Ruling Roulette
This story appears in the August 1999 issue of Entrepreneur. Subscribe »
In volleyball, every person on the team has a chance to play the net, serve and assist. People are continuously rotating so no one dominates any position. Players learn to work together as a team.
Does the volleyball rotation analogy make sense for the leadership of family businesses? Does it promote teamwork to change leaders every few years? Does it pay tribute to brothers and sisters, cousins, even husband and wife--all of whom are valuable to the success of the family firm--to give them a shot at being president?
Absolutely not, say the experts. "It makes as much sense as taking your 12-piece place setting and dividing it equally among four children in a family so that each gets three settings," says Peter H. Calfee, a CPA and partner in the Cleveland consulting firm Family Business Advisory Partners Inc.
For the most part, when the head of a family business suggests a rotating leadership among the children, he or she is falling down on the job--abdicating the business responsibility of grooming and selecting the most skilled successor for the company. "It's a bad way of solving a family problem," says Calfee. "These parents think by tapping just one person as successor, they're saying to the other children, `I don't love or respect you as much as I do your sibling.' "
And nowadays second-, third- and fourth-generation family businesses are not as vertically organized as they were in the founder's day, when all power emanated from the top. "Today, there's more sensitivity to the differences and unique skills of each family member," says Sherrod D. Morehead, a clinical psychologist and Calfee's partner in Family Business Advisory Partners.
Because one relative may be good at human relations, another a terrific engineer, while still another is a marketing genius, asking them to rotate the presidency of the business means you're putting someone who's awfully good at one thing into a position he or she may not be qualified for. This person then struggles to do the job effectively while his or her real talents are needlessly wasted.
It's far kinder to acknowledge the skill sets each member of the upcoming generation brings to the business and then empower the right people by putting them in the right positions. "That, unlike a rotating presidency, says `I respect and admire what you do and how you can contribute to the firm,' " contends Morehead. It also allows for a more valid selection process. "The eldest doesn't always have to be heir to the presidency, nor does the successor have to be male," Morehead adds.
The risks to the company of a rotating presidency increase if each of the people involved wants to build his or her own team and proceed with his or her own vision, says Paul Karofsky, executive director of Northeastern University's Center for Family Business in Dedham, Massachusetts. "Each winds up vying for authority and ultimate control." This not only confuses suppliers, customers and employees, but may eventually undermine the entire business.
Patricia Schiff Estess writes family business histories and is the author of two books: Managing Alternative Work Arrangements (Crisp Publishing) and Money Advice for Your Successful Remarriage (Betterway Press).
The Workable Rotation
Although rotating leadership isn't generally considered a sound business strategy, in some cases it's unavoidable. And it does have its success stories. Consider Eye-To-Eye Communications Inc., the Lafayette, Colorado, public relations firm Cathy Sperrazzo founded four years ago. When she took time off a few months ago to go on maternity leave, her husband, John, left his job with IOMEGA Corp. and stepped in to assume leadership of the company. In addition to preparing their clients for the change, the couple was able to accomplish the rotation in a way that left both them and their clients satisfied.
"We trust each other totally and value each other's opinion," says John. "Just because Cathy isn't here now doesn't mean she's not involved. In our marriage and in our business, we work at keeping each other feeling valued. We each have a solid ego that has room for sharing the credit. And each of us wants to do the right thing to further our clients' objectives."
John acknowledges he and Cathy have different ways of implementing and executing their shared vision. He also admits that he's been careful "to keep things just enough the same as when Cathy was running the business so clients feel comfortable, yet still inject enough of my own style and strengths to ensure the continued growth of the business. It's been a balancing act."
"A rotating presidency can work when there's a group of key family leaders all sharing the same vision, style of management and philosophy, and where decisions are made by a consensus," says Karofsky. This is the extraordinary, not the routine, way of functioning, however. "It would be as if there were an office of the presidency," he says, "and it didn't matter who had the title at the time because the way of conducting business would be the same."
Other Solutions
If a family business employs two or more members of a family that are equally suited to leading the company, there are other, possibly more satisfactory, options than leadership rotation for capitalizing on their talents. Like rotation, however, both are tricky configurations and are dependent on excellent communication between the two leaders and a history of working well together.
One solution, co-presidency, is gaining in popularity among family business firms. In a 1997 family business survey done by Arthur Andersen LLP and Mass Mutual, almost 10 percent of family firms surveyed said they had two co-CEOs at the helm. In a co-presidency, all decisions are made through consensus. A second option is for one of the talented leaders to head another company. Often the second leader will start a company that complements the original business, using some of the original business's cash resources. Then each of the leaders works in conjunction, but not in unison, with each other.
Should you be forced to choose one of these three options, maybe because one of the talented leaders needs or wants a few years hiatus from the position or the business, or because you have two equally talented leaders, keep the following in mind: Agreement on how it will work must be clear, cordial and put in writing from the very start.
Contact Sources
Eye-To-Eye Communications Inc., (303) 666-0027, eyetoeye@ix.netcom.com
Family Business Advisory Partners Inc., (216) 328-8529
