Family businesses make up 40% of Fortune 500 companies and 60-80% of global enterprises worldwide, so it’s safe to say they’re the rule, rather than the exception. On top of the pressures of maintaining and improving business performance in an increasingly competitive world, family businesses bring with them the stress of managing family relationships. This overlap of family and business dynamics means that a family business by definition creates business management paradoxes over and above those that arise at non-family-owned enterprises.
The 4Ls Framework was conceived as a practical model to understand these special characteristics and paradoxes by Professors Ken Moores and Mary Barrett. They studied the experiences of second or later generation family business owners who had served as CEOs in their firms.
The framework comprises four sequential leadership learning phases that occur in well-run family businesses. Each includes its own priorities, paradoxes, and proven pathways to navigate those paradoxes. The first two phases concern apprenticeship, or learning how to lead a family business, while the latter two concern stewardship, or ongoing learning on the job and passing on the business.
- Apprenticeship: Learning business, Learning our family business
- Stewardship: Learning to lead our business, Learning to let go of our business
Let’s take a look at each phase in closer detail.
Family business or otherwise, any aspirant CEO needs to learn the fundamental theoretical and practical skills necessary to manage a business. The question of whether to do this within or outside the family business is open to debate, with pros and cons in each column, but Moores and Barrett believe it should be at another company.
The learning priority within this phase is developing personal proficiencies, particularly:
- Self-management skills that include attention to detail, discipline, and self-reliance, as well as traits like pride and responsibility.
- People skills are almost as important as self-management skills. These are about managing your staff to work as a team and getting the best out of your team.
- Technical business skills that include finance, accounting, sales, market understanding, and forecasting. These are underpinned by a personal commitment to ongoing learning and a recognition that practical knowledge is more important than theoretical.
The paradox that arises in this phase is that family members must work and learn at other businesses to acquire the necessary skills, but may not wish to return to the family enterprise in the future. The only pathway through this is an acceptance of the necessary uncertainty and keeping the door open for family members to return.
Learning your family business
Returning to the fold from working elsewhere kicks off the next phase, which involves learning the specifics of the family enterprise.
Here the priority is learning to understand family business values. These might include determination, working hard, and the ability to recognise, admit and learn from one’s mistakes.
The paradox of phase two is that although the younger generation must learn to live by the values of the enterprise, as entrenched by the older generation, the evolving nature of business means these values may well need to be continued in a somewhat different vein. It’s important to give the next generation the freedom to interpret these values in their new context.
There are two pathways through this paradox, which can be taken exclusively or together. The first is preserving the broader philosophies over the details, which may be less relevant. The second involves redefining what it means to value values by focusing on the market value of the enterprise, and understanding that levels of family involvement in it may fluctuate.
Learning to lead your business
Once you’ve acquired general and more specific business knowledge, you still need to learn how to implement it in the family business.
The learning priority in this phase is the astuteness necessary to lead the enterprise in such a way that the family and the business work in harmony. This involves understanding what might set off family conflict and mitigating these triggers. Leaders should also ensure that guidelines for the involvement of family members and non-family staff are clearly articulated, along with potentially contentious matters like the sale of shares. A code of conduct can prove invaluable in such instances.
The paradox here stems from the need to balance contradictory management approaches: the informality of dealing with and fostering trust among family members, and the formality of managing day-to-day operations and non-family stakeholders. This often arises as businesses grow and professionalise.
Navigating this paradox requires leaders to be “formally informal” or “informally formal”, as Moores and Barrett put it. They must adopt the necessary data-driven management systems to understand and respond to complex market developments, while also exercising control through regular board meetings, with boards ideally including non-family members.
Learning to let go of our business
This is where the question of succession – potentially the most critical challenge any family business will face – must be addressed. It is rendered all the more complicated by the nature of family relations and feelings of entitlement around the business.
The priority here is learning the prescience to know when – and how – to pass on the reins of leadership. Doing so requires determining what needs to happen for the business to continue in the family, how the successor should be appointed, and how to manage the incumbent CEO’s retirement process. At this stage, a successor should be identified who has gone through the first two phases of the framework.
The paradox of this part of the process is that the CEO must lead towards a place where they will no longer be in power – effectively leading by letting go. Moores and Barrett identify three key steps to dealing with this paradox:
- Develop a clear retirement timeline
- Create management development systems to support a clear succession line
- Stick to the plan
Putting theory into practice
While having the know-how of family succession planning is important, translating action into words involves a complexity that cannot be gleaned from a textbook. Fortunately, Stephen Shortt has spent most of his adult life working in the family business and then, having taken over the reins, assisted others in making the transition. With expertise in succession planning, personality profiling, and team development, Stephen adds the objective, professional perspective your family business needs. Have a chat with Stephen or contact Successful Succession if you have any questions about family succession planning.