It’s never easy to step into a leadership role from outside an organization.
Michael Watkins, an authority on leadership transitions, has concluded through his research that 40 percent of executive leaders hired from the outside fail within 18 months. He estimates the cost to the company of a failed leader at 14 times the leader’s annual salary. Watkins’ findings are especially applicable to transitions in non-family leadership roles within a family business.
Think of the statistics on keeping family businesses in the family for successive generations: Only 33 percent make it from generation one to generation two, and just 11 percent make it to the third generation. In an article on its website, thefbcg.com (“Transitioning from Family Leadership to Non-Family CEO: Best Practices for Maintaining a Family Enterprise”), Family Business Consulting Group observes, “As a family business moves down the generations, the likelihood that it will need to turn to a non-family leader increases.” Most family businesses ultimately will have to hire outside leaders.
Before looking at three tips for a successful leadership transition, it’s important to recognize two common pitfalls in the process. Few would disagree that the first six months are critical to the success of a new leader. So why do we put people in a position in which their chances for success are slim?
- We don’t recognize the need for diligence.
The trap is to view the success of the previous leader as an indicator that the job is easy because all it needs is maintenance for a while: “Dad has run this organization well for 25 years. The team is solid, and we’re a market leader. This job should be a snap.”
The reality is quite different, as Family Business Consulting Group observes (“Preparing Owners for a Non-Family CEO,” thefbcg.com): “Ownership groups looking at a non-family CEO for the first time often find they must change the informal ways in which they function and become more structured. For instance, if Dad was the previous CEO, it cannot be expected that the new CEO, who no longer shares the family’s last name, will be given the same degree of trust and respect initially upon the transition.”
- CEO equals business leader plus family therapist.
Whether it’s due to reputation or how much we’re paying them, it’s easy to expect new leaders to have it all figured out right out of the gate. Making the job too big is a trap. As Watkins’ research shows, it’s not easy to step into a leadership role, especially in family businesses with the added expectation of having to navigate — and often repair — complex family dynamics. While the ability to steer through such complexities is essential, making it the new leader’s job to rewrite the rules is a recipe for disaster.
Families need to own the work of creating a situation where someone from the outside can come in and be successful, not ask a new leader to fix the family. How can a family-owned business maximize the odds of success for its newly hired leader?
Here are three tips for making a transition successful:
- Make the culture rules clear.
Business culture can be a difficult thing to define. In a closely held business, culture is often broad-brushed with generalizations like “family-focused” or “people matter.” Leader Onboarding Inc. (leaderonboarding.com) has developed an assessment, New Leader Culture Snapshot, designed to help new leaders understand performance culture from multiple perspectives.
The survey asks two open-ended questions: What is the most important thing for this new leader to learn about the culture/performance climate in their operation? What are some potential early wins for this new leader?
In family businesses, communications and decisions are often informally executed. A Monday-morning breakfast to discuss the week’s priorities can help to formalize the process. Getting feedback from the team and the family around the important aspects of the culture and performance climate is a good start in making the rules clear to the new leader.
- Help the new leader to find company wins and family wins.
Trust is what successful leaders have and unsuccessful leaders lack. A new non-family leader in a family business faces additional obstacles in this regard. In any leadership transition, it’s critical that a new leader build trust from the beginning and avoid situations that can foster mistrust. One of the biggest mistakes I see is having a new leader fire someone in the first three to six months.
Company wins can range from devoting more resources to professional development of staff to continuing traditional employee gatherings or recognition programs. Family wins can range from the new leader making a point to have informal lunches with key family leaders to learning about the history of and relationships with key suppliers before making decisions about whom to bring into a new project. Trust is built through wins that matter to key stakeholders. In a family business, those stakeholders include both employees and family members.
- Support, support, support.
Every transition will include mistakes and complex situations that a new leader will need help to navigate to a positive outcome. A mentor is an ally during transition who provides a second perspective and an established reputation to help the new leader to remove barriers and avoid fatal mistakes. Remember that family businesses are beset with informal communication channels and family-centered traditions that can be difficult for an outsider to see. Assigning a mentor to provide a safe place to talk through some of these gray areas and help the new leader make good choices is critical.
Leadership transitions are inherently challenging, and the dynamics of a family business make them especially demanding. There are many steps that organizations can take to increase the likelihood of success. The first steps are to recognize the need to be proactive and deliberate with the transition, and to create realistic expectations for the new role.
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