Family Business: How to Spot a Problem Patriarch; Sometimes it’s the most successful leaders who sow the seeds for the downfall of a family business

Family Business: How to Spot a Problem Patriarch

by Josh Baron and Rob Lachenauer  |  12:00 PM July 24, 2013

Sometimes it’s the most successful leaders who sow the seeds for the downfall of a family business. Carl was one of the most talented leaders of his generation. When he took over the family business, it was a struggling $10 million automotive parts distributor. Now after thirty years of being at the helm, Carl has developed a $2 billion company that is a leader in logistical services to hospitals in Europe, and also owns four other distribution businesses. At one point, Carl had 48 direct reports and had personally hired each one. At the same time, he cared deeply about his family and made sure that everyone was well taken care of. But there was a darker side to Carl’s success.Although his first act was one of the best ever, he became a “problem patriarch,” a very hard-driving alpha leader who hired superb talent within the family and the business — and then consistently undermined that talent.

He drove his sister out of the company by placing her in a succession of dead-end jobs. His uncle resigned from the board saying that he wouldn’t be part of a “paper board,” in which Carl effectively made all the key decisions. Carl responded by maneuvering to buy most of his uncle’s shares. In the process, he created a leadership vacuum that threatened the very legacy he had worked so hard to build.

When he had a heart attack at 64, Carl’s doctors cautioned him to slow down. Worried both about his health — and about the prospects for the company — family members strongly advised Carl to step aside. Not surprisingly, he selected a relatively inexperienced CEO he knew he could control. People in the organization had no doubt about where the buck really stopped.

Now Carl is 70, the company has not grown since the Great Recession, and the current CEO is leaving for another opportunity. There are no strong internal candidates for the position, and the board is divided about the strategy and future direction of the company.

It’s important for family members and owners to recognize that problem patriarchs don’t rule by fiat so much as use a combination of other strategies to attain and maintain control over the current and next generation. You know you have encountered a Carl when you find yourself entangled with someone who:

  • Divides and conquers by playing one group of siblings or one branch against another
  • Buys off the majority by providing benefits (such as dividends) in exchange for obedience
  • Infantilizes the next generation by denying access to information about the business or relevant experiences
  • Creates a cult of personality around the patriarch/matriarch that makes it difficult to imagine anyone else leading

In many business families, we see these dominant leaders use these strategies in such a way that gravely endangers the transition of power to the next generation. One family patriarch, for example, doled out “allowances” to his children even into their 50s, keeping them so dependent that they never learned to make decisions autonomously.

Another client patriarch deliberately set out detailed rules for his descendants to follow, trying to lead them even from the grave. These rules were well-intentioned, but they hamstrung the ability of the family business to adjust to things that could not be predicted — even by someone so smart as the patriarch.

Yet another client appointed a son-in-law to run a failing $20 million business when the task at hand was to grow a $2 billion company into a $4 billion company. She was setting up the next generation to fail.

Often the reason given by such leaders for their vise grip on power is that the next generation is not good enough to provide the same quality of leadership that they have. Such thinking has an element of self-fulfilling prophecy to it. Those who are beat down rather than built up are far less likely to be successful.

What’s more, it is often a mistake to assume that the business needs the same kind of leader going forward to succeed. The traits and skills required to get a business off the ground, or to drive it to great heights, are quite different from those needed to build on that success and meet the next set of challenges.

Those who are left to take over from such powerful, mythic patriarchs, must realize the ways in which people’s development has been stymied (even if with the best of intentions). Awareness is the first step towards action.
It is also important to understand that while things may be better once the controlling patriarch is no long on center stage, the organization will still embody some negative aspects of his legacy. Reorienting and rebuilding the family business will take time. Without new, collective leadership, the transition process is likely to be extremely challenging — or unsuccessful.

At this point, family business owners have a choice: they can try to find another benevolent patriarch, or they can let multiple leaders bloom. We call these the “one-for-one” versus “one-for-many” strategies. One-for-one happens when families try to find a replacement for Carl, another patriarch who can do it all. By contrast, one-for-many strategies come into play when the family realizes that what worked before cannot be replicated going forward.

The best patriarchs recognize that different people, different styles of leadership, probably multiple leaders, are needed to fill the vacuum left by his passing or stepping down.

The choice between a sole, benevolent patriarch and multiple leaders in the organization is not either/or, and the best patriarchs realize this. We have one client patriarch, who developed talent up, down, and across the family and the organization.

This patriarch was empowering in that he put his people in leadership roles; he also cultivated and celebrated their talent. Knowing that time was approaching to transition power to the next generation, the patriarch appointed and created a heavy-hitting board that included two of his daughters. He prepared and gradually transferred responsibility to his son.

This patriarch did an outstanding job of developing talent. That’s no small feat. Setting the stage for a great second act is what real leadership is all about.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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