Family business leaders who think they “know best” and adopt a paternalistic leadership style can lead to unsuccessful succession transitions, by leading to feelings of dissatisfaction and inertia in the next generation

FAMILY BUSINESS LEADERS WHO THINK THEY “KNOW BEST” HINDER SUCCESSION PROCESS

ARTICLE | 12 MARCH, 2014 12:39 PM | BY JESSICA TASMAN-JONES

Family business leaders who think they “know best” and adopt a paternalistic leadership style can lead to unsuccessful succession transitions, according to new research, by leading to feelings of dissatisfaction and inertia in the next generation.

According to Paternalistic leadership in family firms: Types and implications for intergenerational succession, there are three types of paternalistic leadership styles – authoritarian, benevolent and moral – and some can be more detrimental to leadership transitions than others.

Published in the Journal of Family Business Strategy, the paper was critical of the “authoritarian paternalist”, who asserts absolute control, expects unquestioning obedience from subordinates, and assumes they are the “only person who knows what is best for the firm and all of its employees”.

One of the paper’s authors, Donata Mussolino, of the University of Naples Federico II, says: “They don’t want to retire, they want to make all the decisions themselves and they think in their mind that making all the decisions is best for all the others.”

The paper – co-authored by Andrea Calabro, of the Witten Institute of Family Business – says next gens transitioning into leadership are likely to perceive the succession process negatively if their predecessor exhibits this overbearing and meddling leadership style.

It continued: “Excessive and domineering involvement by the outgoing generation in an organisation (“generational shadow”) may stifle the incoming generation’s ability to contribute to value creation within the family firm through new ideas and initiatives.”

In contrast, the “benevolent paternalistic” leadership style can have a positive effect on the succession process, and is characterised by a leader that “respects subordinates, cares for them, satisfies their individualistic feelings and needs, and provides them with appropriate support.” The “moral paternalist” was described as someone with “superior personal virtues” who led by example, and could also have a positive effect on the succession process.

According to Mussolino, some scholars argue paternalism is a defining feature of the family ownership model. “The paternalistic leadership style is very common [in family businesses], because paternalism is like the relationship between a father and a daughter or a father and a son, so it resembles this type of relationship,” she says.

Rob Lachenauer, chief executive of Banyan Family Business Advisors, based in Massachusetts, US, says the authoritarian leadership style described by the paper sounds reminiscent of something he calls “founder syndrome”, exhibited by many business leaders who have created a successful firm from scratch.

Mussolino reiterates this observation, noting: “The more generations we have in the family firm the less we will have the paternalistic effect.”

While “founder syndrome” leaders may be detrimental during the succession process, Lachenauer says they have often had very successful business careers. “To have gotten there they’ve had to be very powerful, very clever, a very hardball player in some respects, very good at business, and there’s a respect that’s given to these people in these families because these people have created so much wealth for the family.”

But he explains that when a next gen or someone else in the business comes in with a different perspective the authoritarian leader will believe they are the “judge and jury on everything”, which can be very stifling.

When it comes to the succession process, Lachenauer explains: “[The outgoing family business leader] says ‘I’m going to step away and become chairman or executive chairman’ and they bring in their brother or their son or daughter as CEO and it just doesn’t work because there’s all this meddling.”

Lachenauer says there are several options for next gens dealing with overbearing predecessors in the succession process, beginning with bringing in a transitional non-family chief executive, who doesn’t have any family baggage, before the next gen takes over. “Then after that’s settled down, maybe five years later, a family member can step back in, because a lot of the transitional issues have been buffered by this non-family member,” he says.

Other alternatives include establishing board as a sort of structural buffer, which Lachenauer says should be made up of members who are “of age”. “So other people who have been there, done that, and have the authority to look the patriarch in the eye, and tell them to butt out when they’re trying to transition to the next generation,” he explains.

Finally, he says, the next generation needs to realise they have “much more power than they think in these systems”. Lachenauer explains: “The authoritarian paternalistic leader does want to transfer power to the next generation, and whether they want to assume their power or not could be their trump card, because they could say ‘dad, while you’re behaviour is this way we’re not coming in’.”

Mussolino says she is now expanding on the research paper to see what effect gender has on the succession process under a paternalistic leader, and to examine whether its effect is different for a male or female successor.

 

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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