Innovate and grow or maintain the status quo?
The process of making this basic strategic choice can be an exciting journey forward, or a source of conflict in a family-owned company.
Why? What causes a family company to be frozen in its tracks over this fundamental question? And what can be done to thaw the ice, or better yet, prevent the business from becoming Stuck in the Moment?
You may be thinking…’Conflict among the shareholders of a private company over strategic direction is common and good.’ You’re right! Debate over the best go-forward strategies and tactics can be healthy and productive. In companies that are not family owned, the conflict tends to resolve itself in a timely and orderly way. This is especially true in companies with outside institutional investors who don’t tolerate indecision for extended periods of time.
In some family-owned companies, the strategic discord festers and lingers. A ‘strategic fog’ permeates the boardroom, family gatherings and the company’s hallways and cubicles. Critical decisions are delayed and significant opportunities ignored. The disagreement can go dormant but then suddenly explode. This can be debilitating to the business and to the shareholders.
What has always intrigued me is not the presence of a rift over the strategic direction of a family business. My question is why the conflict becomes so pervasive and common.
My experience points to 10 ingredients:
- History and nostalgia
- Personality traits of the family shareholders
- Knowledge disparity
- Background noise
- Breakfast table scrambled eggs
- Cash (see Part 1 of this series – The SeeSaw)
- Mood of the day: comfort, fear, fatigue, ambivalence
- Lack of trust
- The family stew – a simmering salmagundi of any of the above
P.S. #’s 8 and 9 are smokescreens
1. History and nostalgia
Corporate roots and historical timeline are very important. But Red Auerbach, legendary basketball coach of the Boston Celtics, once said: ‘The world changes, so should you.’ One of my clients was struggling with their overall business model. I recommended that the original but outdated and stagnating product line be divested. Pete and Susan were siblings who controlled the company. Susan was very dedicated to the old product line because it was the original part of the business founded by their grandfather. It was part of both the company and family legacy. “We can’t let this go.” While Pete was sensitive to the historical significance of this product line, he could see the writing on the wall and wanted to divest the line. They argued about this incessantly (see: Coach or Food Fight Referee). Analytics and the prospect of improving the company’s legacy by making changes finally convinced Susan. The sale sharpened the company’s focus, freed up cash and created resources to accelerate the growth of a very promising new product line.
Action: Ask if the pushback on change might eventually diminish the legacy of the founders and impair the value of the business.
2. Personality traits of the family shareholders
Strategic decision making sometimes boils down to two management styles:
- Ready, Aim, Fire
- Fire, Ready, Aim
Strikingly divergent personality styles often impede effective decision making about the business direction. In Myers-Briggs terminology, I most often see family conflict between the ‘N’ (Intuitive) type and the ‘S’ (Sensor) type. N and S types are different in the way they analyze business issues and take action. Neither is ‘right’ nor ‘wrong’, but each owes it to the other to understand and respect their particular outlook and thinking.
Action: Take a deep breath – the personalities are what they are. If the personality clashes persist, get your team some objective help from HR specialists who can pinpoint the differences and their impact as well as create ways for the team to better work together.
3. Knowledge Disparity
This condition occurs in two different circumstances:
- lack of current detailed understanding of the business, or the reverse…
- too much in the daily weeds to see the big picture
Second guessing is ineffective, especially if one or more family members is looking in from 30,000 feet but still think they know enough of the business details to direct significant decisions. Intuition only goes so far. The “We know better but don’t really know much at all” attitude from distant family shareholders is unproductive. Attempts to control the strategic direction from whose who may be equal in stock, but not really equal in capabilities or roles, can be especially frustrating to the day-to-day operating executives.
Action: Examine the governance structure. Is there an independent outside board of directors?
4. Background noise
This is one of the most difficult to uncover. Background noise is the behind-the-scenes chatter from the spouses, children, extended family, or advisors to the family. These are influencers who have no official fiduciary or operational role in the company, but have a definite vested interest in the strategic choices. The noise levels can range from quiet murmurs to loud ranting. Whatever the decibels, the dissent often has undue influence on the business operations.
Action: All family input should be considered, but don’t let it get out of hand. Periodically hold an ‘all family’ meeting to update the full extended family on the current state of the business. Use this time to try to get all issues out in the open.
5. Breakfast table scrambled eggs (aka sibling rivalry)
“Dad always liked you better than me. You were the favorite then and you are the favorite now.” Sometimes old beliefs, real or imagined, become grudges. This can lead to disagreements just for the sake of disagreeing. One says GO, the other says SLOW.
Action: Get over it.
This topic was covered in Part 1: The Seesaw. Excessive compensation and perks that negatively impact business operations may limit or constrict the company’s strategic alternatives. Is there simply no money left to execute?
Action: Look in the mirror. The family generally knows deep down what compensation is right for the company and for the family. If the mirror does not work, hire a compensation specialist to get an objective view of what is appropriate for the type of company.
7. Mood of the day: comfort, fear, fatigue, ambivalence, bravado
The shareholders in a family company are human. Only they know what feelings are the emotions of the day, month or year. And sometimes they do not even recognize the role of emotions in running the business. No one can deny that emotions of the leadership of any company can influence what is happening at any point in time. Hopefully major decisions are not driven by these emotional swings.
Action: Michael Hyatt addresses numerous aspects of leadership in his blog focused on ‘Intentional Leadership’. He discusses balancing emotions/rational thought in his review and summary of the book “Switch” by Chip and Dan Heath. I recommend you check out both.
“Dad is too old to run the business.”
“Sally is too young to lead the company.”
Maybe both are true, but the topic of age often is a smokescreen for the real areas of conflict.
Sometimes owners have simply lost their enthusiasm for new initiatives, growth and lots of long hours and constant pressure. When the next generation is all charged up and headstrong about expansion, new markets, or whatever, the reaction from the elders might be received as: THUD: “No offense and no critique to your strategy, but we’ve just lost interest.”
Action: While it’s true that different generations may have unique approaches to leadership, it gets down to this: Ideas should stand on their own merit without regard to the age of the contributor. Every generation has positive energy and wisdom to offer, and they should find ways to work together in the interest of all shareholders of the business.
9. Lack of trust
“You don’t trust my thinking.”
“That’s right, I don’t.”
It’s hard to get ‘buy in’ on critical strategic decisions when the team isn’t a team and the leader’s ability to lead and set direction is always being challenged. Pretty basic stuff. Trust is admittedly the underpinning of any of the issues I’m discussing. If you don’t start with trust, not much progress is going to be made, and the work environment can be stressful for everyone when the leaders try to undermine each other. I’ve heard the ‘lack of trust’ complaint a lot, but it usually is grounded on one of the other 8 points above.
Action: Ok, you don’t trust each other. Sit down, ask each other why? What actions have contributed to the breakdown in trust? One at a time, take responsibility for actions that have broken the relationship. Clarify misunderstandings. This is another foundational issue that may require the mediation of an outside party.
10. The family stew – a simmering salmagundi of any of the above
Family businesses have unique cultures based on unique family dynamics. These dynamics can be challenging, or enabling. Thawing out and picking apart the challenging aspects can result in more effective leadership. An outside independent ‘fresh pair of eyes’ can be helpful in this process.
What 9 stew ingredients from above have you seen or experienced? Just a couple? A handful? All 9?
This is the second post in a series about the 5 missteps of leadership that can exacerbate the 9Stucks in a family owned company. Part 1 of the series described what happens when the family needs and the business needs are out of balance.