Six best practices to consider.
The challenges of effective leadership impact not only business and politics but also affluent families. Few things trouble today’s wealth creators as much as how the next generation of family members will assume the mantle of leadership by living purposeful and impactful lives that will continue to shape business, social, cultural or political realms.
Similarly, many wealth inheritors, often in their 20s, 30s and 40s, are keenly aware of the obligations of great wealth and the expectations of family and society, so that they too want to exhibit leadership that gives their lives meaning and purpose. Increasingly, many wealth inheritors are drawn to the need to solve fundamental social and economic issues, create new companies or continue the family legacy by leading the family business or foundation. Regardless, finding one’s path toward leadership in any realm is challenging, arguably more so for those playing leadership roles in affluent families.
While there are often generational differences with respect to exactly how the next generation will express their passions, the need and role for effective leaders transcend generations. The notion that one can create, change, shape or influence permeates the values of families who’ve created significant wealth.
The shared motivation of the family to remain cohesive and to perpetuate its role and impact in business, culture or philanthropy begs the question, “Who will lead the family in the future?”
Family Leadership Roles
Family leadership roles can broadly be defined by the following four (overlapping) categories:
• Family leader role. Often, the family matriarch or patriarch plays this role in either a formal capacity (Chair or CEO of the family enterprise) or informal capacity. Decisions regarding matters that impact the extended family (typically financial, dispute resolution or legal) are led, influenced or adjudicated by the family leader. The family leader is often the culture carrier who ensures that the family comes together, celebrates achievements and educates younger generations. She’ll have a forward-looking perspective on the family, navigating risks and positioning for long-term success. Optimally, this individual is a role model, exemplifying family values for current and future generations to emulate. She’ll also play a key role in external relationships (community, philanthropic, business) and is viewed as the public face of the family. While often, this is a single individual, some families opt for having multiple individuals play leadership roles based on family needs, an individual family member’s skill and her temperament. For example, a matriarch may oversee family gatherings and educational programs, while a patriarch or senior family member (aunt or uncle) may exercise leadership over family financial matters.
• Family enterprise leader role. This individual (or individuals) manages the strategic and operational matters of the family businesses, family office, family investment company or family foundation. The effective enterprise leader often exemplifies elements of technical acumen (for example, business experience) combined with exceptional judgment and a high degree of emotional intelligence. She may be the CEO, chairperson or senior director of the enterprise or multiple family enterprises. The family leader may play this role, but often, capable siblings or cousins fill this need.
• Emerging family leader roles. These individuals combine elements of both the family leader and the enterprise leader but in a developmental capacity. Emerging leaders are often easily identified within family systems either through a formal designation (for example, as CEO of a portfolio company or board member of the family foundation) or informally based on their family circumstances (age, birth order or family branch), as well as ambition, interests and skills.
• Informal family leaders. Informal leaders often play an influential role in the family system. They’re not defined by age or position in the family per se, yet they’re recognizable by the influence they wield in family matters, both important and trivial. They’re often consulted by family members and feel free to express views that may run counter to those of the designated family leader. They help to harmonize or disrupt the family system and, in large families, may be numerous in number.
Leadership Challenges
Family leadership succession challenges are universal in nature. A 2015 survey conducted by the World Economic Forum1 revealed that 86 percent of respondents felt that there was a “leadership crisis” in the world today. More noteworthy, the distribution of responses across the world illustrates that the need for future leaders is truly global in nature: Europe-85 percent, Asia-83 percent, Latin America-84 percent, Middle East-85 percent and North America-92 percent.2
My experience working with family offices around the world provides further anecdotal evidence of the leadership gap. Often, families of meaningful wealth are ill prepared to identify, educate and transfer leadership to next generation wealth inheritors. Sadly, the results are often dissipation of family wealth, increased family discord and a diminished role and impact of the family in the lives of extended family members, as well as external ecosystems (for example, business, culture and politics). Yet, many families do navigate leadership succession successfully and serve as a model for others to learn from.
Arguably, the motivation to create future leaders is present in most families, regardless of economic circumstances. Yet the means, visibility and networks of affluent families provide a unique vehicle for future wealth inheritors to leverage, should they choose to play an active leadership role in family matters, business, philanthropy, politics or effecting social change. While affluence isn’t a guarantee of success, the launching platform afforded next generation leaders provides them at the least with a distinct competitive advantage. Imagine for a moment the potential impact of well-directed efforts by a new generation of family leaders aimed at social, medical, business, technological or cultural opportunities.
