Andrew Keyt is president of the US chapter of FBN International and executive director of the Loyola University Chicago Family Business Centre. Joe Astrachan is a research fellow at Loyola University Chicago.
A unified family business depends on good communication and a solid foundation of trust. Andrew Keyt and Joe Astrachan say the secret to good management and visionary leadership rests with making satisfying face-to-face human contact on a regular basis
Mission and vision are powerful business buzzwords. Indeed, having a clear mission and vision for the future of any corporation is considered an important factor in corporate success. But is it really? Might it work at cross purposes in a family business? We contend that a focus on vision, in the absence of trust among the stakeholders can pose a serious threat to both family and business: Vision should spring from trust and never the other way around.
Where does this obsession with vision come from? There has been a long debate on whether vision unifies peoples or unified people present a vision that a leader can articulate. Unfortunately today, we glorify those who believe the strength of their vision is a source of unity and motivation. Charismatic leaders are lauded in the business and popular press, and perhaps, just perhaps, sometimes their visions are powerful enough to unify and motivate unrelated people, but counting on being able to do this yourself, as the leader of a family business, smells of delusion.
We are guilty of championing the visionary, or one best leader in family business too where we talk of best practices or criteria for the 'perfect successor'. Yet when checked against the research, in family business or elsewhere, there is little that shows these ideas actually work. In leadership, for example, research shows there are many styles of leadership and the success of these are context dependent.
Family members are related, by blood, history, experiences, and identity. These relationships create a different and unique context that makes a vision articulated by one person, or one leader (especially beyond the founder) likely to be a source of conflict and not motivation and unity. In a listed firm, with millions of shareholders whose primary interest is financial, a leader may have broad authority to enact bold visions. Widely dispersed stakeholders with low emotional investments in the company allow the CEO to focus on a vision designed to unify the troops – it provides the organising principle for the company.
Family businesses typically have a small group of shareholders with very high emotional investments in the company. They are often suspicious of hidden agendas, and especially of family members who may try to take a too large slice of the family business pie. To blindly pursue vision in the absence of or without an appreciation for the importance of trust in the family firm can actually threaten both family and business. The vision presented can be too easily rejected, unlike the classic non-family company.
To pursue a high-risk strategy in a low trust environment poses a high risk to both family and business as can be seen by the following example. Peterson's Dry Cleaning has just made the transition to the third generation. The process was not without its trials and tribulations. The three brothers (Peter, Bob, and Jim) in the second generation had differing desires and ambitions for their five store chain. The conflict resulted in Bob and Jim buying out Peter and continuing the family business with two remaining branches.
This conflict left the remaining family members (including six third generation members – three from Bob and three from Jim) a little uneasy and unsure of how things would move forward, and whether the family could communicate enough to hold the family business together. With such a divisive split in the family, they were asking themselves, what is to prevent this from happening again?
All of this happened about the same time that Katherine, the oldest of Jim's three children stepped into the role of CEO, and Bob and Jim retired to the board. Katherine, being a bright and energetic individual, having earned an MBA from Yale, and worked for several companies before returning to the family business, felt that the challenges of the industry and the state of the business called for some bold changes and a broad new vision, if their family business was to survive.
As Katherine pursued a strategy of modernisation and acquisitions, her cousins grew quiet. Katherine shared information with them through quarterly reports, but her cousins did not share opinions or ask questions. In June of this year, one of Katherine's highly touted acquisitions failed, which ignited a firestorm of criticism from the third generation cousins about mismanagement and the undue risk of the strategies that Katherine was pursuing.
What the case of Peterson's Dry Cleaning teaches us about family businesses is that the myopic and bold pursuit of vision, without an underlying understanding of the importance of trust in the family business can be destructive to both the family and the business. One mistake can lead to massive retaliation even when that mistake is not threatening to the company. It is a unified shareholder base that allows the family business to make decisions more quickly and also to place the long-term ahead of immediate returns. And what is at the core of a unified shareholder base? Trust.
In Katherine's case, she made a common mistake. She viewed the lack of comment as agreement with her vision and unity. A strong vision often leads people to believe there is agreement because it is hard to make persuasive logical arguments against untested propositions proffered by unyielding leaders. But as most family business leaders learn sooner or later, silence is rarely agreement and the only agreement you should ever trust is when people are loud and willing to disagree openly before they agree verbally. Where do you find people, especially family members who are willing to disagree openly? Only where there is a high level of trust.
So what could Katherine have done differently to build trust? What could she have done to assure that Peterson's Cleaners was a "unified" family business. She should have recognised that there was some uneasiness in the family and sought to build a conversation with the family. She should have realised that no vision is strong enough to unify people who have family-deep emotionally based conflicts. To build trust, Katherine would need to make personal and structural changes.
On a personal level, it starts with self-confidence. Healthy self confidence allows a leader to listen to differences effectively. Leaders who lack self-confidence compensate with single minded drive that does anything but build connections and trust. She also needs to be honest and transparent about what is happening in the company, and be open to being criticised without getting defensive. As a leader she needs to live by the adage "Generosity builds trust; secrecy destroys it". This means a generosity of spirit, time, resources, and information.
On a structural level, trust requires consistency and predictability of behavior, it requires actions to be understandable and explainable. The one common denominator in all of these things is face-to-face time. Trust can not be built over e-mail. Building trust requires regular contact and interaction in a very basic human way. Merely sending out quarterly reports alone doesn't build trust rather listening, eye contact, and shared experiences help build trust.
This is why regular family meetings are so vital for family businesses, and why interruptions are so damaging. Meetings give family members the opportunity, not just to regularly share information, but also to demonstrate their caring for each other, to have fun, and to build the emotional value of the family business. Interruptions only demonstrate a lack of caring for what the interrupted person is doing.
In the business world, it is easy for us to focus on the romantic idea of the visionary leader, highlighting the charisma of the individual, their wonderful academic and work experience, but in a family business doing this with out an understanding of the underlying importance of trust can be destructive to both family and business. Visionary leaders in family businesses must exhibit a sensitivity to the family's level of trust as well as the ability to build trust moving forward, and in doing this they increase their capability to pursue their vision.
In a family business vision should spring from the trust of a unified shareholder base. Instead of relying on a bold vision to be the unifying factor for a corporation, family business leaders need to assess and the build the trust among their family and business stakeholder. Through a commitment to working together, family governance, and communication, family businesses need to build a foundation of trust before pursuing vision.