Allocating Leadership Roles in the Family-Led Company

A family-led business has leadership challenges like any business, but some are unique simply because it is a family business. Some family members expect to assume leadership roles because they are family. There are issues concerning succession planning and balancing internal and external leadership roles. As the business grows, the governance structure needs strengthening, and leadership needs to change. With our extensive experience in working with family-led companies, the Utech group has successfully addressed these challenges. We have helped many family-led companies that were having difficulty allocating leadership roles because of family expectations and relationships and a lack of development of leadership skills in preparation for business growth.

Family Expectations

“I expect to have a development tract to prepare me for the CEO or executive position…”

“I deserved this management position because I am the Founder’s granddaughter…”

“It’s a family business, so only family members should be in leadership positions…”

One of the first challenges in the growing family-led business is that family members often have expectations when they join or plan to join the company. These expectations range from assuming senior leadership positions will automatically be assigned to family members to assuming family members are the only ones placed in critical leadership roles.

Integrating family and business can be challenging. Frankly, sometimes egos come into play, creating tensions. A sister may believe she is more qualified to lead the company than her brother, which she may or may not be. This kind of family dynamics can lead to internal conflicts, which can harm the organization’s culture and business operations. For example, having a pool of family members who are potential successors is good. However, having a pool of family members with widely different visions and in competition with each other for top leadership positions, including as the successor for the CEO position, can be harmful to the organization’s culture and can lead to a lack of focus on business operations.

As your business grows, it is disruptive when family members constantly vie for leadership positions. The first rule of order is for the family-led business to have a clear governance structure and a plan for filling leadership positions. This structured approach ensures that leadership roles are filled based on merit and qualifications, providing a sense of reassurance and confidence in the business’s future. This is one reason family-led businesses of all sizes need Human Resources policies and job descriptions for leadership positions that define the required qualifications. Formalizing qualifications ensures non-family employees may be considered for promotions, and only qualified family members manage a team of employees.

Of course, agreeing on leadership needs and allocating leadership roles, the decision-making system, and succession plans requires family members’ willingness to communicate, collaborate, and recognize and overcome personal feelings and biases for the good of the business. Our leadership workshops for family members encourage transparent communication among family members, which is essential to involving everyone in the decision-making process and minimizing tensions associated with family rivalries for leadership positions.

Recognizing the Influence of Informal Leadership Roles

“My grandfather still makes all the important decisions in our company, even though he retired five years ago, so why should I pursue a leadership position? No one will care what I think.”

Who influences decision-making in your family-led company? Obviously, the Founder or successor, Board of Directors, senior staff, and current leaders, but there are likely others external to the business exerting influence on decision-making.

• Retired Founders or senior family members who continue to guide the business and participate in decision-making even though they hold no formal positions
• Family members who are not working in the business but are often consulted as sounding boards
• Family members of family members, like spouses, who are not working in the business but regularly offer input through personal conversations at home
• Close friends of senior family leaders who are respected for their knowledge and experience

When allocating leadership roles in the family business, it is essential to recognize outside influences. In some cases, the company formally recognizes informal leaders, like the retired founder, by transparently recognizing and communicating the person’s support role to staff at all levels. This recognition of informal leaders is crucial as it makes them feel valued and respected, reducing the feeling that internal decision-making is second to outside influences, which is discouraging.

Recognizing this family dynamic can strengthen the governance structure you develop. The outside influence is not included in the formal decision-making processes, keeping lines of communication clearly drawn within the company. However, employees can respect the influencer as a source of knowledge and expertise for problem-solving and providing direction for success. Secrecy and behind-the-back decision-making are no longer accepted in modern leadership because today’s family and non-family employees expect honesty and transparency among business leaders.

Identifying the Need to Allocate Leadership Roles

Family expectations for leadership roles, a lack of formal decision-making processes, and unclear governance only work until the family-led business grows. As the company grows, these become signs that it is time to formally allocate leadership roles. Early-stage family-led businesses often do things informally, driven by the founder’s vision, values, and beliefs. The founder’s wife or husband may be assumed to be an informal decision-maker. Family members might regularly meet informally and exclude non-family staff members. Competing family members may try to stay within their understood leadership boundaries, but negative dynamics take over if those boundaries are not well-defined due to excessive informality.

There are signs it is time to allocate or formally designate leadership roles in the business through policies and procedures.

• The Founder or CEO has to make even minor decisions due to a lack of assigned leadership roles
• Decisions are being made by family members who are not the most qualified to be making them
• Decision-making is continually bottlenecked, often because the founder must make all final decisions or because the family has agreed a consensus must be reached
• Jealousy or resentment among family members is holding the business back from growing due to impasses in decision-making
• There is a weak process for resolving differences among leaders
• Business has grown to become too complex to be managed by a few family members
• Business has reached a growth stage where family members have randomly assumed duties as they arose, and there are now blurred responsibilities
• Business growth and operational expansion was not supported by the addition of strategically placed manager positions
• External informal leaders are causing the business’s internal issues, like resentment among family members managing day-to-day
• Decision-making is haphazard because the Founder or CEO does not have a formal leadership circle to access and collaborate with
• Family dynamics causing problems are mostly related to a lack of clearly designated leaders

Next Steps for Growth Management to Formalize Governance

Recognizing that business leadership needs may not always mesh with family leadership expectations, there comes a point where the Founder or next-generation CEO needs to develop a formal governance structure with allocated leadership roles. The strategy for change may include the following.

• Establish an organizational chart with clear lines of authority
• Define clear roles and responsibilities for each leadership position
• Formalize the authority of each leadership position with a documented job description
• Identify the minimum qualifications for each position, which effectively establishes requirements for joining the business
• Assign family members to roles based on their skill sets
• Determine which leadership positions should be external hires
• Develop an effective communication system for leadership collaboration and problem resolution
• Develop a succession plan
• Require leadership skills training customized to meet family member needs

These may seem like obvious steps, but family dynamics always complicate any change process. One or more family members might not like their assigned positions or believe they are being overlooked. If any egos are involved, a family member may perceive their role as too insignificant. Senior family members may want to lower some standards to ensure the next generation of family members can enter the business.

Before Naming Names: Establish a Strong Foundation for the Allocation of Leadership Roles

Allocating leadership roles in a family-led business is not always smooth because of family dynamics. For this reason, you need to discuss some challenges particular to your family-led business before officially placing family members in leadership positions.

• Reaffirm the founder’s clear vision and values so that leadership roles focus on embracing them in decision-making
• Honestly assess family relationships and transparently discuss challenges
• Develop an optimized governance structure that can handle the demands of a growing company
• Assist family members with developing an understanding of the value of each position
• Reaffirm shared values among family members
• Develop or close leadership gaps
• Regularly revisit leadership skills for currency
• Define the role of external family leaders in decision-making for clarification

Once family members are aligned and ready to assume formal leadership roles, the business will be in a position to grow with long-term stability. This process benefits from external consulting because of the impact of sensitive family dynamics.

At the Utech Group, we offer a variety of leadership development formats that are particularly beneficial for family-led companies. If your business is growing and you are ready to capture the positive family dynamics while allocating leadership roles, please contact us to learn more about leadership development workshops, including Dig-ins and Collectives, for successful business transitions.

With 30+ years of experience, our team of experts is here to help you grow and develop as a leader.  If you’re interested in learning more about what we offer, CONNECT WITH THE UTECH TEAM TODAY!