Transforming the Family Business

With our father retiring, my brother and I are soon to take over our family business. Its performance overall is good, but can you offer advice on how we might bring change to the divisions that need modernizing? We don't want to hurt our special culture.—Anonymous, Kerala, India

In one way, your question is universal. All new leaders, whether they're taking charge of a small partnership or a sprawling public corporation, want to know how to change the "weak"—that is, ineffective—parts of their enterprise without undermining the parts of the company that are clicking.

And in that way, the answer to your question is universal, too. A leader creates change by clearly explaining why change is necessary to compete, painting a vivid picture of the future of the changed company, describing in gritty detail the upside of change for the employees, and then talking about the incontrovertible need for change, constantly and incessantly, until the change is widely accepted and implemented.

There's a reason no one says change is easy. But in family-owned companies change can be even harder, and it's because of that last phrase of yours—"our special culture." Family companies are different in terms of culture; indeed, that's why many employees are attracted to them. Regardless of size, family enterprises seem more intimate; you can feel as if you're working for a real person or the legacy of one, not some generic entity owned by faceless shareholders. Family companies also tend to be more forgiving environments. Underperformance is often viewed in the context of an employee's personal issues, and underperformers are given second and third chances. As a result, many family company cultures are characterized by feelings of pride, security, and continuity, all of which make introducing change an especially delicate leadership endeavor.

Blood, Sweat, and Tears

But that's only the half of your challenge. The other half is your father.

Most family-owned businesses revolve around founders. Their values set the example and the tone; their words carries gospel-like weight. People believe they "get" the company in their bones. After all, it was their wisdom that built the place—along with their blood, sweat, and tears.

And so it is that any new leader who replaces a patriarch and has hopes for change—whether the new leader is a long-cultivated family member or an outsider—has to understand something. You can't start off by focusing your change efforts in the typical direction, downward, toward the people. You need to aim them upward, toward the constituent who holds their hearts.

Now, we realize that your father may have already told you that he supports your ideas for change. In fact, in the most successful family companies, patriarchs count on their kids to modernize in ways they themselves could not envision. But in our experience, the retiring leader ­usually harbors some ambivalence about his replacement's plans, and, as with any family situation, everyone in the room can feel it.

The Case for a Slow Build

We ordinarily encourage change agents to move more quickly than feels comfortable. Change always takes longer than you expect, and you'll never make fans out of everyone, so fight the urge to delay. But in your case, we make an exception. New leaders of family companies—whether insiders or outsiders—need to accept a "slow build" period to bring the patriarch on board. In that time, make sure your father understands your respect for what he has built. Make sure, too, that he comes to see the financial, organizational, and even cultural upside of your program. Finally, and this is vital, try to find a way for him to be a part of the process, not just a witness to it. Nothing will better convince employees of his buy-in (and hasten theirs) when the time comes.

Not that there's a formula. Succession in family companies is usually about as orderly and predictable as families are. But with sensitivity, you can achieve something remarkable—a family company that grows better with the next generation.

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