The Catholic church's recent election of Jorge Mario Bergoglio, or Pope Francis, as the successor to Benedict XVI, provides just one example of how the changing of the guard in an organization might be orchestrated. However, experts say that some elements of the recent transition in power may offer some insight for family-owned enterprises, which have a high failure rate when it comes to managing generational change.

Francis will become the first pope from Latin America — a key region for the Church in the twenty-first century, since it is home to nearly half of the world’s 1.2 billion Catholics. According to Alberto Gimeno, professor of management and strategy at ESADE, Francis’s election makes it clear that the church is an organization in which "a common purpose is very strong, and where a common purpose stands out above any personal interests." It makes sense, he says, that the new pope comes from a region in which there is a greater number of believers, although the decision breaks with more than 2,000 years of tradition in which popes were of European origin.

Nevertheless, in the Church, as in any organization, “decisions are made as a function of power plays taking place among various members, including the negotiation of individual interests.” The naming of an Argentine cardinal as pope, Gimeno and others note, demonstrates the ability to compromise and an emphasis on supporting the common interest in an organization that needs to survive. Otherwise, possible power battles among different religious orders could have won out over the need to give representation to a region that has the most Catholics in the world.

For the church, as with any organization aiming to survive, “it is vital to define and prepare for the successful changing of the guard from one generation to another,” notes Marta Beltrán, director of ADEFAM, the Madrid Association for the Development of Family Business. “Some suggest that from the day that a person reaches the position of maximum responsibility in the company, he already has to be thinking about his successor…. [This] is very important.” According to some observers, it is possible that plans to nominate Bergoglio as the new pope had already been hatching since the papacy of John Paul II, the person who named Bergoglio cardinal. As early as 2005, Bergoglio was already a rival of Joseph Ratzinger, when the current Pope Emeritus Benedict XVI was elected.

Institutionalization of Organizations

As with many family-owned enterprises, “the Church is a very centralized organization, so the primary authority has a great deal of influence,” Gimeno notes. However, he adds, unlike family businesses, “it is a very institutionalized organization, in which processes are perfectly defined and, as a result, it is predictable how events are going to develop when you’re talking about a succession in power…. That is the reason why the church has survived for such a long period.”

Gimeno points out that the succession process taking place following the recent death of President Hugo Chávez in Venezuela offers a good contrast to the church’s process. In Venezuela, “the system [of leadership succession] is barely institutionalized and, as a result, there is a great deal more uncertainty” about whether or not Nicolás Maduro, the person who was personally designated by Chavez to succeed him, will wind up victorious in the elections on April 14. “In the Church, the [succession planning] structure goes far beyond the [the leader in charge]; whereas in Venezuela, the leader … has such an influence on the system that [Bolivarian socialism] may have trouble surviving without [him].”

Translating those examples to the corporate world, one could compare them with the succession process in family-owned companies, where there is one person – normally the head of the family – who determines the character of the company and its functioning. The problem with this type of company is that personal leadership substitutes for any institutionalization in the processes of decision making, “so that when all is said and done, [leadership] succession becomes a very complicated process because there is no balanceof power,” notes Gimeno. “Founders design companies in their image and likeness, and from that point on, [their companies] find it hard to survive their creators.” For this reason, Gimeno asserts, it is necessary “to generate mechanisms that make it possible to reduce uncertainty in family enterprises.”

Beltrán at ADEFAM agrees. “The consequences of not planning for a succession can be very dangerous for the continuity of the company and for the harmony of the family that owns it, and the rest of the management team. At all costs, you have to avoid letting the generational changing of the guard become an obstacle for the development and stability of the company.”

An Altruistic Decision

A big obstacle is that institutionalizing a company “limits the capacity of the leader to take action. He has to demonstrate a high degree of intelligence in order to realize that this is necessary along with large doses of altruism in order to recognize that an organization goes beyond just oneself,” notes Gimeno. In his view, the decision of Benedict XVI to resign his position is an example of these two qualities — he put the interests of the institution that he managed above his personal benefit. Manuel Bermejo, an expert in family business at IE Business School, shares that view. “Anyone who has the generosity and deep self-criticism to make the best decisions for his organization is deserving of praise,” he says. “Many of my colleagues in the world of academia and consulting have noted on numerous occasions that the Catholic Church is a good example of continuity for the family enterprise. As for this transcendent and extremely rare decision, I believe that Benedict XVI leaves us all a very big lesson.” The last case of a pope who resigned in office dates back to 1415, when Gregory XII quit during a very turbulent period in European history.

Although the resignation of a living pope has no precedent in recent history, the fact that it was an organization as institutionalized as the Church, notes Gimeno, considerably reduced the uncertainty. “Everyone knew what the process was going to be like, and any doubts were about anecdotal topics, such as the color of the clothing Benedict XVI would wear; whether or not he would keep his papal ring and what would happen to it. But when it came to the fundamentals, everything was clear: The cardinals would meet in the Sistine Chapel to elect a new pope.”

Bermejo notes that as early as 2010, Benedict XVI confessed to his German compatriot Peter Seewald in the book, Light of the World, that when a pope reaches a clear awareness that he is no longer physically, mentally or spiritually capable of carrying out his responsibility, then he has, in some circumstances, the right — and even the obligation — to resign. “It seems to me it was the decision of a wise man,” Bermejo says. Likewise, in many family enterprises, “there are people who no longer contribute value — who even can destroy it. There are cases in which they wind up becoming people who are absolutely toxic for the organization and for those who surround them, but they cling to their positions for numerous reasons that, seen from the outside, often seem to be egoism disguised as excuses.”

An Orderly Retirement

But can two popes co-exist? And can two presidents coexist in one company? Beltrán notes that in such a situation, “the person who will substitute for the chief executive of the company [when one leaves] will have the necessary training, and this is always an advantage.” Obviously, he adds, the moment of resignation is something that must be agreed upon by all parties and prepared for conscientiously, and done at a time when the company can sustain such a dramatic change.

Gimeno believes that a company should make the most of the presence of an outgoing leader – provided that “the new director [is allowed to] grow and lead the company.” Again, institutionalizing the transition is key. For example, in the case of the papacy, Francis could benefit from the experience and advice of Benedict XVI. However, institutionally, it is very clear that Benedict is no longer the head of the Church and, as a result, there won’t be any struggle for power.

As for the generational changing of the guard, Gimeno says that the configuration of an organization’s board of directors plays a critical role. They are the ones who must nominate a new president from among their members, much like the College of Cardinals, which elects the Pope from among its members behind closed doors.

Beltrán’s most important advice for achieving an orderly succession at the heart of any family enterprise is this: “Plan far enough ahead for the generational changing of the guard; get approval from the governing organs of the enterprise; achieve unity inside the family and among shareholders and executives; and, if possible, bring the outgoing leader and the incoming one together to share time together so that they can make an efficient transfer of power.”