Six Best Practices
How then, faced with the challenges as well as opportunities of leadership, can families foster strong next generation leadership?
Families who successfully navigate a generational transfer of leadership exhibit six specific characteristics or best practices.
• Acknowledgment—Most important, they recognize the need to actively manage the process of leadership development, role definition and succession.
• Well-articulated process—They embrace a clear and open policy.
• Emphasis on education and personal development—They invest in activities designed to identify and develop future leaders.
• Collaborative paradigms—They acknowledge the changing nature of family leaders from autocratic to more collaborative as a way to promote involvement, particularly from younger generations.
• Understanding motivations—They embrace open communication from the next generation, seniors and extended family about their desires to be involved in family endeavors.
• Acknowledge and correct mistakes—They understand that not all efforts will be successful, and they act quickly to remedy bad situations.
Let’s examine each of these six characteristics. It’s worth noting that these practices aren’t unique to family systems, and analogous efforts can be observed in major corporations. However, the ways in which they’re applied are quite unique to families and require nuance and adjustments based on the particular circumstances and dynamics of the extended family.
Acknowledgment. The recognition of the need to actively manage the development of future family leaders is fundamental to an effective process. While one might assume this to be widely accepted within a successful and affluent family, it’s often not the case. Why? One’s mortality, deeply held feelings of control, pride, interpersonal dynamics, lack of readiness among heirs and self-perceptions make this an awkward topic. Rarely does a family principal disavow the importance of leadership succession; however, she may put little effort and resource behind creating a strong process. Frequently, this results in initiatives that are started far too late in the cycle of leadership succession, or not at all.
Effective family practices begin with a sincere dialogue among key family members as to the importance of leadership succession. This dialogue will often include current generation wealth owners and those in line to inherit meaningful wealth. Typically, an estate attorney or consultant skilled in this topic mediates the process by which an agreement is ultimately reached. The outcome of this dialogue is often codified in a document that sets forth the family’s views, key roles, policies and commitment to leadership development and succession. The document serves as the basis to communicate these views to the extended family and interested parties (such as companies wholly owned by the family). Key to this process are the identification and inclusion of key stakeholders, as well as identification of the many constituencies impacted by the outcome. This should extend beyond just family members to the organizations that are owned, subsidized or endowed by the family. Often, these organizations and their employees are keenly aware of a potential leadership vacuum or lack of clarity around succession giving rise to collective uncertainty.
Ignoring or putting off this discussion is rarely an effective strategy. Indeed, starting early, even when wealth inheritors are in their early teens, is advisable.
Well-articulated process. Successful families embrace a clearly defined process when it comes to leadership development and succession. In the context of running the family business, for example in a family enterprise leader role, this often includes: eligibility expectations, training and development resources, mentoring, compensation policies for family members and governance (specifically, reporting, decision making, hiring and firing practices). For example, they’ll set forth what’s required of potential leaders in terms of education, work experience within or outside the family enterprise, personal conduct, characteristics and values and key measures of success. They shun nepotism and set high standards that may be met by family members or filled by outsiders. They don’t compromise when filling key leadership roles and don’t give family members an edge in promotion, compensation or key roles.
Setting forth such eligibility expectations, practices and resources makes it clear to all what’s expected of current and future family leaders, regardless of age or role. It serves to emphasize the importance of succession in the family, and it allows for many forms of leadership to take shape. Needless to say, this process isn’t intended to ordain a specific future leader but rather to encourage any number of family members to strive for leadership roles in any number of areas. Over time, family needs, family roles and individual family member readiness will change, so maintaining flexibility is essential.
Education and personal development. An important element to the design of an effective family leadership development process is the identification of key steps and resources available to next generation family members. Ideally, this is a life-long time horizon, as leadership development is a never-ending process. The best practices include formal and informal education, along with mentoring. While it isn’t necessary to identify every facet of who’ll carry out these activities, it’s important to describe and explain to family members why they’re essential. An effective approach will include both technical education elements (for example, business, the arts, finance and social work) as well as personal development (for example, self-awareness, communication and problem solving). Arguably, the most effective leaders, regardless of context, combine elements of both technical skill and important personal attributes.
Families often will create an age-appropriate timeline of personal development resources, for example:
• Teens: Exposure to seniors who share family stories, histories and values. Access to programs designed to comprehend the basics of money management, philanthropy and religious, artistic and cultural endeavors important to the family.
