Chapter 04_Family Business

8/7/2019 Chapter 04_Family Business

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FAMILY BUSINESS

MANAGEMENT



Definition of Family Business:

A family business refers to a company where the

voting major ity i s in the hand s of the cont r olling

family ; including the f ound er(s) who int end topass the business on to thei r d esc endant s



What is a Family Business

� High percentage of share capital owned by a f amilyeither jointly or individually.

� Familymembers employed in the highest decision

making posts� Expression of intention to maintain f amily

involvement in the future.

� A number of generations of the same f amily involved

in management or ownership� Direct descendants of the founders havemanagement or ownership control



Features of f amily businesses

� There is of ten a convergence of ownership

and management roles

� Identified ownership� Family culture and values define business

culture and value

� Top position for

the f am

ilym

em

ber� No chance of retirement

� Family name is corporate identity (Michel dell)



� Family owners are long term share holders

� Here relationship are more important

� Family members play many roles here (as

relatives, co-owners, and business colleagues)

� Family firms are closer to community

� Emotions affect decision making

� Tradition is protected and preserved

� Family firms tend to be secretive



Importance

� It provide competition in market.

� It also provide magic of ownership.

� They fuel innovation� Family business provide customized service

� They are the prime source of employment for

f amily� They preserve the community culture

� They helps in retaining tradition and rituals.



� They are the training centers for future

entrepreneurs

� They are the promoters of many philanthropic

Entrepreneurship© Oxford University Press2008All rights reserved



Advantages of a Family Biz

� There is a long term orientation as the continuity of the firm isof great concern to the older generations.

� The f amily culture is a source of great pride for f amily andnon-f amily employees alike.

� The f amily firm functions in a less bureaucratic manner and it is not impersonal in dealing with employees and customers.

� Family firms have shown greater willingness to weather thebad times by ploughing back profits.

� It is structured to impart training to younger members of thef amily.



Advantages of Family Businesses

� Commitment

� Knowledge

� Flexibility in time, work and money� Long range thinking

� A stable culture

� Speedy decision making

� Reliability and pride.



Disadvantages of Family Business

� Family businesses are prone to some serious

and endemic disadvantages. Many of the

problems hinge on the inherent conflicts that

can arise between f amily and business values.



Disadvantages of Family Business Cont.

Disadvantages could be summarised as follows:

� Rigidity

� Business Challenges - Modernising outdated skills

- Managing transition

- Raising capital

� Emotional issues

� Leadership and legitimacy



The Three Circle Model of Family Business

2

Ownership

5

3

Business

1

Family

4

7



Disadvantages

� Theymay have a confusing structure where the roleof many f amilymembers is not clearly defined.

� The style of functioning may be autocratic .

� Ma

ny of th

e younger generat

ionma

y not

be worth

yof their position and role in the organization

� There can be very strenuous succession battles

� Sometimes f amily members can selfishly drain thefinances from the company.



Roles of the Founder

� Starting the business

� Building the organization

� Providing guidance and direction toemployees and f amily members

� Constructively involving f amily members in

business� Planning for succession



The Next Generation

� They know the business well. Ideally, they like or even lovethe nature of the business

� They know themselves and their strengths and weaknesses

� They have had the necessary outside experience andeducation

� They want to lead and serve

� They are guided responsibly by the previous generation,advisors and the board

� They have good interpersonal relationships particularly with other f amily members in business



The Next Generation

� They can count on competent non-f amilymanagersto complement their own skills

� They have controlling ownership either directly orthrough allies

� They have earned the respect of employees,suppliers, customers and other f amilymembers

� Their skills and abilities fit the strategic needs of thecompany

� They respect the past and focus their energies andresources on the future of the business and thef amily



Stepping Up

� A new entrant should have a track record that gives legitimacy to his ideas and his claims.

� It pays to consult the older generation while

making the plan.

� Suggest a step by step approach.

� If the plan is still not acceptable, accept that

theremay be something wrong with the plan.



Retaining Non-f amily Managers

� Discuss career paths in the company and clearly stateif top positions are not open for them.

� Offer compensation and benefits that are at par with the others in the industry.

� Involve non-f amilymanagers in top level decisionmaking by getting them to be part of decision makingteams with other owner-managers.

� Set targets and use performancemeasures to build

motivation. Achievement of targets providessignificant motivation.



Retaining Non-f amily Managers

� Emphasise the contribution of non-f amily managers incompanymeetings.

� Treat f amily members like employees at work. It helps build a healthy atmosphere.

� Involve non-f amily managers in succession planning.

� Some senior non-f amily managers can be used as bridgeheads to smoothen the succession from one generation toanother.

� Periodically assess the motivation level of non-f amilymanagers and the working relationship between f amilymembers and non-f amily managers.



Succession Planning

� Choose a successor

� Grooming the successor

� Planning

� Early entry

� Late entry



Advantages of Early Entry

� The successor becomes f amiliar with the nature of the business

� Gets a chance to develop relationships with other

employees� Gets to know other business associates

� Skills specifically required for the business can beacquired and developed

� Good performance during employment will lead tocredibility with employees and other stakeholders



Advantages of Late Entry

� Success outside the firm establishes credibility

� Best practices from other firms are brought

intoth

e f am

ily business� Business perspective of the successor is broad

� The successors competence is judged with

great

er objectivity.



Best Practices in Family Biz

� Communication

� Independence

� Shared Vision� Documentation

� Conflict resolution

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Chapter 04_Family Business

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