Vertical Leadership in Family Business

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If you lead a family business, you probably think constantly about your family, your business, and their often-complicated relationships. You are not alone! Our family business clients tell us navigating the landmines that lie within relationships consumes a great deal of their time and energy. The latest trends in the field of leadership development can help you view these challenges through a new lens, one that focuses the family and the business dynamic to create a strategic advantage.

Every businessperson knows the pace of change has accelerated and the world has become increasingly complex. We also recognize these changes have affected not only our work life but our home life and our family’s lives. Leaders need new skills and new ways of thinking to keep up with these changes.

In the field of leadership development, we identify horizontal and vertical learning. Horizontal learning consists of developing new competencies, while vertical learning involves changing how we think and feel. Vertical learning occurs in definable stages as we refine our worldview. For example, consider how you thought about leadership and led others at age 25 and how much your leadership style has changed since then.

In the past, much leadership development focused on horizontal learning, or developing skills. Today, however, the biggest trend in leadership development is an increased emphasis on vertical learning. (Future Trends in Leadership Development. A white paper by Nick Petrie of the Center for Creative Leadership, December 2011, www.ccl.org )

Innovation and Intimacy
As mentioned above, the “family” element in family enterprise can create a strategic advantage. Family businesses make up 78% of new jobs in the US (Small Business Development Center, www.sba.gov), and this is due in part to the strong human connection that exists in familial relationships that allows for greater trust, longer term thinking, and more values-based decision-making.

These are highly intimate relationships. Intimate may be a strong word, but if you’ve ever had to hire your son, tell your Dad it may be time to retire or give your mother-in-law a pay cut, you know what we mean. Outside of family enterprise, this sense of connection, trust and intimacy is often missing from leadership.

Leadership agility is the ability to lead effectively when exponential change and uncertainty are the norm and when success requires consideration of multiple views and priorities. (Creating a Culture of Agile Leaders by Bill Joiner, www.changewise.biz) This framework includes the agilities that we call self-awareness, empathy, framing and innovation. We find that when leaders employ vertical learning, changing their thinking about how they view innovation and intimacy with their teams, suppliers and customers, they become more agile leaders.

Let’s begin with a real-life example:
A family enterprise leader we know faced the sale of his family’s business. Two factors caused a disruption in the standard due diligence of this process:

  1. Market factors beyond the company’s control or anyone’s ability to predict resulted in lagging financial performance for the first time in over a decade.
  2. The strategic buyer, though still very interested in the purchase, was insistent on framing the deal within a conventional framework.

Here is where agility came into play:
Effective innovation requires framing an issue with an intentional awareness of all of the key stakeholders. This framing requires the use of both intellect and empathy. Once an issue is framed this way, more innovative solutions can come into view. This framing revealed to our agile leader that several layers of management in the buyer’s organization needed to see that to simply look at the earnings multiple at that particular moment in time did not accurately reveal the intrinsic value of the company.

Intimacy relates to two agility skills: self-awareness and empathy. Thanks to the awareness of concepts like Daniel Goleman’s Emotional Intelligence model, the need for these “soft skills” is gaining acceptance. We believe that unless you know who you are and couple that self-awareness with a deep understanding of what the other stakeholders think and feel, you won’t be effectively frame an issue to create innovative solutions.

This leader started with reflecting on who he was, how he was perceived, and how he could best convey his message. He took the time to discuss and reflect, and to consider how to present his reframing of his company’s value. Ultimately, he decided to have the management team convey the reframing rather than do it himself.

Instead of an adversarial outcome, the buyer accepted the reframing and they worked together on a plan to go forward with the deal with a revised timetable and a shared vision for how the company value would be assessed.

As this example demonstrates, an agile leader needs to embrace the complexity of using both the head and the heart. Thus his or her ability to reframe and find innovative solutions is complemented by self-awareness and empathy. Not all decisions will require such in-depth combination of these four agilities. However, there is a fortunate paradox at work here, especially for those leaders who are willing to continue to learn and grow: to be able to thrive in this environment of exponential change, complexity and interdependence, we must uncover and develop aspects of ourselves that are fundamentally human.

Vertical Leadership and Your Evolution
It is important for business leaders to understand and embrace the realization that much more is expected of us today than in any past generation. Without this awareness, we may easily slip into self-doubt, criticism, and a lack of motivation. Embracing this reality allows leaders to begin identifying and practicing new behaviors and mindsets that will accelerate their own evolution.

In our work with successful leaders of family businesses, we routinely hear that there is no shortage of new ideas. The challenge is in framing the issue or opportunity, understanding the stakeholders’ perspectives, and creating innovative solutions.

Consider Jim Ethier, recent Chair of Bush Brothers, a third moving to fourth generation family business headquartered in Knoxville, Tennessee. Jim needed to ensure the involvement of more than 95 family members (of whom 60 are either owners or beneficiaries of trusts) was aligned with comthe business goals. Thus it would be a strategic advantage for this company, a food producer that has historically been extremely successful at both innovation in its industry and in managing the family’s involvement.

