Establishing Authority in a Family Enterprise

When the boss’ child first takes an active role in the family business, you can expect a good deal of skepticism. Absent any other inputs, the base assumption is that the new associate has gained influence not because they’ve earned that right, but because of their parentage. Employees, customers, shareholders and even other family members are likely to harbor some degree of skepticism and, perhaps, resentment. All will be watching carefully to see if the aspiring new leader is capable of handling the responsibilities they have been given.

Family enterprise expert Ivan Lansberg suggests that aspiring leaders must pass a series of four tests to establish their authority.1 These are the trials that allow followers to assess and interpret the ability of the leader to lead.  

1. Qualifying Tests: Have you prepared yourself?

While a rigorous education is good, scions are even better served by working outside the family enterprise before joining the fold. This conveys that the successor is willing to be held accountable within an organization where he or she has no home field advantage. It also demonstrates that they have other options, and have joined the family enterprise because it is the one place they want to be, and not the only place they are welcome.

2. Self-Imposed Tests: Can you achieve the goals you set?

According to Dr. Lansberg, successors underestimate the importance of predictability in earning stakeholders’ trust. He suggests that new leaders set relatively modest goals and seek low-risk growth strategies to achieve them.  By under promising and over delivering, they will earn the trust of stakeholders, laying the groundwork for more ambitious goals further down the line. For scions who enter their family enterprise at a senior level, one of the first self-imposed tests will come in assembling their team of key executives and advisors.

3. Circumstantial Tests: Can you handle the pressure?

Lansberg suggests that circumstantial tests are particularly important in that they allow followers to “write” narratives about their leaders. Such narratives are deeply engrained in the culture. From Odysseus to Beowulf to Luke Skywalker, the scions of illustrious parents become legendary leaders by displaying courage in the face of adversity. Effective performance in times of crisis tends to trump contextual factors, such as birthright, allowing the emerging leader to establish their own legend.

Of course, performance cannot be judged effectively if the successor is not in a position that allows him or her to clearly demonstrate what he or she can do. Young executives, including successors, need the opportunity to succeed and fail on their own merits. Failure, on a manageable scale, is ultimately less corrosive to their authority than the inability to ever judge whether or not they have succeeded.

4. Political Tests

The best time to head off challenges to authority is before they begin. That makes it all the more important for a new leader to present a vision of the enterprise’s future to the aspirations of its stakeholders. Those who believe that the new leader has their best interests at heart are less likely to oppose them.

It’s Easier to Pass a Test When You Know You’re Taking One.

To establish your own authority within the family enterprise, you will be subject to four trials… whether you like it or not, or even whether you know it or not:

  1. Pass the qualifying test by getting a strong education and establishing a solid track record outside the family enterprise.
  2. Pass the self-imposed test by setting clear and measurable objectives and keeping your promises.
  3. Pass the circumstantial test by leading your team effectively through trying times.
  4. Pass the political test by controlling those who seek to undermine your authority.

Preparing your heirs to carry on your legacy

Many of those who create successful enterprises want their heirs to carry on in their footsteps.  This decision can often be met by resistance from those who feel that nepotism was the reason for the heir’s ascension.  It is important that you properly prepare your heir to face these challenges.  Such heirs are often driven, motivated people, who are well prepared for this adversity.  However, the proper training and hiring practices are still necessary if you want to minimize the struggles of the next generation

1 Lansberg, Ivan; The Tests of a Prince, Harvard Business Review. 

Dr. Ivan Lansberg is not affiliated with Morgan Stanley Smith Barney LLC.

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