Carefully identifying and properly developing the next generation of leaders is by far the most consequential decision for any family business founder, owner, or leader.
However, all over the world — from the Americas to Asia, from Europe to Africa — many family business leaders are quick to assume that some of their children or other relatives would never become great successors. Most consider only one person (will he or she make a great CEO?), rather than thinking of many key family members and the multiple critical potential roles they can play. What’s more, even among those leaders who want to conduct rigorous assessments of the entire next generation’s capabilities, most don’t know what they should focus on, and many wait until the eleventh hour to ask the crucial questions.
Consider the CEO of a family-owned business in Buenos Aires who called me in as a consultant. The executive, who was in his seventies, began our first meeting by leaning forward and saying to me, in a calm voice that carried a clear emotional undercurrent: “Listen, Mr. Fernández-Aráoz, I will get straight to the point. I have cancer, and my days are numbered. I run a family business, now in its third generation, and I want to ask you whether my son, Alberto, is the best CEO to take over when I die.”
At about the same time at the other end of the world, a Japanese company founder bluntly asked one of my colleagues whether — in his role as search consultant — he could help him find proper grooms for his two daughters so that his company would be safe when he was gone.
Of course, some of the greatest family business leaders I have met in my executive search work over the past three decades have taken a completely different approach. Genuinely caring for the healthy future of both their firms and their families, they start by understanding how they can help their next generation become the best possible versions of themselves. They aim to firm up their company’s “family gravity,” which includes the dynamics between relatives and their relationship with the business, with perpetuity as the main objective. This requires following a disciplined process with three simple steps.
First, family business leaders need to embrace best practices for talent management, which inevitably require selectivity. Decisions should be based not on experience, or even current competencies or abilities but on the leadership potential of key family members.
As I wrote in “21st-Century Talent Spotting,” potential is the best predictor of future success given our volatile, uncertain, complex, and ambiguous (VUCA) world. Leadership requirements are changing at an unprecedented rate, so leaders must be able to adapt. As described in that article, we should carefully and separately assess the four hallmarks of potential —curiosity, insight, engagement, and determination — to identify those individuals who by definition will be better able to learn and grow and then work obsessively to retain, motivate, and develop them.
The process of identifying high potentials will always be delicate in family firms, either because there are too few members (and we can be too lenient) or because, as the brood multiplies across generations, there are too many members (which tends to create conflicts.) However, deciding to implement rigorous assessment processes for the next generation will be the most consequential decision you make to position your firm for long-term success while projecting its values and mission. (I should note that if you do so, you will no doubt find — contradicting the assumption of the Tokyo patriarch — that your female family members have just as much potential as the male ones, if not more. In our research, my former Egon Zehnder colleagues and I found that women, on average, actually score higher than their male counterparts on three out of the four hallmarks of potential.)
The earlier you start the process the better, since, as the proverb goes, “All the flowers of all of the tomorrows are in the seeds of today.” At the same time, it’s never too late to start: When I started my research on potential in the early 1990s, I was naturally assuming that younger people would score higher on those metrics. However, we have actually found no significant correlation with age. So family members within a wide age spectrum should be evaluated.
Once the high potentials have been identified, the second step is to understand how far each one could feasibly develop and along which very specific relevant dimensions. We are all unique not just in our current capabilities but also in our capacity for certain types of growth and development. In our article Turning Potential into Success, my former Egon Zehnder colleagues and I make this point. For example, some high-potentials might be highly curious and insightful, thus more prone to develop a very high level of strategic orientation, which they need opportunities to be involved in strategy planning and key projects. Others might be particularly engaged and determined, which will position them well for future team and change leadership; but, again, that seed will never bear fruit if you don’t give them the chance to actually manage people.
Once you have identified the very personal, individual potential of each of your next generation’s most promising family members, the third and final step will be to candidly share this perspective with them, so as to check their motivation to fill various roles. Personal and family circumstances, as well as individual preferences and identity issues, will make some opt for a full-time executive job, while others might prefer the road to a more limited yet still essential part-time contribution. They can more easily weigh the trade-offs and make these choices if they have a full understanding of which possibilities are realistic.
This three-step process of assessing your next generation’s potential, understanding how far each person can go in certain areas, and discovering which roles they are prepared and eager to play will drastically help you strengthen your family’s gravity, which will help attract, retain, and develop the best leaders for the business from within and outside the family. Just as important, you will be giving your children, siblings, nieces, nephews or cousins the chance to live happier lives in which they become leaders and achieve impact and purpose in their own unique ways.
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