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Family firms need a common vision to survive across the generations

Published on Saturday, 09 May 2015

More than two thirds of the companies listed on the Hong Kong stock exchange are predominantly family owned – as are thousands of small and medium enterprises.

They should pay attention to new research by my colleagues which notes that only 30 per cent of family firms outlive their founders and succeed under the second generation. Far fewer make it to the third or fourth generation. The study, “Leadership Lessons from Great Family Businesses” by Claudio Fernández-Aráoz, Jöerg Ritter and Sonny Iqbal, is based on interviews with family firms worldwide and appears in the April 2015 edition of the Harvard Business Review.

As the title suggests, there is much we can learn from the few family firms that do outlast their founders. These companies have a “family gravity” – a common vision and clearly defined set of values that embrace the next generation. Based on this, they shape long-term road maps and talent plans for their businesses. If the founders fail to cultivate such family gravity, they can end up jeopardising the longevity of their businesses.

Recently I met the founder and CEO of a large Chinese family business, who was worried that neither his children nor his professional managers were prepared to take the reins. He had been the “brain” of the business for so long, that he now found himself surrounded by loyalists who were competent at execution but short on strategic thinking. The initiative-takers, with little room to grow, had left the firm.

My suggestion to this CEO would apply to many other founder-owners. First, undertake a sober assessment of who you have in your team, both to identify potential future leaders and to spotlight gaps in your bench.

Second, pay attention to your leadership style and the effect it has on people around you. If you want the next generation to grow as leaders, give them the space to ask questions, come up with new ideas and take risks.

Third, think about the long term – how will the business be governed and structured when you are not around?

Whether your family business has 10 employees or 10,000, taking these steps now will greatly increase its chances of long-term survival and prosperity.5 edition of the Harvard Business Review.

As the title suggests, there is much we can learn from the few family firms that do outlast their founders. These companies have a “family gravity” – a common vision and clearly defined set of values that embrace the next generation. Based on this, they shape long-term road maps and talent plans for their businesses. If the founders fail to cultivate such family gravity, they can end up jeopardising the longevity of their businesses.

Recently I met the founder and CEO of a large Chinese family business, who was worried that neither his children nor his professional managers were prepared to take the reins. He had been the “brain” of the business for so long, that he now found himself surrounded by loyalists who were competent at execution but short on strategic thinking. The initiative-takers, with little room to grow, had left the firm.

My suggestion to this CEO would apply to many other founder-owners. First, undertake a sober assessment of who you have in your team, both to identify potential future leaders and to spotlight gaps in your bench.

Second, pay attention to your leadership style and the effect it has on people around you. If you want the next generation to grow as leaders, give them the space to ask questions, come up with new ideas and take risks.

Third, think about the long term – how will the business be governed and structured when you are not around?

Whether your family business has 10 employees or 10,000, taking these steps now will greatly increase its chances of long-term survival and prosperity.

Catherine Zhu, managing partner, Egon Zehnder, Hong Kong.

 

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