies
helping to lead the business, family, and ownership group.
Recognizing the needs of his family business system 15
years ago, Nelson Sirotsky opted to maintain ultimate control but delegated
much of the management of RBS to his star nonfamily EVP, Pedro Parente. Nelson
shared leadership of the ownership group with his uncle and then chairman,
Jayme Sirotsky (also an exemplary leader). Nelson also supported the family
council and its leaders, who did much to organize and unify their large family.
It takes a strong ego to not only share leadership but
also give credit to others as Nelson does. It's fair to say that no major
change in the business, family or ownership group could have been made without
Nelson's agreement, but also that others' support was needed for major programs
or decisions to be approved. There were continuous conversations among the
owners and family about important issues and these drove out consensus.
Consensus never required unanimity but rather the feeling that the deliberation
process was fair, combined with general agreement that the decision was the
best possible course of action at any given time, given some reservations.
Through the last decade, what resulted at RBS was a
decisive system with strong support for Nelson, the ultimate leader, by the
family and owners. In successful family business systems with unitary
leadership, you find that most important decisions are the product of a
consensus process like this. The leadership model has now changed since Nelson
moved to the chairman role and Eduardo Melzer became CEO: the collaboration
between uncle and nephew in leading their family and business is impressive.
Whether your own system is modeled on unitary or team
leadership, you need to design, structure and allocate leadership roles.
From Harvard Business School
By John A. Davis
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