The challenges family businesses face are more complex than in the past. No single person in the company will have the solutions for those challenges. Nor can one person know the future challenges and opportunities that will be presented. It requires a diversity of perspectives and ideas. Research shows that companies that have high levels of diversity and inclusion are almost twice as likely to be innovation leaders in their market, outperforming their peers by 35%. To bring in more diverse perspectives, senior leaders need to create psychological safety and allow constructive dissent, while maintaining deep connections to the mission. By marrying depth of experience with a culture of constructive dissent, a family business will be able to proactively solve thorny issues, increase the effectiveness of their decision-making, and open the door for innovation.
Some of the oldest companies in the world are family owned — with many dating back several centuries. They are the epitome of resilience. Like other companies, family businesses live in a volatile, uncertain, complex, and ambiguous (VUCA) world where past success doesn’t guarantee future success.
While family businesses might have the advantage of a deep connection to their mission, strong leadership by one or more family members, and a close group of advisors, these strengths can actually be weaknesses in a VUCA world. In a rapidly changing environment, becoming too insular can hinder the ability to see early warning signals in the market or changes in customer profiles, and it becomes too easy to believe that past success will almost guarantee future success. An echo chamber can be created with the same perspectives and ideas being too common in the business.
To build resilience for the future, one of the most important things that family businesses can do is to increase the diversity of perspectives in the business, and the inclusion of different voices. Research shows that companies that have high levels of diversity and inclusion are almost twice as likely to be innovation leaders in their market, outperforming their peers by 35%. To bring in more diverse perspectives, senior leaders need to create psychological safety and allow constructive dissent, while maintaining deep connections to the mission. Here’s how:
Create psychological safety.
Psychological safety is a prerequisite for diverse ideas and opinions to flourish in any business. But in family businesses, where there might be additional fears of harming family relationships or the family reputation, the need for psychological safety becomes even more pronounced. To create psychological safety in a family business, it’s important to:
Admit mistakes. Psychological safety starts when senior family members admit business mistakes. Older generations in the family business rightfully take pride in the success and wealth they have created for their family. But alongside that pride, there may be less willingness to express fallibility.
Senior leaders’ admissions set the tone for others to follow. It’s important to communicate that, moving forward, not every decision or action will be mistake-free, and position these decisions as an opportunity for analysis and learning. For example, a senior family member can say :
- “I have years of experience, but I’m not as close to some of these areas as you all are. Push back on the solution I’m about to propose.”
- “What else should we be thinking about, based on your perspective?”
- “I made a mistake. Here’s how I’m going to fix it.” Or, “I made a mistake. Let’s talk about how to move forward.”
When admitting mistakes, don’t dwell on explaining the various reasons why it happened or who is to blame. One of the best leaders I ever worked with was president of a division in a family-founded specialty chemicals company. In a meeting of the division presidents, the CEO called him out on a mistake he made. He replied, “Yes, I made a mistake. Here’s what I’m doing to rectify it and learn from it.” No long explanation. No excuses. No finger pointing. By demonstrating his fallibility, he strengthened the trust of his peers and the CEO.
Set communication guardrails. Behavioral and financial guardrails or guidelines can help provide clarity for how and when to speak up. Family businesses have the advantage of a deep commitment to a clear mission — their “why.” In the face of rapidly changing technology, global conditions, and customer expectations, that “why” can provide the necessary guardrails to give latitude for the “how.”
In more than a decade of research, Donald Sull and Kathleen M. Eisenhardt found that identifying critical business needs and creating simple guidelines allowed people to understand the business’ priorities and generate innovative ideas. Simple guidelines operationalize your mission, core values, and business. They might include rules such as “our environmental impact must be neutral,” or “serve the customer first”.
Establish clear boundaries for dissent. Psychological safety is increased when clear distinctions are made about when and how the business and any ensuing dissent are discussed.
My firm is a family business. We don’t talk about business during off-hours unless it’s urgent. Family dinner is not a time for new product development. After a difficult business discussion, we debrief to ensure that no hard feelings carry over into family time.
“When every family dinner or holiday becomes a board meeting, the likelihood of dissatisfaction in coming together is very high,” as Ryan Ansin, former president of a collaborative network of 300 family offices told me in a recent interview. “Keep family holidays clear of chatter regarding the daily grind, clear of professional decisions, and focused on gratitude, presence, and novelty together.”
