Family Governance for SME’s: Issues of Succession Alvin Au Executive Director Programme Organised...

Family Governance forSME’s: Issues of Succession

Alvin AuExecutive Director

Programme Organised by

HK Trade Development CouncilManagement Consultancy Assn.

Time:10:15 - 10:45 p.m.Friday, 28th June, 2002

© Organisation Development Limited 2002

Governance System

- Legal Forms- Distribution of Ownership- Board of Directors- Mission and Goals- Decision Making Process

Business System

- Mission- Strategy- Structure- Technology- Culture- Systems (e.g. Reward and Information)- Process (e.g. Communication, Decision Making)

Family System

- Roles and Relationships- Cultural Patterns- Decision Making

Systems of an EntrepreneurialFirm


System Start-up Growth Succession

Business Business - Strategic planning - Strategic planningplanning - Structural change - Succession planning

- Team building- Career development

Family Family council - Family strategic - Asset management planning board- Career development - Estate planning- Family therapy - Conflict management

- Family therapy

Governance Partner - Board of directors - Ownership and boardrelationship interventions interventions

transition planning

Stage of Development

Interventions in Entrepreneurial Firms

Small

Young Mature

Siz

e o

f O

rgan

isat

ion

} Evolution stages

} Revolution stages Company inhigh-growthindustry

Company inlow-growthindustry

Company inmedium-growthindustry

Model of Organisation DevelopmentLarge

Age of organisation


Managethe Corporate

Culture

Identify and Define a Market NicheIdentify and Define a Market Niche

Develop Products and ServicesDevelop Products and Services

Acquire Resources

Develop Operational Systems

Develop Management Systems

Developmental Emphasis in a Stage I Firm


Managethe Corporate

Culture

Identify and Define a Market Niche

Develop Products and Services

Acquire ResourcesAcquire Resources

Develop Develop Operational SystemsOperational Systems


Developmental Emphasis in a Stage II Firm


Managethe Corporate

Culture


Develop Products and Services

Acquire Resources


Develop Develop Management SystemsManagement Systems

- Planning- Planning- Organization- Organization

- Management Development- Management Development- Control- Control

Developmental Emphasis in a Stage III Firm


ManageManagethe Corporatethe Corporate

CultureCulture- Values- Values- Beliefs- Beliefs- Norms- Norms


Develop products and Services

Acquire Resources



Developmental Emphasis in a Stage IV Firm


Profit Profit orientation; profit is an explicit goal.

P/E Ratio Long term earnings growth

Profit seen as a by product.

ROI or family dividend

Key ResultAreas

ProfessionalManagement

EntrepreneurialManagement

Comparison of Professional Management and Entrepreneurial Management

Planning Formal, systematic planning: Strategic planning Operational planning Contingency planning

Coordination of divisional & corporate plan. Top down or Bottom up approach

Capital rationing

Informal, ad hoc planning.


Organisation Formal, explicit role descriptions that are mutually exclusive and exhaustive.

Informal structure with overlapping and undefined responsibilities.

Key ResultAreas



Control Formal, planned system of organisational control, including explicit objectives, targets, measures, evaluation, and rewards.

Partial, ad hoc control; seldom uses formal measurement.

Board Activities

Regular Meetings Strategic Decisions Formal Minutes Board sub committees Board Policy Development

Family forms the Board

Infrequent Meetings (4 or less per year)

Poor Corporate Governance


Management Development

Planned management development: Identification of requirements Design Programmes

Ad hoc development, principally through on-the-job training

Key ResultAreas



Systems Explicit IT Strategy Marketing / Market Research

prior to key divisions Formal Pay Fringe Benefit

grading structure Performance Appraisal HR Information System Production Control Quality Control Productivity Measurement

Budget not explicit; no follow-up on variances


Innovation Orientation to incremental innovations; willingness to take calculated risks.

Orientation toward major innovations; willingness to take major risks.

