When the Head of a Family Business Is Impaired – and Won’t Step Down
Executive Summary: An aging leader may not be as strong or fast they used to be but is capable and functional in most areas. An impaired leader makes bad decisions and mistakes, misses opportunities, doesn’t follow through on commitments, and otherwise displays behaviors and attitudes that are inappropriate for their position of power, negatively impacting the people and the business. Pushing out an impaired senior leader who is one of the owners can be tricky, especially when they have a controlling ownership stake and don’t acknowledge that impaired judgment. Through their extensive work with family businesses all over the world, the authors have identified several strategies to help family members (even those who don’t yet have formal authority in the business) cope with an impaired leader to avoid further damaging the company — and the family — in the process.
In the fall of 2021, the FBI finally caught up with Andrew Russo, head of the Colombo mafia family in New York. Having led the “family business” with a disciplined, hands-on management style for years, the 87-year-old had started to get sloppy. He had begun to ignore his own best practices, using insecure communication to directly involve himself in criminal activity. His associates had known about his problems for years, but he would not listen to suggestions that it might be time to step aside for the next generation of leadership. Of course, they all paid for his mistakes when Russo was arrested.
Russo may not be a typical family business leader. But his downfall represents a challenge that family businesses across the world face: What happens when a long-serving family business leader starts to lose a step, potentially jeopardizing the business? When the CEO of a public company starts to show impaired performance, their board (and shareholders) will swiftly usher them out. But that’s not what happens when it’s a privately owned enterprise.
An aging leader may not be as strong or fast they used to be but is capable and functional in most areas. An impaired leader makes bad decisions and mistakes, misses opportunities, doesn’t follow through on commitments, and otherwise displays behaviors and attitudes that are inappropriate for their position of power, negatively impacting the people and the business.
Pushing out an impaired senior leader who is one of the owners can be tricky, especially when they have a controlling ownership stake and don’t acknowledge that impaired judgment. When the leader is also the family patriarch or matriarch, it may seem impossible to challenge or even bring up a concern. We’ve seen plenty of uncomfortable battles for control among family members play out in the media, or worse, the courts. When the family’s goal is to diminish the damage an impaired leader can do without destroying the core trust and connection within the family, the stakes are high.
So, what strategies can a family business employ when a leader is no longer capable of leading the organization in the way they once did? Through our extensive work with family businesses all over the world, we’ve identified several strategies to help family members (even those who don’t yet have formal authority in the business) cope with an impaired leader to avoid further damaging the company — and the family — in the process.
Bring in a trusted third party to help make decisions.
Interactions between the leader — especially one who’s not only running the business but is also its major owner — and siblings, children, or cousins who are concerned but may not have formal authority can be fraught with emotional dynamics. The leader, who likely sees themselves as having been responsible for the success of the business, may take umbrage with any family member who dares to question them, tainting productive discussion of the immediate issue.
In such cases, one solution is to ask a person or group of people whom both parties trust to intercede and negotiate for both. This would be set up as an “informal” communication channel to help ensure decisions will be made wisely. They don’t necessarily need to address the leader’s impairment directly. They can operate as a workaround to keep things moving.
Family members or advisors should consider what resources are available to exert positive pressure on the reluctant leader:
- Is there a board, either of fiduciary directors or advisors, that can be convened?
- Are there other respected friends or family members who have credibility with the leader?
The way the message is delivered is especially important since power and impairment are intertwined, and the engagement is more likely to be productive if the temperature is turned down. It’s important to acknowledge the issue without threatening or blaming the leader. Respectful mediation can help find middle ground where everyone saves face and real change happens.
When there is a pointed conflict — for example, between an elder leader and next-generation potential successors — the family might call upon a family member who doesn’t have an emotional stake in the outcome (for example, a sibling who’s not in line for leadership) to find a path to address the issue. This family member can find a safe place and time to talk to the leader without arousing defensive responses. The concerns should be raised in a way that does not blame or challenge the leader’s authority but shows concern about the business.
Recruit an independent mediator to intervene.
Sometimes the trusted third party channel may not work, usually when the leader ignores or dismisses the warnings, and a more formal arrangement has to be put in place to explicitly address the issue. A trusted independent mediator can help the leader see that if they don’t change or step aside, they could become a liability to the family, who may feel forced to stage a coup d’état.
Family members can call upon independent voices from a number of areas, including professional mediators. The difference between this tactic and the trusted third party option is that the independent mediator will be asked to explicitly address the problem behavior or persuade the leader that it’s time to step aside, rather than subtly suggesting workarounds. Independent voices whom family members can call upon include:
- A longtime friend or colleague: Most leaders have peers whom they trust deeply and who have had similar experiences. The family can ask those people to help their leader see the need to address issues. They can often say things that family cannot.