Once you’ve created an environment of psychological safety, you’re ready to set the stage for diverse perspectives and voices to join the conversation.
Encourage a diversity of perspectives and voices.
Sharing diverse perspectives within a family business can be fraught with challenges. But the following four actions, when implemented together, can increase the diversity of perspectives and enhance cohesion within the business. Each helps to address the dilemma of utilizing the older generation’s ideas while harnessing the new ideas of younger generations and non-family management, advisors, and staff.
1. Make dissent and diverse perspective-sharing a core value. I once worked with a family business in which the founders regularly made decisions within the family and told the non-family team members the decision without explanation. When a team member questioned a decision, the founders took it as a lack of faith in their direction for the business, rather than an opportunity to gain different perspectives.
Family leaders would instead do well to explore constructive dissent by explaining why decisions were made, being curious about concerns, and having a conversation about the reasoning and data behind decisions. This demonstrates a genuine interest in hearing different voices.
2. Hire more diverse non-family employees. Hiring managers most often hire people who are similar to themselves. It’s a basic human tendency to be most comfortable around those most like us. But hiring those who are dissimilar to us accelerates building a culture of diverse perspectives.
In your hiring efforts, define diversity broadly. Look for diversity of thought and communication style. Look for different generations, backgrounds, and demographics, to name a few examples. To successfully hire non-family employees into the business, consider how they will be able to contribute to the business in a meaningful way. Ensure you are creating psychological safety for them, just like for other family members.
3. Utilize a consistent decision-making process. Ansin advises that before making high-stakes final decisions, family business stakeholders should “encourage systematic decision-making that brings in case studies and data, without bias, into the process either from the principals and beneficiaries themselves, or through third parties.” The family might conduct family forums for assessing the situation and generating potential alternatives, with additional forums for non-family members’ insights.
Again, data is key in these conversations, and data-based decision-making needs to be role-modeled by the older generations. A more dictatorial enforcement of their perspective would only shut down future conversations. And be sure to distribute responsibility for bringing in new perspectives, including identifying external advisors or experts. For example, next gen members may have better insights into technology or Gen-Z culture, while senior members might have deep expertise in governance issues.
4. Use proven techniques for constructive dissent. The questions a leader poses sometimes get in the way of promoting constructive dissent and making smarter decisions. To avoid that issue:
- Ask perspective-shifting questions like “What am I missing here?” or “How would younger customers approach this?”
- Assign a devil’s advocate to purposely argue the other side. Rotate this role among family members. Preface remarks with: “I’m playing devil’s advocate here” to reduce the likelihood of people feeling attacked.
- Respond with curiosity rather than trying to defend your position. For example, when you hear dissent, first seek to understand their perspective as thoroughly as possible before responding by using open-ended questions and statements like, “Tell me more,” “Help me understand your thinking,” or “What do you see as the impact?” If it’s a group conversation, once you feel you have a deeper understanding, invite others into the conversation.
As you bring more diverse voices to the table, you will often find that having a variety of perspectives has some compelling advantages. One of these advantages is the opportunity to introduce “both/and” thinking into your team discussions.
Adopt a “both/and” mindset.
Often when different ideas and data are presented, one view or solution is not completely right, and the other is not completely wrong. Each may be incomplete or have biases. The key is to not dig in, defending one position to the complete disregard of the other. How might a commingling of ideas create a better final decision? Adopting a “both/and mindset” can result in decisions that prove to be more sound over time.
For example, in an environment where the venture capital sector has experienced more than a 10-year run up, the 20- and 30-somethings in your firm may have never experienced the concept of losing their shirts; they’ve only seen increased value on paper. They’re working with an incomplete dataset. The 40-plus-year-olds who have lived through more volatile cycles will have different perspectives. As Ansin noted when sharing this example, “Finding overlap in the younger generation’s ambitious thinking, and the older generation’s more conservative viewpoint, is critical. There is a balance that must be struck.”
The challenges family businesses face are more complex than in the past. No single person in the company will have the solutions for those challenges. Nor can one person know the future challenges and opportunities that will be presented. By marrying depth of experience with a culture of constructive dissent, a family business will be able to proactively solve thorny issues, increase the effectiveness of their decision-making, and open the door for innovation.