The entrepreneurial ventures that grow into multimillion‐dollar businesses usually are founded by one person, or perhaps a couple of family members from one or two generations. The founders are the natural leaders of an enterprise built on their dreams, ideas, and sweat. However, the qualities that make for great entrepreneurs often are not the attributes that sustain a fortune, a family, or even a business through multiple generations.
Open almost any list that details the traits shared by entrepreneurs and you'll find characteristics such as passion, tolerance for risk and uncertainty, creativity and open‐mindedness, goal direction, hands‐on management style, and commitment to the business.
In general, these traits are highly positive. However, over time, as they become “the way we do things,” a flipside may emerge, as illustrated by the following table.
|Passion||Energy and excitement about the venture.||Superficial understanding of market conditions, timing, and economics. Unreal expectations about one's chances for huge, quick success. Belief that the only thing needed is a great idea and plenty of drive. May choose partners/associates based on their eagerness to build the business rather than their ability to do so.||Lack of life balance. Unhappy family members as they take second position to the business venture.|
|Tolerance for risk/uncertainty||Ability to see beyond current contingencies to final success.||Quick, perhaps rash, decisions.||Business failure because of not correctly reading signs of impending problems.|
|Creativity/open‐mindedness||Can incorporate new ideas quickly to improve product or service.||Too many ideas at once; inability to see a way forward from possible options.||Stagnation because an idea may not be tried out sufficiently before moving on to the next strategy.|
|Goal direction||Focus on and progress toward ultimate success.||Overly narrow concentration that crowds out good ideas and suggestions from others.||Slower than anticipated growth. Insistence on “the one best way” to reach the goal.|
|Hands‐on management style||Infuses others with entrepreneurial passion.||Dictatorial leadership.||High levels of conflict. Exodus of talented associates who feel discounted and disrespected. Lack of leadership preparation of new family members because they are not permitted to test their skills.|
|Commitment to the business||Lights a fire under associates.||Rigidity.||Expects unrealistic levels of performance from others. Loses those who think of their work as a job or profession rather than as their self‐definition.|
In short, most entrepreneurs are doers, and as the business grows, they need to balance their hands‐on orientation with those who are thinkers and others who perhaps have a wider worldview and different, complementary skills.
These same conditions apply to the management of wealth. In the beginning, the wealth creator usually rules. However, managing wealth in a growing, diverse, and disparate family is too complex for one or two people. Almost inevitably there comes a day when the wealth creator becomes less interested in the daily operations of the business, wants to move on to exciting new ventures, or begins to see retirement as a desirable option. If next‐generation leadership has not been selected and groomed for new responsibilities, the business is ripe for failure even before the third generation.
Long‐term family sustainability of wealth in all its forms requires consistent and effective leadership by current family members and their outside advisors, if any, and careful, purposeful development of leadership in the following generations. Successful leaders generally are not born; they may have leadership potential, but that potential can languish if not recognized and cultivated.
Families who have successfully sustained wealth understand that thoughtful and well‐organized leadership development adds value, and they seek to identify and prepare potential future leaders.
Similar to business organizations that strive to sustain themselves over time, families benefit by implementing time‐tested processes and tools that (1) can assess leadership potential, (2) determine gaps or weaknesses, and (3) create development programs to promote excellence in areas such as business skills, communications, emotional intelligence, organization, and the art and science of leading others.
Many families have been introduced to The Clifton Strengthsfinder™, an assessment tool published by Gallup Press and used to identify thirty‐four different “talent themes” or strengths. The Strengthsfinder website explains that “talents are people's naturally recurring patterns of thought, feeling, or behavior that can be productively applied. The more dominant a theme is in a person, the greater the theme's impact on that person's behavior and performance.”1 They include strengths in areas such as communication, organization, strategy, and a wide range of other critical abilities.
Strengths Based Leadership by Tom Rath and Barry Conchie posits four types of leadership strength: executing, influencing, relationship building, and strategic thinking. The thirty‐four Strengthsfinder themes are arranged under these domains.2 For example, an empathetic person could be strong in relationship‐building, an analytical family member might be useful in creating strategy, and an adept communicator could be helpful in influencing others. Learning each member's top five strengths can be eye‐opening for families and help each one appreciate the others' talents as the family goes about generating its financial and personal legacies. Such understanding creates coherence and a climate conducive to sustaining wealth.
A variety of other tools are available not only to spot talent and leadership potential, but also to point out preferred ways of being. The venerable Myers‐Briggs Type Indicator can be helpful in sorting out why certain members of the family have difficulty working together, even if they are generally in agreement and of good will toward one another. An introvert, for example, may tire at a family meeting just at the time the extravert is warming up. Knowing that these differences are matters of psychological style rather than areas of disagreement can go a long way to defusing situations that might otherwise spin out of control.
It's usually best for a trained facilitator to administer inventories like these, because they are proficient in interpreting the results and assisting the group in understanding how the knowledge gained can be applied most effectively. They can help highlight talents the family might have overlooked and how those talents can be useful in furthering the family enterprise.