• Post-college: Mentoring by a senior family member or trusted advisor to the family; exposure to next generation programs that teach the fundamentals of asset management, venture capital, estate matters and family governance. Development of peer networks that support information sharing. Periodic exposure to key medical, legal, tax, estate and investment advisors to the family. Selective participation in important meetings so as to observe the behavior and roles of senior members. Open Q&A sessions with seniors, family meetings or company meetings. Participation on committees. Occasionally, creation of programs to support specific emotional or medical needs.
• Adults: Advanced training in management, personal leadership development, governance and conflict resolution. Exposure to groups and conferences that open up new ideas and create peer networks. Continued mentoring and development of informal advisor networks. Opportunities to work in a variety of family-owned enterprises or the business, philanthropic or cultural endeavors of colleagues or family friends. Leadership roles on family or community committees. Increasing responsibilities in family enterprises commensurate with need and ability. Feedback sessions involving family and business associates. Use of personal coaches.
• Seniors: Similar to adults, with shifting emphasis on changing role definition, succession management, creation of new ventures, teaching and mentoring.
In sum, you can’t anticipate where future leaders will emerge within an extended family, nor can you predict what role they’ll play. Remain open-minded and flexible, and avoid inherent biases around family branch, age, generation or gender. Cast a wide net, set high expectations, encourage all and observe and provide feedback on a periodic basis. Ultimately, one or more strong candidates will emerge in either a family enterprise leader role or family leader role.
Collaborative paradigms. Most present day family matriarchs or patriarchs grew up under a model of autocratic family leadership, in which the family leader was the sole arbiter of major life decisions, proper behavior and reward/punishment systems. Successful family leaders shun autocratic behavior and embrace a collaborative approach to communication, engagement of family members and decision making. They’re comfortable reaching across generations to invite input and promote collaboration.
Understand motivations. In spite of the best efforts to groom and cultivate young adults who may assume a leadership role in the family enterprise, not everyone desires to lead or even be involved in family endeavors. This is particularly true for multi-generational enterprises in which the pressures to emulate the success of past family members can be quite intense. A recent survey conducted by Citi Private Bank showed that fully 50 percent of respondents from 19 countries didn’t wish to be a part of the family business.3 This is a remarkable but not entirely surprising response. Arguably, such resistance to joining the family enterprise has been an age-old phenomenon with the only difference being today’s young adults feel a greater freedom to pursue their own interests. Regardless, a best practice among families who successfully navigate these waters is to embrace open communication, make no assumptions, encourage a range of options while making the families’ needs clear and, in the end, accept that decisions aren’t made for life. Often family members will enter (or exit) the business after having pursued other vocations or passions.
Acknowledge and correct mistakes. In spite of our best efforts, there will be failures in leadership succession in either the developmental or formal leadership role stage. This may be due to any number of factors; however, an effective family leadership process anticipates this and acts accordingly. Best practices include the following key elements: 1) formal role and performance guidelines; 2) periodic candid feedback; 3) remediation plans; and 4) making swift changes in roles and responsibilities when necessary. Having a governing board for legal entities or a family counsel may make this process more or less difficult, depending on family dynamics. Similarly, adding outside directors may bring greater objectivity.
Shaping Well-Balanced Leadership
Effective family leaders, not unlike successful business or political leaders, display the right balance among solid judgment, breadth and depth of life experience and strong emotional intelligence. Often, leadership development plans will overlook the need to promote emotional intelligence (EQ).
EQ is most often viewed4 as a core set of personal characteristics, such as empathy for others, self-awareness and self-control (the ability to control ones behavior and reactions). Some have posited that EQ is arguably a more important factor than IQ when understanding successful leaders. Most promising, EQ can be enhanced while IQ can’t.5
Regardless of how one defines the boundaries of EQ, the need to include EQ in family leadership development is essential. Exposing future leaders to the fundamental tenets of EQ creates personal awareness, the opportunity to assess one’s gaps and the chance to fill those gaps through education, experience, self-awareness and coaching.
Endnotes
1. Shiza Shahid, “Outlook on the Global Agenda 2015: Lack of Leadership,” World Economic Forum (2015).
2. Ibid.
3. Survey conducted September 2017 at the Citi Private Bank Empowering Leaders Program, University of Cambridge, Cambridge, England.
4. See Daniel Goleman, “What Makes a Great Leader,” Harvard Business Review (June 1996); Warren Bennis and Robert Thomas, “Crucibles of Leadership,” Harvard Business Review (September 2002).
5. See, for example, Martyn Neman Ph.D., Emotional Capitalists (2014).