Toronto Canada

Tel: 1 (416) 360-0177

apervin@pervinfamilybusiness.com
http://pervinfamilybusiness.com/

Pervin Family Business Advisors

Library

How Shared Leadership Can Work

THE GLOBE AND MAIL – MANAGING – Thursday, May 13, 1999, B13

A widow who inherited a distribution business from her husband set up a rotating presidency among their three adult children, with each serving two years before handing over to a brother or sister.

Three siblings who own a family grocery chain rotate the title of president every May, at the end of the fiscal year.

Two brothers take turns running their manufacturing company on alternating weeks.

"Management by committee" is one of the great business pejoratives of our time, a shorthand phrase that suggests stalemate, confused priorities and an inability to make a decision. But all three of these companies run smoothly and profitably, and they're not alone.

Increasingly, family businesses are shying away from naming a single, constant leader and choosing instead shared leadership. In fact, a Canadian survey by Pervin & Co. in 1998 and a U.S. poll by MassMutual in 1997 suggested that more than 40 per cent of North American family businesses plan to have some form of co-operative leadership.

Experience shows that they're taking this route not to avoid making a decision, but because this is the way they work best.

"Management by committee" is one of the great business pejoratives of our time.

Co-operative management takes several forms. It could be a rotating presidency, a management group or even a non-family CEO who answers to family members who also work in operational roles. It's not a sign the family partners are deficient – any one of them may assume the leadership in a particular situation – but because of expertise or ego, they simply don't want to name one leader over the others.

The Life Cycle

You may think that it was the counterculture commune that gave shared leadership its start. Perhaps. But it was the tax department that made it popular. Before North American governments imposed huge taxes on inheritances, entrepreneurial parents normally passed the business to the child who showed aptitude for running it and gave other assets to the rest.

Estate taxes in the United States and capital gains taxes in Canada changed all that. Now, it makes sense for the parents to spread the wealth around and be bought out over time, resulting in complex ownership structures of active and inactive shareholders. Every owner wants a role, so sharing power has become commonplace.

Co-operative leadership can't be the default position. It's an active decision that's intended to make the company run better – not the last resort when the family partners can't agree on a leader. Sometimes, of course, it's just a matter of avoiding a coronation.

A company owned by three brothers recently asked for guidance because they were constantly getting in each other's face, despite running their territories quite competently. But two of them resented their nominal leader, accusing him of always trying to be the hero.

Together, they decided to eliminate the title and refer all strategic decisions from their territories back to a three-man management group. Decisions are now unanimous, and everyone believes they have a say.

But can brothers, sisters, cousins and even in-laws who are all ambitious and committed to the business really share power? Or will lingering feelings of competition, rivalry, comparison and jealousy inevitably pull them apart?

Surprisingly, the answer is that – under the right circumstances – shared power works better than dictatorial leadership.

First, there must be no obvious individual leader. They must find a logical way to divide day-to-day responsibilities. And there must be some sort of track record of everyone getting along.

Second, it's mandatory to have a shareholder agreement drafted or approved by each party's lawyer, outlining management and decision processes as well as a buy-sell agreement that allows a partner to be bought out in case of a management deadlock.

Finally, it's crucial to separate management and ownership. Parents planning to hand a business over to their children should put only those who can get along in charge of the business.

It's worthwhile to think about preparing emotionally for sharing leadership as well. Co-leaders should feel they have equal ability, motivation and commitment, for instance. They should value the differences their partners bring and find a routine for resolving disputes – and they will. They should realize that it's never worthwhile to win a battle but lose a partner.

The successors should also share a common philosophy about the direction of the firm and how they would like to operate it. They could document their core values in the form of a business creed.

They should also have open discussions on contingencies: how to co-exist once the referee isn't looking; how to remain co-leaders once the business gets larger and more complex; what managerial and financial arrangements should be made; what to do if there is an economic downturn; and what will happen as the number of successors increases.

These discussions should never come to an end. An owners' forum, independent board or family council can make sure these questions are never overlooked.

Shared leadership in the family company is a reality. But being equal bosses isn't for everyone.

ALL ARTICLES PERVIN FAMILY BUSINESS ADVISORS INC.

Printer-friendly versionPrint Article

Return to the Library


Send this article to a friend

Items marked with an asterisk (*) are required.

Please send this article to the following person:

Please tell us who you are, so that we may tell the person who sent them the article.

If you like, you may also include a message.