When the Head of a Family Business Fails – And Doesn’t Resign

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In the fall of 2021, the FBI finally caught Andrew Russo, the head of the Colombo mafia family in New York. The 87-year-old actor, who had been leading the “family business” for years with a disciplined, applied management approach, was now beginning to falter. He had begun to ignore his own best practices, using unsafe communication to directly involve himself in criminal activity. His friends had known about his problems for years, but he did not listen to suggestions that it was time to step aside for the next generation of leadership. Of course, it all paid for it mistakes When Russo was arrested.

Russo may not be the typical family business leader. But its downfall represents a challenge facing family businesses around the world: What happens when a long-serving family business leader begins to lose a foothold, potentially putting the business at risk? When the CEO of a public company begins to underperform, the board (and its shareholders) will quickly dismiss them. However, this is not the case when it is a privately owned enterprise.

An aging leader may not be as strong or fast as they used to be, but they are skilled and functional in most areas. A weakened leader makes poor decisions and mistakes, misses opportunities, fails to deliver on commitments, and otherwise negatively impacts people and the business by exhibiting behaviors and attitudes that are not appropriate for their position of power.

It can be difficult to dismiss a corrupt top leader who is one of the owners, especially when they have a controlling ownership stake and do not accept this corrupt judgment. When the leader is also the head or head of the family, it may seem impossible to challenge or even raise a concern. We’ve seen many disturbing battles for control among family members play in the mediaor worse, courts. The stakes are high when the goal of the family is to reduce the damage that a corrupt leader can do without destroying the basic trust and connection within the family.

So what strategies can a family business use when a leader can no longer run the organization as before? Through our extensive work with family businesses around the world, we have identified several strategies to help family members (even those who do not yet have formal authority at work) deal with a weak leader to avoid further damage to the company – and family – in the process.

Bring a trusted third party to help you decide.

Interactions between the leader – especially the person who not only runs the business but is also the largest owner – and siblings, children, or cousins ​​who are involved but lack formal authority can be fraught with emotional dynamics. Perhaps the leader, who sees themselves as responsible for the success of the business, may resent any family member who dares to question them and disrupt productive discussion of the pressing issue.

In such cases, one solution is to ask a person or group that both parties trust to mediate and negotiate for both. This will be set up as an “informal” communication channel to help ensure that decisions are made wisely. They do not need to directly address the leader’s disorder. They can work as a workaround to keep things going.

Family members or counselors should consider what resources are available to exert positive pressure on the reluctant leader:

  • Is there a board of trustees or advisors that can meet?
  • Are there other respected friends or family members who have credibility with the leader?

The way the message is delivered is particularly important because power and distortion are intertwined, and participation is more likely to be efficient if the temperature is lowered. It is important to acknowledge the problem without threatening or blaming the leader. Respectful mediation can help find a middle ground where everyone saves their face and real change happens.

For example, when there is a sharp conflict between an older leader and a new generation of potential successors, the family may ultimately turn to a family member who does not have an emotional stake (for example, a sibling who is not in line for leadership) to find a way to resolve the problem. This family member can find a safe place and time to talk to the leader without evoking defensive responses. Concerns should be expressed without blaming or challenging the leader’s authority, but in a way that demonstrates work-related concern.

Assign an independent mediator to intervene.

Sometimes the trusted third-party channel may not work, often when the leader ignores or dismisses the warnings, and a more formal arrangement is needed to address the issue openly. A trusted independent mediator can help the leader see that if they don’t change or step aside, it can become an obligation to the family who feel compelled to stage a coup.

Family members can refer to independent voices from a variety of fields, including professional mediators. The difference between this tactic and the trusted third-party option is that the independent mediator will be asked to openly address the problematic behavior or persuade the leader that it is time to step aside, rather than suggest workarounds. Independent voices that family members can call include:

  • A longtime friend or colleague: Most leaders have colleagues they trust deeply and have similar experiences. The family may ask these people to help their leader see the need to solve problems. They can often say things the family cannot.
  • Advisor: A family may seek an impartial counselor or counselor who is accepted by both groups and whose job is not to be a judge but to bring them together efficiently to resolve the issue.
  • Ram: The family may ask the leader to find a personal or leadership coach to help them change their behavior. Some coaches facilitate family meetings where the family shares their concerns and the leader shares what they have learned.

