These enterprises face unique challenges in grooming tomorrow's top executives. Here's how to make their succession plans work.
Family-run businesses face a big problem: Who will run their enterprises in the future?
Leadership succession is not a one-time exercise but a continuous strategic direction.
Companies in the Gulf Cooperation Council (GCC) provide a large-scale example of a problem that plays out in all kinds of family-led businesses worldwide. Family-run enterprises constitute 75% of the private-sector economy and employ 70% of the labor force in the region. Over the past 30 years, as the GCC has risen to prominence on the economic stage, many of these family-run businesses have progressed from small-scale trading operations to international conglomerates spanning the globe. This evolution now poses a challenge. When first- and second-generation leaders of these companies reach the end of their tenures, family enterprises must select future leaders and equip them for success.
The problems of leadership selection and development are far different for a family enterprise than they are for a typical corporation. Family-run enterprises face unique challenges balancing traditional family succession planning and what's best for the future of the company. Decision rights tend to be complicated with blurred lines between family authority and business governance. Further, a lack of planning can exacerbate a lack of objectivity.
Because of this balancing act, family businesses may neglect formal succession-planning processes and leadership development, resulting in poor decision making. Leadership succession is not a one-time exercise but a continuous strategic direction that the highest levels of the organization must assess, tailor, and revisit constantly over a significant period.
Hone in on strengths and performance
Understanding the strengths of the current leadership talent bench in a company and the current environment for developing those leaders is key to ensuring a smooth leadership transition. Regardless of heritage, senior leaders should be able to identify and understand potential successors' innate talents and use this understanding to develop them with an end goal in mind.
Businesses can also hold potential successors accountable on key performance metrics. By coupling companies' existing performance metrics -- such as growth, profit, revenue, customer engagement/retention, and employee engagement -- with measurement tools focused on leadership talent, current leaders can much more accurately predict how a candidate will perform. These insights allow organizations to develop each leader in a way that is specific to existing skills and gaps, creating a clear expectation of when these leaders may be ready to take the reins.
Leadership development also offers organizations the opportunity to reflect on the environment they are offering future leaders. Companies must consider whether they are setting the correct expectations and path to develop and grow new leaders, ultimately providing an environment for success.
Leadership talent can pay dividends
Despite challenges, family enterprises have a unique opportunity to evolve and grow. And they have an expanding pool of potential leaders to choose from. For instance, a company founded in the 1950s by an individual and managed in ensuing decades by several of that individual's children may now have a dozen or more contending third-generation successors.
Family businesses need to view leadership talent as a corporate asset -- one that must be managed as diligently as cash flow, inventory, or intellectual property. Now more than ever, family businesses need an objective, structured, and quantifiable way to identify and nurture leadership talent.
Considering every family member's role is a key strategy for success. It is essential for family members to have opportunities, including the right education to thrive in a modern business environment and the right exposure in the organization. Implementing a plan in which family members start gaining credibility in the business and work with a mentor to progress quickly through the hierarchy to a senior position will lead to success.
With a constantly evolving financial climate, family enterprises are still the backbone of the GCC economy. With careful planning, these valuable organizations can continue to drive economic growth and set the standard for corporate leadership and development -- in the GCC and beyond.
A versin of this article originally appeared in The Gulf.