Succession and power in family businesses

This article is part of the Newsletter #2 of the Chair in Family-Owned Enterprises (CFOE) of Esade and Andbank. Subscribe here.

When talking about family businesses, one of the issues that generates the most dysfunction is the use and transmission of power. Many internal tensions, generational conflicts or management difficulties are directly or indirectly related to who makes decisions, who really has influence and how power is organized.

At the same time, very often the decline of family businesses associated with generational transition is due to a lack of awareness that family dynamics and consensuses have shaped a configuration of power within the business that has weakened it. Curiously, despite its importance, this issue has received little systematic attention.

Understanding what power is, the different sources on which it is based, and building a power structure appropriate to each circumstance is an unavoidable task for the business family. Frequently, the family is not aware of the power structure that is spontaneously being created or shaped, with the risks this entails.

Power is the ability to modify the behavior of others

One of the first steps in this context is to clearly and concisely define what we mean by power. In this case, power is the ability to modify the behavior of others. In other words, power makes it possible to turn intentions into real actions. Without power there is no coordination or collective action, and without collective action there is no possible business.

The sources of power: authority, knowledge and leadership

Jaume Filella, a great thinker and teacher of many professors, myself included, pointed out that power within any organization, including the family business, comes from three main sources: authority, knowledge and leadership. Each has its own logic and characteristics, and they usually coexist and blend in different proportions.

1. Authority

Authority is the most visible and structured source of power. It is based on the hierarchical position a person holds within the organization and on the recognition granted by others to give orders by virtue of that position. Authority is granted by the role, by the position one occupies. Owning a percentage of shares gives power to whoever holds them; holding a seat on the board of directors, the role of CEO, general manager, area director, section manager, etc.

In this case, power is granted by the role, regardless of who occupies it. Since this authority is recognized, those subject to it will accept it—they will obey. During the Spanish colonial period, viceroys, governors or town councils coined the phrase “se acata, pero no se cumple” (it is acknowledged but not enforced) in reference to orders issued by the King or the Council of the Indies. In this case, since they were not legitimized, their instructions were not executed. That phrase indicates respect, but does not imply power. This situation can also be observed in some modern boards of directors, where meetings are more ceremonial in nature and real power lies in other sources.

In the family business, two structures of authority can overlap without necessarily coinciding. There may be a family hierarchy, determined by blood ties, age, tradition, and personal relationships. In parallel, there may be a hierarchy specific to the company, associated with ownership, governance positions, or management roles held by family members.

In families with a strong patriarchal component, this overlap can become a major source of dysfunction. For example, someone may have great weight within the family (for being the patriarch, the eldest son, or a man), but this position does not necessarily carry over into the company hierarchy. Since authority can only exercise power if it is perceived as legitimate—that is, if subordinates accept and recognize the superior’s right to give orders—authority that is not legitimized weakens the company.

2. Knowledge

The second major source of power is knowledge. We may have heard the phrase “information is power”; however, knowledge goes one step further and involves processing, interpreting and applying information, with experience and judgment.

In organizations, knowledge is increasingly decisive. Those who understand how processes work, know the market, master the technology, or have accumulated experience can strongly influence decisions, even without holding a formal position of authority.

In an increasingly complex world, the power granted by knowledge is becoming more and more relevant. And this knowledge is not obtained only through academic degrees, but is built through a combination of formal education, practice, lived experiences and good mentors. This allows the integration of information with values, intuition and personal judgment. An organization in which knowledge is not a source of power—either because it is absent or because the organization does not let itself be influenced by it—is a weak and fragile organization.

Knowledge as a source of power is especially relevant in family businesses because a large part of that knowledge is often concentrated in the founders or in older family members who have lived the business since its early days. Their experience is an enormous asset, although it is often tacit knowledge, meaning it is not codified. Transferring this non-explicit knowledge to the organization is one of the key tasks in achieving a successful generational transition.

3. Leadership

Leadership is the most intangible source of power. A leader is not simply someone with a position, but someone others choose to follow for different reasons. Sometimes, in an attempt to “modernize”, organizations confuse the terms and call leaders those who are in fact bosses—that is, figures of authority. In some cases, the same person may have both attributes, but leadership never comes from hierarchy. Authority generates obedience, whereas leadership arises as a deliberate act: it is the consequence of the conscious willingness to follow someone. This distinction is fundamental. Thus, leadership refers to the personal ability to attract followers freely, without needing to impose formal authority.

A leader is not simply someone with a position, but someone others choose to follow

We can distinguish different types of leadership, depending on the role played by the leader: there are those whom people trust to solve problems and deliver results (Trump), those who are followed for their ability to mobilize wills and build consensus and agreements (Mandela), or those followed for their vision as a guide and inspiration toward the future (Deng Xiaoping). All three exemplify different types of leadership, each valuable in its own way, but it is unlikely that all three converge in a single person. Having followers is not necessarily associated with the moral qualities of the leader—Trump would be a good example of this.