For example, one patriarch was very vocal about his views on issues ranging from business to politics. However, this began to spread to family meals, irritating other family members in the process. When some family members refused to attend family gatherings, the head of the family called in a family dynamics specialist to work with the patriarch. He reluctantly accepted coaching because he didn’t want his family to fall apart, which helped him listen to other opinions and keep the family connected.

The mediator may suggest arrangements that would allow them to make a key contribution, but may involve delegating or sharing certain responsibilities. To determine what these might be, they may ask:

  • Are there areas where you can delegate more?
  • Who are the people who could one day replace you (even if you have to divide your responsibilities among several people rather than just one)?
  • How can you start putting these people in their place?

Create parallel structures.

There are several indirect ways to intervene when the leader does not listen or agree with the issue:

Shadow review process

Some families deal with reduced effectiveness by setting up a shadow review process. Rather than enforcing the leader’s decisions, a designated family member or potential successor reviews the decisions and sometimes decides not to implement them. For example, when a founder/CEO showed amnesia and cognitive decline, the rising generation stepped in to protect him from most of the decisions and brought him only those who needed his signature. The family chose a preferred grandchild to connect with to guide the conversations.

council of heirs

Some families also designate ascendant generation family members who will one day inherit ownership. These yet informal leaders can start getting together and planning their future ownership. By focusing on the future, this group can release tremendous energy and communicate with the leader and make demands. If they are respectful, conflict-free, and work as a cohesive group, this can be an effective match with a weak leader.

New venture and future task forces

What appear to be signs of impaired judgment can also be a warning that the core business has matured and may not be competitive in the future. If this is the case, it is possible to avoid confrontation with the current leader while empowering the next generation to plan for the future by launching new initiatives and innovations that take the family business in new directions. It may be possible to expand assets and investment capital into ventures in which the family plays an active role, reducing the influence of the damaged leader.

Find a new role for the leader.

When problems begin to arise, family can begin a transitional structure for family and work. For example, they can adjust the role of the leader to allow for greater operational support. They may also form a leaders’ council to develop new leadership. This can lead to a co-leadership structure where important decisions are reviewed and the leader delegates more responsibility.

Another option is to create a new role for the leader as a mentor, advisor or spiritual leader. This allows them to be heard as the ascendant generation begins to implement control and make changes. Sometimes this happens, for example, when the leader leaves the role of CEO to become chairman of the board.

Anticipating and improving governance before a problem arises

The best solutions are always those that anticipate a problem. Families can put the following mechanisms in place so they can take action if they have serious concerns about the leader’s abilities:

  • Term limits and retirement ages: Many family businesses, such as publicly traded companies, set retirement ages for employees and board members and tenures to serve in leadership roles.
  • Performance evaluation and leader review: An annual review of the leader’s performance is required, including the evaluation of strategic goals, the effectiveness of the business, and management performance. This may include a periodic 360-degree performance appraisal. It should be done confidentially and shared with the leader by a board committee or other group.
  • Super majority for big decisions: The family can create bylaws that provide ways for minority shareholders to be involved in important decisions. This provides protection for minority owners so that they can have a say even when majority control is held by a single person.
  • advisory Board: The family may appoint a board of advisors to provide leadership from an outside perspective on the business. Minority shareholders or trust beneficiaries may be asked to intervene if they have concerns about the leader. They may also be asked to evaluate performance or provide a second opinion on proposed major actions, or even assist in selecting transitional or non-family leadership.

In our experience, even the most dangerous situations can find a way forward if both the family and the leader are willing to seek common ground. IKEA founder Ingvar Kamprad struggled with his three sons over control and wealth of the company. Ikea: Moving into the Future. In the end, however, his sons were able to step in and the business passed to their children, with the salvage step of appointing 87-year-old Kamprad as senior consultant to the IKEA board of directors. Taking control of a weak leader whose identity is linked to the company they founded is never easy, but it doesn’t have to land in a battle royale if the family is ready to take a few mitigating measures in the short term.

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