The 80/30 Rule: A Study of Contradiction

Larry Grypp

Larry Grypp, President of the Goering Center
May 2017

For years we have encouraged, even prodded owners of family businesses to have an outside board of advisors, to have non-family members as part of that board, and to recognize the importance of a well-understood succession plan in the event the current CEO is unable to serve.  

That may have been a mistake. The error was not in the direction -- all of that still matters -- but to whom it may matter more.  

We have recently completed work that assesses the needs of Goering Center member companies. These assessments, collected and analyzed over five years, asked business owners and their senior staff a range of questions designed to unearth the issues, obstacles and aspirations of those businesses so they can enroll in the right programs here at the Center. The survey covers topics ranging from engagement to strategy, and from culture to execution. All the basics of a healthy business.

What came out of that analysis was startling. The top three rated areas -- where nearly 80 percent or more of the respondents agreed or agreed strongly — had to do with whether they understand their role and responsibilities, whether they feel empowered to make decisions in that role, and that they understand where and by whom decisions were made.

Those insights stand in sharp contrast to the lowest rated items in the survey – scoring from 19 to 31 percent agreement:

  • We have an effective board advisors (or directors) that includes non-family members who are not owners of the business.
  • There is an understanding of how leadership will transition if the current CEO/President dies or is disabled.
  • A process to select, develop, and transition to the next leader(s) is in place and understood by all.

Perhaps the owner has their own way of soliciting advice, or has their own plan in mind for succession. However, it’s worth noting that nearly 90 percent of the 1,400 responses were from non-CEOs -- either other family members or non-family members on the leadership team, typically seven other people.

What jumps out here is that a typical family business leadership team member knows their job today and how the business is run today, but is in the dark about what the future holds in terms of family business leadership or outside advice.

Does that matter?  About half or more of these respondents -- again, almost all of whom were not the CEO -- felt their opinions were valued and they felt energized by being part of the enterprise. Yet, less than a third of them felt the business had an outside board to help guide their future and governance, and fewer still felt there was any discipline and focus or even clarity about how the business would transition to the next generation.

The fact that issues like this that might have been considered the province of the business owners are so evident and so poorly rated by the company’s own leadership team adds an important imperative to the persistent call for family businesses to step up to these best practices.

What is at risk in neglecting these proven measures -- succession planning and outside counsel -- is not just the business today, but its future. Particularly, such opacity around succession or ambivalence toward outside counsel can be corrosive to the energy, passion and commitment of non-family members, as much as it might be the seeds of discord within the family itself.

What lift would it bring to all the elements of the business -- engagement, focus, commitment -- if the leadership team knows the owner is actively seeking the perspectives other executives and business owners outside the family? If owners make it clear how the enterprise can continue to be led well in their unexpected absence?  If they show a determined and disciplined plan to develop the next generation of leaders? That tide of knowledge would clearly lift that business.