For example, Jim realized that estate taxes and trust laws were significant threats to the continuation of any family business. He helped lead the effort to have the Tennessee state inheritance tax repealed, which it will be effective January 1, 2016. Also Jim chose to marshal corporate resources in an effort to change the banking laws in Tennessee to enhance the availability of the private trust company. He could see that the existing private trust company regulations were overly restrictive. Since that change in the law in the latter part of 2012, a number of families have chosen to create private trust companies in Tennessee. He also saw that existing trust law could undermine the family’s intention to preserve its ownership. By re-framing the issue, he avoided the dilemma of having trust officers bound by a rule that would otherwise force the sale of family-owned stock. They have now transferred over 50% of their stock into this newly created private trust company, creating far greater alignment and far less risk of the company being sold by independent trustees.

Leading any business is complex. When family involvement is also a factor, that may require even more agility. Not only do business circumstances change, but so does the nature of family life. Today, we often see as many as four generations working together. The differences between generations can be highly pronounced, and these aspects affect all the family enterprises stakeholders.

Thus leaders in family enterprises may need to be especially agile and to consider their vertical development. (See box below on vertical leadership). Why do the thinking and feeling of leaders need to evolve? The key factors in our world that affect families, businesses and the family business mindset include:

  1. Exponential change and interdependenc.: Business cycles and industry life cycles shorten, and family generations become more distinct. At the same time, events are more interconnected than ever: your flight out of Miami may be delayed because of a terrorist attack in London, your supply chain might be impacted because of a tsunami in Asia, and your next contract might be payable in Bitcoin.
  2. Innovation and entrepreneurship. family businesses can risk mistaking loyalty for resistance to change. Couple that with risk aversion and the possibility of passive wealth, and there can be great resistance to an innovative, entrepreneurial culture. How would you like your parents to say, “Son, we have always been the Blockbuster people, don’t let this store go down on your watch!”
  3. Redefining shareholder value more holistically to stakeholder values. As Peter Drucker said: “Profit for a company is like oxygen for a person. If you don’t have enough of it you’re out of the game. But if you think your life is about breathing, you’re really missing something.” We feel families that work well together start by defining the business’ purpose—the “why” of the organization. Are we developing leaders who are part of our community and aligned with our values? Good family enterprises seek to operationalize and fulfill their values. (see family enterprise box below)
  4. We see these changes impacting all of us, perhaps most notably the younger generations. The talents and challenges of the Millennial Generation, which will account for as much as 75 percent of the workforce by 2025, can be directly linked to these changes. (Forbes)

Cambridge University, Harvard University, and the Center for Creative Leadership all agree that vertical leadership is the number one trend in leadership development, yet it hasn’t shown up specifically framed for people with a family enterprise mindset. To paraphrase the four interrelated agilities mentioned earlier:

  1. Self-awareness and empathy (intimacy): Have you considered reflecting on your strengths, weaknesses, and blind spots? How deeply can you empathize with others, intellectually, emotionally, or just theoretically?
  2. Framing and creativity (innovation): It is said that a problem well defined is a problem half solved. In our complex world, framing a problem with an empathetic awareness of the other key stakeholders is vital. Being innovative will be required more often and more rapidly. This innovation may not only involve incremental changes to improve the existing system, but breakthrough innovation that changes the system itself. Thus vertical development includes not being attached to ideas, tradition, best practices, or long-held beliefs.

How do these interdependent agilities apply in a family enterprise? As mentioned above Jim Ethier reframed the risk of the estate tax and trust laws as one of the biggest risks to his family business at it moved from the third to the fourth and fifth generation. He felt other families in similar situations faced similar risks, so he worked with other interested parties to help Tennessee innovate and change its banking regulations. We would call that break-through innovation on the family side of a family enterprise.

Many family businesses consider themselves to be conservative and risk-averse. However, exponential change and the greater complexity arising from increased interdependency create the need for vertical leadership to be more prepared new types of risks. Vertical leadership brings innovation and intimacy, which is sorely needed for both our enterprises and for our families.

About Greg McCann and Patty Keenan 1 Article
Greg McCann is a professor of Family Enterprise at Stetson University where he was founder and director of the Family Enterprise Center and director of the EMBA. He also founded the consulting firm McCann & Associates that works with family enterprises nationally. He is a published author, noted speaker, and owner in his extended family’s business. Patty Keenan is Founder and Principal of Keenan Insights Inc., an Executive Coaching & Consulting firm specializing in work with CEOs and Senior Executives. She is Executive-in-Residence and Adjunct Faculty in Stetson University’s EMBA program, where she teaches and coaches on Leadership Stage Development and Vertical Learning in partnership with Professor Greg McCann.

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