THE FAMILY BUSINESS

CHAPTER 5

THE FAMILY BUSINESS: A UNIQUE INSTITUTION

THE FAMILY BUSINESS

What is a family business: We define a family business as a company that two or more members of the same family own or operate together or in succession.

Family and business overlap: Business interests (production and profitability) overlap family interests (care and nurturing) in a family business.

THE FAMILY BUSINESS

Competition between family and business: Entrepreneurs face difficult choices in reconciling the competing demands of business and family, and maintaining an appropriate balance between the two is difficult.

Advantages of a family business: Strong commitment of family members to the

success of the firm. The ability to use a family theme in advertising Firm-specific knowledge Shared social networks A focus on the long run Preservation of the firm’s reputation Reduced cost of control

THE FAMILY BUSINESS

Breaking with the past: Sometimes it is important to change the direction or practices of the family business so that it can keep up with emerging realities, and this often occurs as leadership passes from one generation to the next.

FAMILY ROLES AND RELATIONSHIPS

THE FAMILY BUSINESS

Mom or Dad, the founder: Entrepreneurs who have children typically think in terms of passing the business on to the next generation. Of all relationships in a family business, the parent-child relationship has been recognized as the most troublesome.

Husband-Wife teams: Some couples in business together find their marriage relationship strengthened, while others find it weakened.

THE FAMILY BUSINESS

Sons and Daughters: Many family businesses have been launched with the hope that one of the kids would take it over when the time was right but he/she may be an individual with unique abilities and aspirations. But if the business relationship is to be satisfactory, family pressure must be minimized.

Sibling Cooperation, Sibling Rivalry: Sons, daughters, in-laws, and other relatives may either cooperate or squabble with each other as they work together in a family business.

THE FAMILY BUSINESS

In-laws In and Out of the Business: In-law play a crucial role in the family business, either as direct participants or as sideline observers.

The Entrepreneur’s wife: The role of the founder’s spouse is especially important, as he or she often serves as a mediator in family disputes and helps prepare the children for possible careers in the family business.

PROFESSIONAL MANAGEMENT OF THE FAMILY FIRM

THE FAMILY BUSINESS

The Need for Good management: Family businesses experts have proposed a number of “best practices” for family enterprises:

Promote learning to stimulate new thinking and fresh strategic insights.

Solicit ample input from outsiders to keep things in perspective.

Establish channels for constructive communication Build a culture that accepts continuous change. Promote family members only according to their skill levels. Attract and retain excellent nonfamily managers. Ensure fair compensation for all employees. Establish a solid leadership succession plan. Exploit the unique advantages of family ownership.

THE FAMILY BUSINESS

Nonfamily employees in a Family Firm: Family members as well as nonfamily employees should be treated fairly and consistently, in accordance with their abilities and performance. Motivation of nonfamily employees can be enhanced by open communication and fairness.

Family retreats: Family retreats bring all the family members together to discuss business and family matters. To ensure the success of a family business retreat, these guidelines should be followed: Set a time and place Distribute an agenda prior to meeting Plan a schedule in advance Give everyone a chance to participate Keep it professional

THE FAMILY BUSINESS

Family Councils: Family councils provide a formal framework for the family’s ongoing discussion of family and business issues.

Family business constitutions: a family business constitutions cannot foresee every eventuality but can guide a company through times of crisis or change.

THE PROCESS OF LEADERSHIP SUCCESSION

THE FAMILY BUSINESS

Available family talent: The quality of leadership talent available in the family determines the extent to which outside managers are needed.

Stages in the process of Succession: Succession is a long-term process starting early in the successor’s life.

Pre-business stage: in stage 1 a potential successor becomes acquainted with the business as part of growing up. It simply forms a foundation for the more deliberate stages of the process that occur in later years. it includes introductions to people associated with the company and part-time jobs with the firm.

Education and personal development stage: Stage 2 usually begins when the potential successor goes off to study at a college. This stage provides an opportunity to chart one’s own course, but with an eye on family business and its needs.

THE FAMILY BUSINESS

Proof of competence stage: One way to establish competence is for a son or daughter to prove he or she can do the job somewhere else first hoping that their independent achievements will speak for themselves and establish his or her credibility.

Formal start in the business stage: Stage 4 starts when a son or daughter comes to work at the family business full-time.

Declaration of succession stage: In stage 5 the son or daughter is named president or general manager of the business and presumably exercises overall direction, although a parent usually is still in the background.

THE FAMILY BUSINESS

Reluctant parents and Ambitious children: Tension often arises between the founder and the potential successor as the latter gains experience.

Transfer of ownership: Transfer of ownership involves issues of fairness, taxes and managerial control. Discussing and planning the transfer of ownership is sometimes difficult but usually desirable.