Family businesses are the backbone of economies worldwide, representing not just commercial success but also the hopes, values and legacies of generations.
Yet the very qualities that make family enterprises unique—deep personal ties, shared history and a long-term vision—can also create some of their greatest challenges.
When multiple family members are running the show, for instance, the journey can become perilous, with leadership transitions, emotional decision-making and the inherent complexity of blending family and business interests threatening to steer even the most successful enterprise off course.
How can family businesses navigate these challenges, ensure smooth succession and thrive across generations?
The answer lies in understanding the unique dynamics at play, embracing robust governance and cultivating adaptive leadership. Let’s explore how families can turn complexity into a competitive advantage and secure their legacy for the future.
Too many chefs in the kitchen
Imagine a thriving family business, built from the ground up by a visionary founder. As the business grows, so does the family’s involvement. Siblings, cousins and in-laws join the company, each bringing their own ambitions, perspectives and, sometimes, unresolved family dynamics. What once felt like a shared mission can quickly become a battleground of competing interests.
Here are some of the common pitfalls:
- Unclear roles and responsibilities: In many family businesses, roles evolve organically rather than by design. This can lead to overlapping authority, confusion and power struggles. For example, two siblings might both believe they are responsible for strategic decisions, leading to conflicting directives for employees and frustration at the top.
- Emotional decision-making: Family ties can cloud judgment, especially when it comes to choosing the next leader. A parent may favour a child out of love or a sense of obligation, even if another candidate is better suited for the role. This can result in unqualified successors and resentment among family members.
- Resistance to change: Long-standing traditions and a desire to preserve the founder’s legacy can stifle innovation or necessary transformation. The phrase “We’ve always done it this way” becomes a barrier to adapting to new market realities.
- Lack of formal governance:Without structures like a family constitution or independent board, disputes can escalate quickly. Informal decision-making may work in the early days, but as the business and family grow, the absence of clear rules can lead to chaos.
Consider the story of the Novak family, owners of a successful manufacturing firm. As the founder prepared to retire, he named his eldest son as CEO, bypassing his daughter, who had more experience and a stronger track record. The decision, made out of tradition rather than merit, led to years of tension, declining morale and eventually the departure of key non-family executives. Only after bringing in an external advisor and establishing a formal governance structure did the family begin to heal and the business regain its footing.
Governance as the bedrock of success
The challenges above are not inevitable. The most resilient family businesses recognize the need for clear governance—formal structures and processes that separate family issues from business decisions and provide a framework for resolving disputes.
Here are the key elements of effective governance:
A family constitution: This written document codifies the family’s values, vision and rules for participation in the business. It typically covers ownership rights and responsibilities, the criteria for joining the business, succession planning guidelines, dividend and compensation policies, and conflict resolution mechanisms.
A family council: Regular meetings of family members involved in the business—and sometimes those who are not—provide a forum for open communication, education and decision-making on family matters.
An independent board of directors: Including non-family members on the board brings objectivity, expertise and a broader perspective. An independent board can help mediate disputes, evaluate leadership candidates and hold management accountable.
Conflict management protocols: Establishing clear processes for addressing disagreements—such as mediation or arbitration—can prevent minor issues from escalating into major rifts.
Succession: Don’t let emotion trump good decisions
Succession is the ultimate test for any family business. Too often, the process is derailed by emotion, favoritism or a lack of planning. The result? Promising businesses falter, and family relationships suffer.
A better way is structured, transparent succession. Here are some helpful steps:
- Clarify the role: Before considering candidates, define what the next leader needs to achieve. Is the business facing a period of growth, transformation or consolidation? What skills, experience and temperament are essential for success? What will the business need in five years?
- Assess candidates objectively: Use tools like psychometric assessments, 360-degree reviews and input from external advisors to evaluate both family and non-family candidates. This helps ensure that the process is fair and focused on the needs of the business, not just family dynamics.
- Prioritize business needs: The best choice may not always be a family member. Sometimes, bringing in an external leader or interim executive is the right move for the business’s future.
- Formalize the process: Document the decision, communicate it clearly to all stakeholders and provide support for all candidates—successful or not. This might include coaching, alternative leadership roles or opportunities outside the business.
Consider the Chatterjee family, owners of a national retail chain, who faced a crossroads when the founder’s health began to decline. Rather than defaulting to the eldest child, the family worked with an external consultant to define the skills needed for the next phase of growth. They used a combination of interviews, leadership assessments and trial projects to evaluate candidates. Ultimately, they chose a non-family executive as CEO, with a family member as chair of the board. The transition was smooth, and the business continued to thrive.
Leadership in complexity: Beyond the heroic founder
The myth of the lone, heroic founder is just that—a myth. Today’s family business leaders must be systems thinkers, able to balance tradition with innovation and manage the complex web of family, business and market forces.
Among the key leadership traits for family businesses are:
- Integrative thinking: Leaders need the ability to see the big picture and connect the dots between family values and business strategy. Integrative leaders can hold multiple perspectives and find creative solutions that honor both legacy and progress.
- Emotional intelligence: This quality enables leaders to navigate sensitive conversations, build trust across generations and manage the emotional undercurrents that are inevitable in family enterprises.
- Adaptive communication: Effective leaders must be able to tailor messages for different audiences—family, employees, customers and external stakeholders—while maintaining authenticity and clarity.
- Team building: A good leader can leverage the strengths of both family and non-family talent and foster a culture of collaboration and mutual respect.
Conclusion: Finding competitive advantage
Family businesses face unique challenges, but with clear governance, objective succession planning and adaptive leadership, they can turn complexity into a competitive advantage. The journey is rarely straightforward, and there will be bumps along the way. But by steering with both heart and head, your family enterprise can not only survive but thrive, preserving your legacy for generations to come.
Start the conversation today. Your future self, and your family, will thank you.
Michael McFaul, CMC, ICD.D, is an Ontario-based senior advisor with Gerald Pulvermacher & Associates (GPA). Michael is an experienced global executive, with four decades at Deloitte leading large-scale transformation programs for clients across multiple industries in more than 20 countries. He has helped many boards and executive leaders in such areas as governance, program and performance management, leadership development, organization design, culture change, workforce transition and communications. Following retirement in 2022, he has focused on serving family businesses, including a multi-family office. He served as a Deloitte board member for Canada and Chile for 8 years. He also served in numerous executive roles with Deloitte including Consulting Clients & Industries Leader, Canada/U.S. Consulting Collaboration Leader, Director Operations – Ontario and Quebec regions, European Practice Director – People Competency, member of European Management Committee and member of the Canadian Consulting Executive for 17 years. Growing up in a small town in Quebec, Michael learned early on the importance of strong family values, teamwork, commitment and personal drive.
Contact him at michael@gpulvermacherassociates.ca
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