Founder: Turnaround Talk
When I was a journalist in the financial services industry, there was a lot of concern when insurers had to move from legacy systems to technologically advanced systems. The bigger the insurer, the bigger the problem was.
One can understand their fears. Insures typically deal with a lot of data and moving from legacy systems to technology based systems cannot be achieved by flipping a switch. There needs to be extensive planning and the execution must be meticulous as one wrong entry will mean financial repercussions for their clients.
Fears regarding legacy systems is a challenge that many companies face. This can often be paralysing and will be detrimental for companies who are facing financial distress.
Family run businesses are the corner stone of the South African economy. Depending on their size, these companies may be the ideal candidates to make an easy transition away from legacy issues, provided it is done correctly. I recently read an article on the Harvard Business Review website which was written by James Davis that discusses this in detail.
An intangible, invisible force
The article points out that Jon Huntsman, founder of the Huntsman Corporation, passed away in 2018. When Davis asked his son, David Huntsman, about the lasting influence of his father on his role as president of the Huntsman Foundation, he said, “Having grown up in a family business, my father’s influence continues to be ever-present in my life — whether I recognize that consciously or not. I know exactly what he would say or do in just about every business situation, because I watched it firsthand for years. His impact, although he is no longer here, still affects even the little decisions I make throughout the day — things I do or choose not to. Part of him will always be with me, not just in business but in all aspects of life.”
Legacy is an intangible, invisible force that affects the decision making of the next generation in the business, and in life in general. Legacy has also been called the “connective tissue” that links generations in a family business. Jon Huntsman’s values, beliefs, and behaviors live on in the lives of his descendants long after his passing. Legacy begins when the values, norms, knowledge, and beliefs of earlier generations are entrenched in the current generation. Once embedded, next-generation leaders become the “keepers” of the family/business legacy. Until legacy is adopted, the things that make up someone’s legacy are simply characteristics of the previous generation. But once rooted, legacy becomes a conviction that guides the subsequent behaviors of the next generation.
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Motivated to build and sustain legacies
The article adds that research has shown that business founders, senior generations, and parents are motivated to build and sustain legacies based upon the moral and religious beliefs, knowledge, norms, and values that worked for them, and that they may have received from previous generations themselves. Psychologists call the motivation to build legacy generativity, and it stems from the concern for the welfare, well-being, and security of future generations. This desire has been found to exist more in family firms than non-family firms because of an increased feeling of moral obligation to past and future generations. Developing and sustaining legacy is a way for family members to perpetuate the family identity and purpose.
There are several prescriptions in the literature explaining how to build a legacy in a family business. For example, in a recent Forbes article, Stephanie Burns argues that building a legacy requires being the best at what you do, adding new causes to the existing legacy, honoring the existing legacy, and carrying on cultural heritage. Stories, diaries, photos, and family assets such as land, factories, and houses, as well as family symbols such as logos and rituals, are important vehicles that communicate legacy. These mechanisms can represent and communicate the deeply held beliefs, norms, and values that make up the legacy of the family business. They can also play important roles in developing a lasting legacy for the next generation.
But are legacies always positive? The paradox is that legacy has been shown to lead to both positive and negative outcomes for organizations and individuals. Legacy is an asset to a family business when it serves as a source of identity, inspiration, and direction. Jay Barney’s research suggests that it may be the only real source of sustainable competitive advantage for a family business. Legacy is rare, imperfectly imitable, valuable, and sustained within the company — competitors can copy products and processes, but it’s impossible to copy a company’s legacy.
Unique insight
The article points out that, for David Huntsman, experience with his father cannot be copied and is, for him, rare and valuable. He has learned from the experience that only he and his firm have had, and as a result, his father’s values and wisdom live within him and his firm. His father’s legacy has always been good for the company and the family, and maintaining that deeply-held legacy is rational. To do anything contrary to that legacy would be a violation of the values and norms that define their family and their family business. Moving away from legacy runs the risk of losing the competitive advantage that the family business has always enjoyed.
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The downside is that legacy can also be a liability — this is the inherent paradox of legacy. Firms can become so entrenched in tradition and “the way things have always been” that they constrain innovation, change, and organizational agility. Family members may feel trapped by the past and may therefore face a moral dilemma when they’re pushed to sustain the legacy and brush aside a desire to build their own vision and strategy, which might ultimately be necessary to sustain and grow the company. Therein lies the paradox: feeling the need to live the embedded values, beliefs, behaviors, and knowledge of the past, which might conflict with a desire to innovate and move away from the legacy that has always defined them. Strong adherence to legacy can create organizational inertia that makes it difficult for leaders to modify the firm’s strategy, brand, and routines when necessary.
The challenge for family business leaders is to manage the legacy paradox. It is a conflict between the head and the heart. The head might determine that a change is needed based upon rational logic and analysis of the situation. The heart might have an emotional attachment to the past. The result is a conflict between the objective situational analysis and subjective gut beliefs. Should the leader stay true to the family legacy and heritage that has always worked in the past, or should the leader redefine the legacy, the family identity, and the firm that may be necessary for the future? It is one of the most difficult, gut-wrenching decisions that all family business leaders must eventually make. No family business leader wants the distinction of destroying the family business and everything that the family represents. It is the primary reason why we see family business leaders justifying “socio-emotional” performance such as family unity and harmony over potentially higher financial performance in a family business.
In the end, it’s a matter of creating and molding a legacy that can evolve and become a part of the family business culture. A critical part of a successful family business legacy is being the best at what the business does, and having leaders who are consistently contributing the competencies and strategies needed to keep it that way. A successful legacy cannot be so rooted in the past that changes in the organization cannot be effectively addressed. The keepers of the legacy must manage the difficult task of managing stability and change. The leader must determine which values, norms, and beliefs are timeless and valid regardless of circumstances — for they are the core of the legacy that must define the identity of the family and the business going forward. Beliefs, behaviors, and knowledge that are not core restrain necessary change and must be challenged for the business and the family to survive and thrive. In this way, the business can retain its core identity and sustain its competitive advantage.