- Advisor: A family may seek a neutral advisor or consultant who is accepted by both groups and whose task is not to act as a judge, but to bring them together in a productive way to resolve the issue.
- Coach: The family can ask the leader to get a personal or leadership coach to help them modify their behavior. Some coaches facilitate family meetings where the family shares concerns and the leader shares what they’re learning.
For example, one patriarch was very vocal about his points of view on a range of topics, from business to politics. But this started to spill into family dinners, offending other family members in the process. Once some family members refused to attend family gatherings, the matriarch of the family called a family dynamics specialist to work with the patriarch. Because he didn’t want his family to split apart, he reluctantly accepted coaching, which helped him listen to other views and kept the family connected.
The mediator can suggest adjustments that will allow them to remain a key contributor but may involve handing over or sharing certain responsibilities. To determine what those might be, they may ask:
- Are there areas where you could delegate more?
- Who are the people who could replace you someday (even if you must split your responsibilities among a few people instead of just one person)?
- How can you begin to put those people in place?
Create parallel structures.
There are several indirect ways to intervene when the leader will not listen or acknowledge the issue:
Shadow review process
Some families deal with diminishing effectiveness by setting up a shadow review process. Rather than implement the leader’s decisions, a designated family member or potential successor reviews decisions, sometimes deciding not to implement them. For example, when a founder/CEO exhibited memory loss and cognitive decline, the rising generation stepped in to shield him from most of the decisions and brought him only the ones that needed his signature. The family picked a favored grandson to be the liaison to channel conversations.
Some families also designate a group of rising-generation family members who will one day inherit the ownership. These not-yet-formal leaders can begin to meet and plan for their future ownership. By focusing on the future, this group can unleash tremendous energy and communicate with the leader and make requests. If they’re respectful, non-confrontational, and working as a unified group, that can be an effective pairing with an impaired leader.
New venture and future task forces
What may seem to be signs of impaired judgment could also be a warning that the core business is maturing — and may not be competitive in the future. If that’s the case, it’s possible to avoid confronting the current leader while empowering a new generation to plan for the future by initiating new ventures and innovations that take the family enterprise in new directions. It may be possible to expand assets and investment capital into initiatives where the family has an active role, mitigating the impact of the impaired leader.
Find a new role for the leader.
When issues begin to arise, the family can begin a transitional structure for the family and business. For example, they can streamline the leader’s role to allow for more operational support. They could also create a leaders’ council to develop new leadership. This can lead to a co-leadership structure whereby major decisions are reviewed and the leader delegates more responsibility.
Another option is to create a new role for the leader — as mentor, advisor, or spiritual leader. This allows them to be heard while the rising generation begins to exercise control and make changes. Sometimes this happens when the leader steps down from the CEO role to become the board chair, for example.
Anticipating and developing governance before there is a problem
The best solutions are always those that anticipate a problem. Families can put the following mechanisms in place so that they can act if they have serious concerns about the leader’s capabilities:
- Term limits and retirement ages: Many family enterprises, like public companies, specify retirement ages for employees and board members and term limits for serving in leadership roles.
- Performance evaluation and leader review: There should be an annual review of the leader’s performance, including assessment of strategic goals, effectiveness of the business, and management performance. This can periodically include a 360-degree performance assessment. It should be done confidentially and shared with the leader by a board committee or other group.
- Supermajorities for major decisions: The family can create bylaws that provide ways that minority shareholders can be included on major decisions. This provides protection for minority owners so that they can have a voice even if majority control lies with one person.
- Advisory board: The family can name a board of advisors to provide leadership with an outside perspective on the business. They can be asked to intervene if minority shareholders or trust beneficiaries are concerned about the leader. They can also be asked to evaluate performance or offer a second opinion about major proposed actions, or even help select transitional or non-family leadership.
In our experience, even the most potentially fraught situations can find a path forward if both the family and the leader are willing to seek common ground. IKEA founder Ingvar Kamprad fought bitterly with his three sons over control of the company and his fortune, according to Ikea: Moving to the Future. But eventually, with the face-saving step of appointing 87-year-old Kamprad as a senior advisor to IKEA’s board, the sons were able to step in and the business was passed down to his children. It’s never easy to wrestle control from an impaired leader whose identity is tied up with the company they founded, but it doesn’t have to come down to a battle royale if the family is prepared to take a few mitigating actions in the short term.
Originally posted on HBR.org on 27 April 2022