MGT 4550 - Family Business Management PROFESSIONAL, NON-FAMILY MANAGERS Chapter 8 Family Business...

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MGT 4550 - Family Business Management

PROFESSIONAL, NON-FAMILY

MANAGERS

ChapterChapter 8 8

Family Business Management, Concepts and Practice

By A. Bakr Ibrahim & Willard H. Ellis

Instructor: Dr. Irene Duhaime

Dr. Irene M. Duhaime 2

Class Schedule - Week 8 Class Schedule - Week 8 (03/15)(03/15)

PROFESSIONAL, NON-FAMILY MANAGERS

Reading: Chapter 8 FBM

Questions : 16, 60-66, 82 FBAB

Cases: Baker, Inc., p. 287 FBM

Stewart Machinery Company Limited (A), p. 341 FBM

Contents Contents

The Family Business Culture

Reason for Introducing Professional

Management

Attracting and Retaining Professional

Management Outside Directors in the Family Business Composition of the Board

Informal entrepreneurial style

Decision-making process centralized

Employees are likely to resist formal planning, result-oriented and professional-style culture

Reasons for resistance Fear that formalization could lead to loss

of competitive edge Employees may lack the skill and

competence to deal with decentralized decision-making

Employees fear loss of status, money and authority

Reasons for Introducing Professional Management

Lack of a Qualified Successor Within

the Family. Offspring may be: ill-prepared

lack capacity to provide leadership and

work independently

working elsewhere

Family Infighting Family feuds and disagreements about

who get what

Introduce neutral professional

management to ensure business functions

effectively

The Desire to Formalize the Decision-Making Process Change from the informal and

emotionally based, less objective methods Introduce objective, result-oriented

methods, using professional management to minimize problems in the change process.

The Desire to Complement Family Members’ Skills. Well-rounded management team, variety

of skills and competencies Increase competitive edge with more

talented team of executives Enrich the Family Business Culture

To introduce an aggressive growth strategy like : Acquisition

Diversification

Expansion

Supervising Relatives, to reduce tension and conflict in: Assigning tasks

Criticizing and/or evaluating

Attracting and Retaining Professional Management

Figure 8.2 Critical Issues in Attracting and Retaining Professional M anagementFam ily Business m anagem ent, Ibrahim & E llis

Attracting ProfessionalManagement

NepotismCareer development

CompensationFamily Infighting

Distribution of Pow er

Nepotism Eliminate advancement of family

members on the basis of connections rather than qualifications

Develop and implement a clear policy on career development

Family infighting Be aware of non-family members

being enlisted to be allies with quarreling family members

Compensation Offer compensation packages that are

Competitive in the area Equal to those of family members Include ownership (phantom stock)

Base compensation on objective measurable criteria

Individual performance Industry trends

Career development Clear guidelines according to industry standards

Include training and promotion

Communicate to all employees

Distribution of power Acceptance of non-family members as equals

Outside Directors in the Family Business

Outside directors can be critical to the survival of the firm especially during the succession process. They can: Objectively resolve family conflict Assist in the planning and setting of criteria in

succession planning Help in formulating policy and in developing a

strategic plan …. continued

Outside Directors in the Family Business

…continued

Improve decision-making through their talents

and with more objective, less emotional inputs.

Assist the firm in performing to industry

standards

Provide network of contacts

Act as a sounding board.

Composition of the Board

Include wide range of talent and

experience for most effective board

Lawyer

Accountant

Banker

Other Founders

Questions and Cases Questions and Cases

Questions :

16, 60-66, 82 FBAB

Cases: Baker, Inc., p. 287 FBM

Stewart Machinery Company Limited (A), p. 341 FBM

Question 16

Should a non-family employee who has been with the company a long time

mentor and critique the successor(s)?

Question 60

How does the founder deal with a long-time non-family employee when a

family member comes into the business and, later, becomes the successor

Question 61

How does the family business leader attract (and keep) good

professional non-family managers and employees who most likely will never “run” or “own” the

business?

Question 62

How do you attract young people today to middle management positions

when so many want to work on their own for the freedom?

Question 63

Should a non-family employee have a contract?

Question 64

Should non-family employees expect equity?

What are other options?

Question 65

Should non-family employees avoid socializing with family members

outside the company?

How can employees avoid taking sides in family squabbles?

Question 66

How can non-family employees help a successor grow professionally?

Question 82

How should family members’ compensation be set so it doesn’t

initiate conflict?

Class Schedule - Class Schedule - Following week (03/22)Following week (03/22)

FINANCIAL ISSUES FOR THE BUSINESS AND THE FAMILY Reading: Chapter 9 FBM Questions

3, 4, 6, 42-51, 53-55, 67, 79, 97-100 FBAB Cases:

Walsh Petroleum, p. 77 FBM

Francis Hankin & Co., Limited (A), p. 397 FBM

Class Schedule - Class Schedule - Following week (03/22)Following week (03/22)

MANAGING STRATEGIC CHANGE IN THE FAMILY BUSINESS Reading: Chapter 11 FBM Questions

87-89, 95-97, 100, 101 FBAB Case:

Monticello Pottery, Inc., p. 481 FBM

MGT 4550 - Family Business Management PROFESSIONAL, NON-FAMILY MANAGERS Chapter 8 Family Business...

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