The importance of leadership in identity planning, succession planning, and

strategic planning in family businesses:

A report on leadership best practices and implementation strategies

Brian Jacobus
Unit 3 Assignment
Professor Enos

Abstract
This report looks at the importance of effective leadership on family business specific
issues such as succession planning, forming a family brand/identity, and strategic planning. A
thorough inspection of these issues point to the fact that strong leadership is essential to
support business development, and that family business leaders have to show a wide range of
leadership skills, ranging from flexibility to assertiveness, depending on the context of the issue
faced. The issue that is addressed and serves as the motive of the report is the gap between
knowledge regarding leadership best practices in family businesses and the implementation of
these practices. Furthermore, a large portion of family business leaders still need to be informed
of not only the issues at hand, but also how these issues should be handled within the context
of a family business. Through the report I hope to both inform and motivate family business
leaders and consultants regarding how such issues should be implemented. I have separated
the report into three sections, each covering the individual issues I previously mentioned. At the
conclusion of the report, I hope that executives and consultants have a deeper understanding of
how leadership greatly affects the success of family businesses, and the types of leadership
best practices that leaders should seek to implement.

Introduction
By the third generation, only twelve percent of family businesses are still in operation,
and that number decreases to four percent in the fourth generation. (Jaffe, 2004, p.87) This is
very scary to family business owners such as yourself, who may ask Why is the failure rate so
high?. Three family-business specific issues will be addressed in this report; 1) The importance
of the family identity and family branding, 2) Problems surrounding succession planning and
why this is the greatest obstacle for family firms, and 3) Strategic planning & growth of the family
business. Each issue will be examined through the context of what leaders can do to manage

and overcome specific requirements. Through a discussion of these issues, it is clear that
strong leadership and the implementation of these leadership principles and best
practices are essential to the success of family businesses in the long run.

Family identity and decisions surrounding family branding

The three main approaches of defining the family firm (Eddleston, 2011, p.187) should
serve to specify what it means to be an effective leader. Objective assessments of family
involvement should not be the only defining characteristic of what makes a family firm a family
firm, because doing so not only limits the scope of definable business identity, but it also does
not allow for leaders to prioritize business issues over family issues, which is absolutely
essential in many situations. The most important principle that leadership characteristics and
best practices should be looked through is the organizational identity theory. This theory states
that the organization should be viewed through features that are most central, distinctive, and
enduring, while the organizations identity should have a sense of continuity because it is tied to
the history and beginnings of the organization and its people. Furthermore, this theory also
helps members of the organization make sense of what they do and also provide the context in
assigning meaning to their behavior. We are able to transform and build upon this organizational
identity and argue that for the family firm, it is also essential to formulate a leadership identity.
While organizational identity allows family businesses to formulate a family-firm identity to
convey who we are as a family business (Eddleston, 2011, p.188), leadership identity allows
executives and leaders in the business to develop leadership techniques and best practices that
build on and is applicable to their specific family-firm identity. This means that leaders should not
make decisions and take actions that do not reflect who the business is or portrays itself to be,
because this would not allow the development of a strong family firm identity which is very
essential to the success of family businesses in particular. The decision in which to reveal or

conceal the family name is also one that is of particular importance to family business leaders.
Once again, the view that such a decision should be looked at would go back to the family firm
identity. For example, S.C. Johnson proudly markets itself as a family company primarily
because it wants to instill a sense of homeyness into their products, that are mostly bought by
housewives/househusbands. This decision was one that Herbert Fisk III made during his time in
the company, which made the company very successful in its target market. In family
businesses, it is important for business leaders to be able to apply the companys identity into
the decisions that they make and the actions they pursue. However, dealing with certain conflict
processes within the business require a more flexible approach to family business management.

Succession planning & role of leaders in the process

The question of leadership surrounding succession planning issues revolves around the
most important characteristics that leaders must have in order to lead a family business through
this daunting process. The high failure rates of so many family businesses derive from the
inability of family members and family firm leaders to be able to understand what is necessary in
order to choose the best successor based on objective standards. Conversely, it is also the role
of potential successors and potential leaders to be able to showcase their leadership talents
during the succession process and testing process, as this is the only way that they can prove
that they are in fact the best leader for the company.
Through the four kinds of iterative tests, company stakeholders are able to get a clearer
sense of how the potential leader/successor deals with certain situations that may require
executive judgment. It is clear that the role of a leader should be to drive a business and its
people towards a particular goal or mission, so an individual who is able to deliver on this
responsibility should be very assertive and thus highly respected by company stakeholders.
One of the many problems with potential successors is that they usually ignore or greatly

