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The Paradox of Family Business Leadership


Cathy Carroll is a leadership coach serving family businesses.  She brings a unique perspective to her work because she led her father’s business after a 20-year career in large, publicly-traded corporations.  Juxtaposing corporate leadership with family business leadership highlighted some eye-popping distinctions that she discusses in our interview below.  


In addition to coaching, Cathy serves on three family business boards and is an adjunct professor at Loyola University in Chicago.  She earned her MBA from the University of Chicago Booth School and her BA from Boston College.  She also holds a PCC in the International Coach Federation, and she lives in San Antonio, TX with her husband, stepson and pooch.


 

What is the ‘paradox’ of family business leadership? And, why is it particular to family operated businesses?

Family Business leaders lead from two operating systems that often oppose each other.  These systems are the Business Mindset and the Family Mindset.  The Business Mindset values competition, meritocracy and profits.  The Family Mindset values sharing, fairness and unconditional acceptance.   


In many circumstances, these mindsets can support each other, adding the strength of family values and culture to business analysis. But in some cases, the mindsets create cognitive dissonance. Each one functions like an algorithm that crunches the same data but comes to a different conclusion.  


How can this paradox manifest in a business? 

Consider compensation policy in family businesses.  It’s quite common to find family businesses in which family members earn the same, regardless of job function. That means the CEO and the Supply Chain Manager earn the same amount, regardless of experience or contribution to the business.  Using the Family Mindset, this can make perfect sense, and happens quite often in the second generation of a business.  Founders (and their spouses) who pay their children equally are using the Family Mindset to set policy.  They don’t want their children to think that they love them unequally, and they don’t want to stoke sibling rivalry.  They are all equal children and therefore deserve equal recognition.  


Using the Business Mindset, however, equal pay is generally not a compensation model. Few businesses can afford to pay everyone the same amount and attract the right talent, and those who can, don’t (at least not in capitalist economies.)


What happens when competing priorities are in direct conflict?

Step one is recognizing that you don’t have a technical problem with a simple right answer.  You have a tension or “polarity” to manage.  There is nothing inherently “wrong” with either mindset; both can add significant value to a family business.  The goal is to capture the “right” of each one.


Step two is reframing the question.  Most people ask whether they should use pay their children equally or based on the market.  


I ask a different set of questions:  

This reframe gets the family out of an either/or choice, while driving creativity and innovation.  It invites all stakeholders to co-create a compensation policy that honors the gifts of both mindsets.  An example might be that family members earn a market wage for each individual position and equal dividends from the business.


In the case of employment policy, it’s also helpful to think about how a policy might change over time as the family and the business evolve.  Quite often, an equal pay policy formed for the 2nd generation will collapse in the 3rd generation.  I also caution owners to think carefully about what is motivating an equal pay policy.  If the answer is to avoid disharmony in the short term, then I invite the family to think about that over a longer time horizon.  Quite often, an equal pay policy simply kicks a difficult conversation down the road, when it is much harder to have.  I encourage families to push courageously through the short-term pain to avoid a longer-term harm.


Businesses often implement simple processes because they are a practical solution at the moment. It’s a quick fix. How does, or should, a manager effectively think long term when it comes to setting policy?

This is a classic entrepreneurial mindset! 


Fix the immediate problem now and worry about the implications later.  It’s actually another polarity to manage; the needs of the short-term and the needs of the long-term.  When starting up a new business, agility and speed can be critical to establishing credibility in the marketplace, and entrepreneurs will delay strategic policy decisions until the business is more stable.  That can serve a startup well, but once the business has scale, the lack of infrastructure can stagnate growth.  Few leaders have the dual strengths of short-term, scrappy, growth-focused execution and long-term, strategic, infrastructure stabilization.  Successful multi-generational businesses have both.   They have the ability to manage the tension between flexibility and structure.