In times of succession: Leading the family business without misleading the stakeholders

Authoritative, laissez-faire, participatory, servant, or even transformational: these are some of the many existing attributes describing leadership styles in organizations.

When it comes to family business, research has shown that the style of leadership (a) can have an enduring influence upon the culture of the organization (1), the psychological feelings of ownership of employees and their commitment (2), and the financial performance (3) and socio-emotional wealth (4), from generation to generation (5) (6).

Why do successors and predecessors face paradoxical challenges?

Still, leadership is in no means static but tends to evolve with the changing environment and the succeeding generations. Particularly, successors and predecessors (b) are faced with a dual and paradoxical challenge.

On the one hand, successors inquire about whether to perpetuate the same leadership style than their predecessors, ensuring the stability of the family culture in the business. On the other hand, they are tempted to shift the usual leadership trajectory as their quest for legitimacy often resolves by making a distinct mark.

As for the predecessors, while they can applaud passing on the reign to their primogeniture in an effort to ensure the family business continuity, they can be torn between two alternatives for their post-retirement phase.

On the one hand, they can choose to completely step out of the leadership game and leave the next generation be independently in charge. On the other hand, they can keep a close eye on the successors while intruding into the business affairs, making the employees and other stakeholders’ life uneasy at different fronts. In fact, it is not unlikely to see family senior leaders shifting their attention after making official announcements to stakeholders about their desire for succession, sometimes naming their selected successor. They start building barriers to ensure the potential successor fails or does not perform as expected, so that they can stay in or come back to power. Confusion might therefore prevail among stakeholders, whether they are non-family employees, suppliers and customers or family members.

Metaphorically speaking, my research and observations highlight several archetypes of current and next generation leaders during succession. These archetypes can either contribute to misleading the stakeholders or foster their collaboration toward a successful succession.

The archetypes of present owner-managers

The present owner-managers can be identified on a continuum, where on one extreme lie the “Commanders” and at the other one the “Laissez-faire”.

Embracing an authoritative leadership style, which is often the case of the founding owners, the “Commanders” believe in the prominence of their inexorable ideas and their views in the business success. They consider themselves as immortal and quasi-irreplaceable, which implies the impossibility of finding successors that are at least as good as them, in their own eyes. They also tend to stay around and hinder the leadership development of the successors. They can lead from behind, creating opposing factions within the business, even up to the point of discrediting successors in front of the employees and other key stakeholders. This creates confusion among them regarding “who to follow”.

The “Laissez-faire” incumbents tend to step back from the business and leave the full space for the successors, often without guidance as they were used to rely on others with a hands-off approach. This might leave the successor disoriented, especially in the face of potential power plays among key business players. The latter might view succession as an opportunity to increase their latitude and their influence sometimes at the detriment of the successor.

As a middle ground, the “Phoenixes” represent the incumbent leaders who gradually step down from their position and leave the space to the successors. They also make sure successors are well-prepared by providing them with the support and the resources they need to achieve leadership legitimacy in the eyes of the stakeholders. This process fosters the development of a trust relationship between the successors and stakeholders and is less likely to creation confusion or disorientation.

The archetypes of future leaders

In a similar vein, there is a continuum of successors’ archetypes as future leaders.

The “passive” ones await instructions from the predecessor upon making decisions. They also tend to replicate the style of the predecessor, especially after the latter are incapacitated to lead for illness reasons or following death. Stakeholders can be then left perplexed with an early laissez-faire leader-successor who turns into authoritative at a later stage.

The “over-active” successors stand on the other extreme of the continuum. They seek to overthrow the predecessors by breaking up with their leadership style, up to moving to the other extreme, taking many initiatives in contradiction or in rupture with the past strategies and traditions of the family business.

The “active” successors follow, however, a more structured and middle ground approach. They work on developing their knowledge and their skills both personally and by learning as much as possible from the current leader. In their quest to legitimacy, they retain an independent margin in terms of behavioral choices. They rather engage in adapting their leadership style to the context, by means of servant, transformational or participative leadership, seeking to engage stakeholders in the process of change and continuity.

Stakeholders as key actors

In sum, the leadership succession process in family business is not restricted to predecessors and successors. Stakeholders are key actors to consider as potential contributors to its success. Therefore, both predecessors and successors have a role to play towards stakeholders.

Predecessors need to work their way out of the trap of both empowering and dominating their next generation successors, whereas successors need to seek legitimacy in the eyes of stakeholders by developing a leadership style that is neither too similar to their predecessors’  - in a way that it does not align with the evolving environment - nor too disruptive as compared to their predecessors in such a way that it completely shakes the family business culture.

This can be enacted through developing awareness about their respective archetypes then striving towards a balanced approach, whereby a mutual understanding and adjustment of leadership styles occurs. This will guide them in finding the one that fits better the evolving life cycle stages of the family, the business and the wider community, while leveraging the power of stakeholder engagement in the process.

Footnotes

(a) This article refers to leadership roles as those that come with formal authority within the organization.

(b) This article refers to successors and predecessors without gender distinction.

References

(1) Labaki, R. (2024) Family businesses: why successful succession requires a long-term approach, EDHEC Vox - https://www.edhec.edu/en/research-and-faculty/edhec-vox/family-businesses-why-successful-succession-requires-long-term-approach

(2) Mustafa, M., Labaki, R., & Henssen, B. (2022). Psychological ownership in heterogeneous family firms: A promising path and a call for further investigation. Entrepreneurship Research Journal, 13(3), 631-664 - https://www.degruyter.com/document/doi/10.1515/erj-2023-0221/html

(3) Labaki, R. (2014). Engagement dual et performance In Hirigoyen (Ed.), Les Entreprises Familiales : Performances et Défis (pp. 78-114). Paris: Economica. https://www.researchgate.net/publication/270103950_Engagement_dual_et_performance

(4) Family Emotions Can Drive Business Decisions, Rania Labaki and Fabian Bernhard (2022), Family Business - https://familybusiness.org/content/Family-emotions-can-drive-business-decisions

Anger, pride, guilt, regret… what role do emotions play in family firms? Rania Labaki and Fabian Bernhard (2022), EDHEC Vox - https://www.edhec.edu/en/research-and-faculty/edhec-vox/anger-pride-guilt-regret-what-role-do-emotions-play-in-family-firms

(5) Labaki, R., & Fbn France, S. C. (2017). La transmission intrafamiliale: De l'intention à la réalité. Retrieved from Labaki, R. (2018). La transmission intrafamiliale de l'intention à la réalité: la perspective de la nouvelle génération. [Cahiers du FBN France]. FBN France, Paris. https://fusions-acquisitions.info/wp-content/uploads/2020/05/FA-301-56-61.pdf

(6) Canovi, M., Succi, C., Labaki, R., & Calabrò, A. (2022). Motivating Next-generation Family Business Members to Act Entrepreneurially: a Role Identity Perspective. Journal of the Knowledge Economy, 1-28. https://link.springer.com/article/10.1007/s13132-022-00919-w

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