Key ResultAreas



Culture Well-defined culture

Defined Vision, Mission & Values understood by all members

Loosely defined, "family"-oriented culture

Family culture/founder culture

Leadership Consultative or participate styles

Styles may vary from very directive to laissez-faire.

Budgeting Management by standards and variances

Budget not explicit; no follow-up on variances


Six Classic Symptoms of Board Problems which Lead to Corporate Collapse:

(1) One man rule(2) A non-participating board(3) An unbalanced top team(4) A lack of management depth(5) A weak finance function(6) A combined Chairman and Chief Executive role


Nine Survival Skills-9 ways to avoid botching your

company's recovery

1. Don't overtrade. Keep a careful view as to the level of growth that the company can sustain while maintaining a reasonable balance of internal and external funding.

by Patrick Wadsted


2. Maintain tight credit-control systems. Ensure that all liquid resources are preserved. They may be needed in the next recession.

Nine Survival Skills-



3. Review your stock-control systems. Stock costs money, not only to manufacture or to purchase, but to finance. While "just-in-time" controls may be too extreme, regular stockholding reviews should occur.



4. Don't forget overheads. For example, does every manager need a secretary, or could they share? As for a fixed asset, if you don't need it, don't buy it.



5. Don't neglect strategic planning. Use SWOT(Strengths, Weaknesses. Opportunities and Threats) analyses or another measure of performance.



6. Review your financial and management information systems. Ensure that they keep pace with existing and anticipated growth.


Nine Survival Skills-7. Motivate your staff. Consider

bonus or share schemes and implement performance management, a shared understanding about what has to be achieved and what brings the best results.

$



8. Review your professional advisers. Do they still meet your needs and understand your strategy?



9. Don't be at the mercy of your bankers. be open, honest and provide any financial information they require on a timely basis. It may be that your recovery gives your bankers a perfect exit route if do not want you as a customer any more.


How to Save the Family Business

Family members working in the business must be at least as able and hard-working as any unrelated employee.

Family-managed businesses, except perhaps for the very smallest ones, increasingly need to staff key positions with non-family professionals.


How to Save the Family Business No matter how many family

members are in the company's management, and how effective they are, one top job must be filled by a non-relative

Before the situation becomes acute, the issue of management succession should be entrusted to someone neither part of the family nor part of the business.

Need Help?


Basic Requirements foran Effective Business

Strategy

Businesses need to articulate their strategy


Basic Requirements foran Effective Business (Cont’d)

Structure

Structure is a function of business purpose and must fit the strategy. Job descriptions, levels of authority need to be agreed and publicised so that everyone knows who they report to, what their responsibilities are and what decisions they can make.


Control

To control you need information to make decisions. Thus you must install systems that provide the right information to the right people at the right time. Information is required in the following areas:-

Purchasing of raw materials, plant and equipment Sales vs Plan and customers Market information, what is happening in each market




Manufacturing, output, quality, cost and capacity Distribution and storage - cost of distribution and

storage and productivity measures Invoicing and credit control Purchase orders and payments due Monthly P/L account by main business stream Capital expenditure Cashflow


People Obtaining and retaining the right people Motivating and retaining them Control of establishment Management of Performance through business

related goals and measurement vs plan Appropriate pay systems and personnel policies



Investment Determine the mission and purpose of the business Invest in the right businesses Manage the deal flow and impact on balance sheet Determine mix of JVs, wholly owned business and

business sectors you wish to enter Then stick to it.



Basic Requirements foran Effective Business

Governance Appoint a responsible and qualified Board Meet at least quarterly to review the

business and make major strategic decisions

Decide what issues the Board will deal with.

Seek continuous improvement in the performance of all business, people and processes.

Family Governance for SME’s: Issues of Succession Alvin Au Executive Director Programme Organised...

Documents

Transcript of Family Governance for SME’s: Issues of Succession Alvin Au Executive Director Programme Organised...