underestimate stakeholders (Lansberg, 2007, p.94), which puts them at a disadvantage early
on due to the fact that stakeholders and followers grant leaders the authority to lead. (Lansberg,
2007, p.96) There is a common misconception that leaders have to be able to influence
followers and have certain leadership qualities inherent in their personalities to be able to lead
successfully. However, this is the exact opposite of what is observed; the fact is that there are
no inherent leadership qualities that effective leaders should have, because of the simple fact
that followers grant leaders the authority to lead. Therefore the four iterative tests (qualifying,
self-imposed, circumstantial, and political) serve as situation-specific conditions that leaders
have to be able to maneuver through in order to gain followers respect. It is also worth pointing
out that these tests are situation-specific, therefore it is how leaders manage and handle these
situations that are important, not simply if they can pass a certain situational test.
Another major issue surrounding succession planning is captured perfectly by Thomas
Hubler, who observed that the number one obstacle in family business succession planning lies
in the lack of appreciation and recognition that younger generation family members show their
elders (Hubler, 1999, p.119). This is an example of a broader psychological problem that family
business leaders and potential leaders should pay close attention to, especially during and after
the succession process, in order to avoid business discontinuity in the next generation.
Furthermore, many potential successors feel emotionally abandoned when someone else is
chosen over them to be the next successor of the business. This can have numerous negative
effects on firm dynamics, especially if the business still needs the services and skills of the
passed-over employee in the long term. Furthermore a situation like this could also have
negative effects on the family side, causing familial disharmony which could, in the future, affect
the performance of individuals in the business. Therefore it is essential for potential leaders to
be able to manage this type of emotional issue during succession planning, in addition to more
business-specific issues.

Strategic planning and growth for family businesses

Jaffes two dimensional planning process serves as an ideal for family businesses to
follow, especially when looking at future strategic planning. The separation of the Council of
Family members to represent family issues and the Board to represent business issues should
be broadened to also include leadership ideals that lie within these two separate duties. Jaffe
also mentions that family considerations can overwhelm business realities, and their
consequent lack of focus on the need for business renewal (Jaffe, 2005, p.53), which further
emphasizes the need for family business leaders to be able to actively manage and separate
these two entities in order to more effectively make strategic decisions for the future.
This separation of duties must be driven by the desire from business leaders to
implement the strategy based on future prospects, not based on current needs or requirements.
The key difference is once again leaning towards what is called proactive management, an
extension of active management that should be at the forefront of the mindset of family business
leaders. Leaders must also be able to encourage family business employees (both family and
non-family employees) to formulate a Personal Development Plan (Jaffe, 2005, p.55), in order
to allow growth opportunities for business members. Family members and potential successors
should also be asked to create an additional family section to the plan, to focus more on issues
outside the business such as wealth preservation and personal retirement planning. Ideally the
Family Council and the Board will serve to assist with these initiatives and make sure that family
business members are performing these essential responsibilities proficiently.
The decision on the extent to which the business should be pushed to grow should not
be made from a strictly business sense (revenue opportunities, market opportunities), because
doing so ignores the common problem of having growth without having the human capital and
skills to grow. Ultimately the role of leadership in the area of business growth is identifying skills

that can be found within family and non-family business members and applying these different
skill sets to various situations in order to fill consumer gaps. This kind of problem-solving
orientation also allows business leaders to overcome the problem with lack of innovation in
family businesses that is known to be the downfall of many first-mover family businesses.

Conclusion
The health of many economies worldwide is heavily dependent on the success of family
businesses who contribute not only to economic stability but also to the general system of
consumer supply and demand. Family business specific issues such as succession planning
challenges leaders of the business, and allows them to develop and harness specific leadership
qualities that the business relies on for future growth. It is not only the enhanced importance of
strong leadership that family business members should prioritize, but also having the human
capital and corresponding skill set to be able to execute such initiatives that grow the business.
Looking to the future, what family business leaders need to constantly keep in mind is a
proactive management style that emphasizes both the development and application of casespecific leadership and managerial best practices.

Works cited

Eddleston, K. (2011). 15. The family as an internal and external resource of the firm: the
importance of building a family-firm identity.

Hubler, T. (1999). Ten most prevalent obstacles to familybusiness succession planning. Family
Business Review, 12(2), 117-121.1

Jaffe, D. T. (2005). Strategic planning for the family in business. Journal of Financial Planning,
18(3), 50-56.

Jaffe, D. T., & Lane, S. H. (2004). Sustaining a family dynasty: key issues facing complex
multigenerational businessand investmentowning families. Family Business Review,
17(1), 81-98.

Lansberg, I. (2007). The tests of a prince. harvard business review, 85(9), 92-101.