The Correlation of Leadership Practices of First and Second Generation Family Business Owners to Business Performance

OBJECTIVE
This research study explored the leadership practices displayed or used and the relationship to business performance for first generation and second generation family business leaders located in the Sedibeng region of South Africa.

METHODOLOGY
The population for this study consisted of 197 small and medium sized family businesses (less than 200 employees) in the Sedibeng District and the Metsimaholo municipality in Southern Gauteng in South Africa. In addition to completing the Leadership Practices Inventory, and supplied three business performance measures: Annual sales and the average number of employees for 2009, 2020 and 2011 and perception of the business’ profitability as compared to similar sized businesses and level of satisfaction with the leadership role in the business (both on five-point Likert scales). First-generation leaders comprised the majority of the sample (N=150). Internal reliabilities were above 0.73 for all five leadership practices, as did the measure of business performance. The composite reliability index was greater than 0.7 for all the scales and the average value extracted test had values greater than 0.50 – all of which “signify that the measure instrument used to measure the constructs is internally reliable and consistent” (p. 32).

KEY FINDINGS
Structural equation modeling found that the five leadership practices explain about 89.2 percent of the variance in business performance, “hence suggesting that these variables almost fully explain the variations in business performance indicators for the first generation family businesses” (p. 33). However, leadership practices explained only 12.9 percent of the variance in business performance for second generation family businesses. Positive and statistically significant relationships were found between each of the five leadership practices and business performance for first-generation family business leaders. For second generation family business leaders, only the leadership practices of Challenge and Encourage were significantly related to business performance. The authors observe: “These findings show that second generation leaders did not use all the leadership practices frequently and thus had marginal influence on business performance The inexperience of the successors based on the limited years in a leadership position resulted in them perhaps not understanding the leadership challenge. … It is possible that these successors have not yet developed the behaviours to use all these leadership practices sufficiently to develop these relationships. They were unable to model the way, inspire a shared vision and enable others to act, so these second generation leaders still need to develop these competencies” (p. 35). They conclude: “Family businesses that develop these leadership practices may be poised to seek opportunities that allow them to capitalize on performance” (p. 35).