In the family business, it is especially relevant to understand the plural “leaderships”, because there must be a leadership that solves problems, a leadership that generates consensus and cohesion, and a leadership that guides toward the future. A generational transition that does not pay attention to the need for these different types of leadership is unlikely to be successful in the long term.

Coherence in the power structure

As we have seen, in a family business there is no single focus of power: it may emanate from the family, from the company, or from both at the same time. Multiple dimensions of power are therefore combined: family authority, ownership, governance and management positions, family members who hold key knowledge in governance and/or management, those who exercise leadership in the family and the business, etc. These centers of power may reinforce each other or, on the contrary, block each other.

Power largely determines the competence and functionality of an organization according to three fundamental factors: the strength of each type of power (how much real capacity for action each one has), the relative proportion between authority, knowledge, and leadership (in their different dimensions), and the alignment between the different centers of power (that they all point in the same direction).

For example, in a hospital where authority seeks to reduce costs, doctors want to introduce expensive technology, and union leaders want to reduce working hours, efforts neutralize each other. The organization will tend to become blocked because those who hold power within it are not sufficiently aligned.

In young or small family businesses, power is usually concentrated in the figure of the founder, who accumulates authority, knowledge, and leadership. However, as time goes by and both the family and the company become more complex, power tends to become dispersed and alignment becomes critical to avoid dysfunctions.

In this context, business dynamics increasingly demand a combination of power that is not based on authority, but rather supported by knowledge and leadership. More traditional hierarchical structures work well in stable environments that require administrative efficiencies, but are ineffective in environments that demand innovation. The family must keep this very much in mind when planning the generational transition.

Succession and the evolution of power

One of the most delicate moments in the history of a family business is generational succession. Beyond a simple change of names in positions, succession implies a true reconfiguration of the power structure.

Authority is the easiest part to visualize: the founder steps down and a new CEO, a new chairman, or a new family council is appointed to replace them. But authority is a “zero-sum game”: what one receives (position, ownership, etc.), another relinquishes. If authority is highly concentrated in a single person, the replacement of that person implies that all authority passes from one person to another, which is unlikely to be functional.

Knowledge grows when it is shared

By contrast, if authority is distributed across different layers, in which the levels of ownership, corporate governance and management are differentiated, the transition can be carried out gradually, transferring portions of power in an orderly way.

Knowledge behaves in the opposite way to authority: it has the extraordinary characteristic that when it is shared, it grows. That is why an intelligent succession process must include mechanisms that enable the older generation to pass on its accumulated expertise to the next, and for that next generation, in turn, to develop and contribute new knowledge.

Leadership, for its part, is the most difficult to transfer. It cannot be imposed or decreed. A father can make people obey his son, but he cannot force them to follow him enthusiastically. The development of leadership is closely linked to the type of parenting, that is, to how parents have exercised their role as parents. Having the respect and followership of others is associated with how that person has cultivated themselves to be respectable and virtuous, in the classical sense of the term.

Preparing succession: a long and complex process

Succession is not prepared overnight. It is a long process that begins with education and socialization from an early age. Academic training is important, and many business families invest in university degrees or graduate programs for their children. But just as important as formal education are life experiences: taking on responsibilities, facing challenges, making mistakes, interacting with valuable professionals, and living in stimulating environments.

By contrast, negative experiences such as overprotection, lack of autonomy, intolerance of failure, or mediocre work environments hinder the development of knowledge and leadership.

Moreover, fostering strong leadership in the next generation is not always comfortable for those who are in power. Young people, when there is leadership, are often like Thoroughbreds: with great potential, but difficult to manage. And yet they are the ones who can take the company to win new “races” in a competitive environment.

Conclusions

Power in the family business is a complex phenomenon that cannot be reduced to organization charts or simple share ownership. There are three fundamental sources—authority, knowledge and leadership—which combine and evolve over time.

For a family business to be effective and competitive, these sources of power must be well developed, balanced, and aligned. As the company grows and faces more changing environments, it must move toward structures that give greater weight to knowledge and leadership, without depending solely on formal authority.

Succession is a key moment in this evolution. It is not just about planning positions, but about preparing people, developing knowledge, fostering leadership, and designing structures that allow for smooth and sustainable transitions.

Ultimately, understanding and properly managing power is one of the most decisive factors for the continuity and long-term success of family businesses. It is not about avoiding power—without power, there is no business—but rather, on the contrary, about strengthening and channeling it in a conscious, strategic way, aligned with generational evolution and the needs of the organization.