Leading family firms

In order to extend their legacy of success to future generations, leaders must devise a strategic plan, not only for driving business growth, but also for effectively managing the intricate and constantly-evolving personal relationships that define

their company, and indeed their lives.

The Stanford Graduate School of Business Office of Executive Education is launching a new program entitled Leading Family Firms, that seeks to provide leaders of independent firms with the skills they need to rise to the challenges posed by the modern business environment. In essence the course explains how to manage future growth while overcoming the challenges and conflicts that threaten the legacy of their firms. In doing so, participants learn to apply a higher level of strategic thinking to all of the obstacles that they must overcome in turning a currently successful family firm into a future global business champion.

Challenges
The main objective of any business is to grow, but there are many considerations that a leader must face in order to achieve this.

One of the initial and principal challenges that faces a family business is the organisational structure of the company. It is imperative that the business has in place the correct management team, one that is well-equipped to drive the company forward and in the correct direction. Furthermore, from the outset, the leader of a family business must take a long-term view, and the key consideration in this is succession planning. A strong management team can provide the cornerstone when the time comes to begin thinking about a change in ownership.

Professor Hayagreeva Rao is a Director of Stanford’s Centre for Leadership Development and Research, and one of the new program’s instructors. “From the beginnings of the company’s life, certain structures and systems need to be in place in order to help nurture family talent. Education is a key attribute, as potential future business leaders need to be equipped with the right skills to manage a business,” he says.

“In addition to this, it is vital that family members learn the ‘nuts and bolts’ of the company, so that they understand every aspect and every component of the business,” says Professor Rao. In this way it is vital that the family puts in place adequate provisions to ensure the development of potential successors, as this will also ensure the continued development of the business itself.

Another key challenge, inextricably linked to the growth of a business, is that of innovation. Here, a methodical approach needs to be adopted. There is a strong call for a clear strategy when it comes to product development, as substantial time and resources can easily be spent producing a limited discernible outcome.

“A growing business is in many ways similar to a venture capital firm,” says Professor Rao, “as it is an environment where new ideas and products are fostered. When it comes to product innovation, products that are in the pipeline need to be tested internally, using the venture capital model. Testing of products needs to be undertaken over different stages of development, with capital only applied to the product once it has successfully completed each round of testing.”

And when it comes to raising capital, the leader of a family business also needs to be prepared. “Raising funds can be a tricky period for the family business, whether it involves assuming debt, a venture capital investment or a listing on the public markets,” says Professor Rao.

Different leaders have different attitudes towards risk, so loan funding may not always be attractive, whereas the loss of control of a large proportion of their business may deter many from taking on venture funding. And the prospect of an IPO may instil fears of a loss of family identity.

“Raising capital is very much a question of psychology and finance,” says Professor Rao, “and it is important to maintain a balance between family and business; it is vital that neither the business nor the family position is weakened at the expense of the other.”

Sometimes this requires innovative solutions. “I know of one Dallas-based media firm that split into two distinct parts; one part was kept under family ownership, and the other was made public. It is vital to consider what is best for each individual business, and no two firms are the same.”

Globalisation also poses considerable challenges. On the one hand, often the leader of a family business relishes the prospect of expanding his firm – of establishing a global footprint. On the other hand, however, in doing so he faces the real possibility of diluting the family’s identity, and this is an emotional decision to take.

Furthermore, the question of where to globalise is critical, and to what extent. “It is really a question of scaling,” says Professor Rao, “if the business over-scales it is liable to over-stretch itself and weaken, but if it doesn’t stretch far enough there is the threat that someone else will take advantage of your shortfalls.”

To address these challenges the program closely examines case studies of companies that have globalised successfully, as well as those that have failed. It also offers the opportunity to meet the leaders of these companies.

“Smart companies make change look very simple,” says Professor Rao, “and they keep globalisation simple.”

Who should apply?
The program is aimed at companies meeting three criteria; those in which members of one family are significant shareholders, those in which at least one family member is active in top management or the board, and those that have substantial assets and/or widely distributed operations.

Application to the program is open to family members involved in any aspect of the firm, including board members, top executives, future company leaders, significant shareholders, family foundation managers, and spouses of key decision makers. Furthermore, senior executives and board members from outside the family who actively participate in the business are also invited to apply.

Participants of the program have diverse backgrounds; representing a wide array of businesses across many sectors, and originating from many global locations. In this way program participants are able to bring to the forum the various issues that affect businesses the world over. Participants are invited to use the program as a ‘mirror and a window’; the mirror enables them to observe themselves and the way they run their business, and the window enables them to look out at other people and see their issues and solutions.

During the four-month break between classroom modules, participants take part in a unique experience that challenges them to put their newly acquired knowledge into action. Based on their learnings during the first module, participants work with program faculty to design a structured leadership project to implement during the break. In addition to discussing status reports with program faculty, participants share their experiences and solicit feedback from fellow participants along the way, bridging the gap between classroom theory and practical application.

Is it for you?
This is a program that challenges the leaders of family firms to confront the often latent tensions underlying the inevitable decisions that lay ahead, whether they involve strategic direction, family control, outsider involvement, tradition versus change, succession planning, or philanthropy. By taking part in an innovative curriculum that includes an intensive personal leadership project, participants learn to apply a higher level of strategic thinking to all of the obstacles that they must overcome in turning a currently successful family firm into a future global business champion. n

For further information www.leadingfamilyfirms.com