Today's family leaders come from every generation. New creators of wealth still may be heading their companies. Second‐generation members often have taken the reins while third‐generation potential leaders may be champing at the bit for their chance to excel. Of course, in long‐lived companies, fourth‐, fifth‐, and sixth‐generation members of the family assumed positions of leadership years ago. All these people may exhibit greater or lesser degrees of family leadership prowess, but a strong, effective leader does the following:
Daniell and Hamilton also mention the need for the leader to have a sense of humor, a feeling of gratitude for the family's good fortune, and empathy for others. They add, “By reaching the hearts as well as the minds and financial interest of family members … an effective leader may be able to release new levels of energy to contribute to a family's current and future prosperity.”3
Obviously, it's rare for any one leader to embody all the leadership traits mentioned in the extensive list above, but the list shows us the importance of what are sometimes called “soft skills.” Although it is essential for family wealth management leaders to be conversant with the tactical aspects of the task—tax and estate planning, investment policies, accounting, asset allocation, and more—those skills make for a great technician, but not necessarily a great leader. The combination of a tactical perspective and at least a few of the qualitative characteristics noted above are the marks of an admirable leader and role model for those coming along behind. Of course, if there's a void in a particular leadership domain, a talent identification program such as Strengthsfinder 2.0 can assist the family in finding those who have those particular skills.
Leaders cannot be developed if they are hamstrung by a “do‐it‐my‐way‐or‐else” founder. Although it may be hard for the wealth creator to cede any control, Stephen P. Miller suggests that family climate has a sizable impact on whether new leadership will be permitted to take root and thrive. “A family climate characterized by open communication, shared values and norms, and a senior generation that devotes attention to the welfare, needs and concerns of the younger generation is more likely to produce next‐generation leaders who accept responsibility for their … actions and decisions.”4 Conversely, he mentions that a family climate based on authoritarian rule will produce rising leaders who “shun responsibility” and are less competent largely because they may be afraid to lead.
An emerging leader needs four things: innate characteristics that show the spark of leadership, opportunities to lead, a willingness to learn, and mentors to show the way.
Research reported in an online article published by Harvard Business Review stated that when looking for new leadership, “values seem to be the acid test We found a 95% overlap in the language that each firm's family members and nonfamily executives used to describe their corporate ethos: words such as respect, integrity, quality, humility, passion, modesty, and ambition.”5
Other desirable qualities for upcoming leaders include the following:
As Denise Kenyon‐Rouvinez and Anne‐Catrin Glemser pointed out, “Next‐generation members who enter the family firm right after … university receive training from the bottom up and build credibility within both the business and the family On the other hand, gaining external experience with an unrelated corporation supports [their … development] by building credibility, self‐confidence and networks.”6
Some families encourage both by offering family business internships and negotiating with another family to set up internships within each other's businesses. In this way, younger generations see there's more than one way to run a successful enterprise. Other families might look for international internships in similar businesses. Such internships not only allow students to see how business is done in another country but also develop invaluable appreciation for the roles of language and culture in conducting business in our wired and interconnected world.
As the current generations evaluate the next crop of potential leaders, they might look for these important criteria for leadership. The most important question to be answered is whether the candidates want to take a leadership role in the family. Willingness is crucial. Not every talented next‐gen member has a desire to excel in the family business or wishes to have a big say in how the family wealth is managed. Some of the reasons for their reluctance might stem from the following:
If, however, members of the rising generation want to lead, the current leaders should examine the follow issues:
It is not enough to identify these potential leaders, however. The family now has an obligation to educate and train them for upcoming areas of responsibility. That training may come in a variety of ways. The younger members might be sponsored for institutes or postgraduate programs at institutions such as the Kellogg School of Management, the Wharton School of the University of Pennsylvania, the University of Chicago Booth School of Business, the Family Office Exchange, the Stetson Family Enterprise Center, the Institute for Private Investors, and the Transitions East and Transitions West Conferences.
Leadership training programs could become a regular feature of family meetings. Webinars and other online options can be helpful for understanding in specific leadership disciplines. Internal or external coaching can be very effective. Internal coaches have wide knowledge of the family business while external coaches bring “greater objectivity, fresher perspective, higher levels of confidentiality, and experience in many different organizations, industries, and business environments.”7
In addition, talented younger members may serve on various family committees, such as the family council, the family foundation if one exists, family research committee, finance and investment committee, or as a liaison to the family office. These exposures will bring them a wide knowledge of family concerns, obligations, history, and ongoing issues.
Some families place younger members on a junior board, which is elected by and represents the interests of the younger generations. As Barbara Hauser explained, the junior board “follow[s] the procedural rules of the main board and act[s] as … liaison [to them] A junior board member attends each of the main board meetings as a non‐voting participant. The junior board then has a chance to discuss the issues, and its comments are reported … to the main board.”8
The back‐and‐forth between the main and junior boards allows younger members to learn, but also to contribute new ideas. The interchange can be enlivening and bring exciting new possibilities to the surface for consideration by the main board or the entire family.
Of course, all the training in the world means nothing if the next‐gen leaders aren't given responsibilities that are appropriate for their stage of development and that stretch them slightly past their current capabilities. Letting go of the management of a piece of the family business or wealth (or both) requires a leap of faith on the part of those already in charge and a willingness to mentor, perhaps from a distance, as the new leader learns the ropes. Failure must be an option. If people never are allowed to fail, they never learn to be resilient and try new ways to solve problems.
However the family governance apparatus is structured, being part of these committees and councils helps a new generation of potential leaders become aware of the many roles and avenues of service that may await them. When they find the right fit, they also may find a life of great satisfaction.
Those who mentor the next generation may be family members or outside‐the‐family advisors. Whoever they are, they should be:
It is rare for a family to be headed by only one leader. Even the single entrepreneur who amasses the family fortune may be aided by an unsung person, sometimes a spouse or old and trusted friend, who backstops the leader. As the family grows, a leadership team becomes more and more critical. A process to continually bring new leadership to the fore is essential.