The Family Business: Part 2 Starting From Scratch or Joining An Existing Business

The Family Business
Part 2 Starting from Scratch or Joining an Existing Business

PowerPoint Presentation by Charlie Cook The University of West Alabama
Copyright 2006 Thomson Business & Professional Publishing. All rights reserved.
Looking Ahead
After studying this chapter, you should be able to:
1. 2. 3. 4.
Discuss the factors that make a family business unique. Explain the cultural context of a family business. Outline the complex roles and relationships involved in a family business. Identify management practices that enable a family business to function effectively.
5.
Describe the process of managerial succession in a family business.
52
What Is a Family Business?

Family Business
A company in whose ownership and/or functioning two or more members of the same family are directly involved A firm whose ownership passes from one generation of a family to another (succession)
Smith Family Hardware
Est. 1935
Welcome
53
The Three-Circle Model of Family Business

2 Ownership
4 7
1 Family
3 Business
Source: Three-Circle Model developed by Renato Tagiuri and John A. Davis. Found in Bivalent Attributes of the Family Firm. 1982. Working paper, Harvard Business School, Cambridge, MA. Reprinted 1996, Family Business Review, Vol. IX, No. 2, pp. 199208.
Exhibit 5.1
54
Family and Business Overlap

Family Concerns
Care and nurturing of family members Employment and advancement in the firm Loyalty to the family
Business Concerns
Production and distribution of goods and/or services Need for professional management Effective and efficient operation of the firm
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Advantages of a Family Business

Strength of family relationships during challenging periods of business change
Financial sacrifices that family members make for the good of the firm
Operation as a family business distinguishes the firm from its competitors Higher levels of concern for its community and nonfamily employees Capability to plan and prepare for the long haul Emphasis on quality and value
Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 56
Advantages of a Family Business
Exhibit 5.2
The Culture of a Family Business

The Founders Imprint on the Culture
The founders core values become a transmitted part of the culture (for better or worse)
Organizational Culture
Patterns of behaviors and beliefs that characterize a particular firm
Cultural Configuration
The total culture of a family firm, consisting of the firms business, family, and governance patterns
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Cultural Configuration of a Family Firm
Business Pattern
Paternalistic Laissez-faire Participative Professional
Governance Pattern Cultural Configuration of the Family Firm

Paper Board Rubber-Stamp Board Advisory Board Overseer Board
Family Pattern
Patriarchal Collaborative Conflicted
Source: Adapted from W. Gibb Dyer, Jr., Cultural Change in Family Firms (San Francisco: Jossey-Bass, 1986), p. 22.
Exhibit 5.3
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Family Roles and Relationships

Parental Concerns in Passing the Business On:
Does my child possess the temperament and ability necessary for business leadership? How can I, the founder, motivate my child to take an interest in the business? What type of education and expertise will be most helpful in preparing my child for leadership? What timetable should I follow in employing and promoting my child? How can I avoid favoritism in managing and developing my child? How can I prevent the business relationship from damaging or destroying the parentchild relationship?
Family Roles and Relationships (contd.)

HusbandWife Teams
Opportunity to share more in each others lives Business differences interfere with family life Work doesnt leave time for family life Sharing family responsibilities eases the load
Sons and Daughters

Personal preferences different from the business Personal qualifications insufficient to assume role in business Desire for personal freedom to choose another career
511

Sibling Cooperation, Sibling Rivalry
Best case: siblings work as a team, each contributing services according to his or her abilities. Worst case: siblings compete as rivals and disagree about their business roles.
512

In-laws In and Out of the Business
Disagreements about how to treat and reward in-laws and family members/children
Assign to different branches or to different business roles
The Entrepreneurs Spouse

Communication between entrepreneur and spouse is critical for them to perform as an effective team for both the business and the family.
513
Professional Management of the Family Firm

Best Practices (John L. Ward)
1. Stimulate new thinking and fresh strategic insights. 2. Attract and retain excellent managers.
3. Create a flexible, creative organization.

4. Create and conserve capital. 5. Prepare successors for leadership.
6. Exploit the unique advantages of family ownership.
514
Professional Management of the Family Firm (contd.)

Nonfamily Employees in a Family Firm
Hazards:
Competition with family members for advancement Getting caught in the crossfire and politics of family competition within the firm
Solution:
Identify family-only reserved positions in advance.
Treat both family and nonfamily employees fairly in matters of reward and promotion.
515

Family Retreats
Are a gathering of family members, usually at a remote location, to discuss family business matters Use of an outside facilitator may be necessary.
Guidelines
Set a time and place. Distribute an agenda prior to the meeting.
Plan a schedule in advance.

Give everyone a chance to participate. Keep it professional.
516

Family Councils
An organized group of family members who gather periodically to discuss family-related business issues
Represent the family to board of directors Useful in developing family harmony Increases understanding of family traditions and interest
Family Business Constitution

A statement of principles intended to guide a family firm through times of crisis and change
The Process of Leadership Succession

Available Family Talent
Mentoring
Guiding and supporting the work and development of a new or lessexperienced organization member
Allowing only qualified competent family members to assume leadership roles in the firm increases the value of the firm for all who have an ownership interest in it
518
Stage I
Pre-Business
Child becomes aware of facets of firm and/or industry. Orientation of child by family member is informal.
Stage II
Introductory
Child is exposed to business jargon, employees, and the business environment.
Stage III
Child works as part-time employee. Work becomes more difficult. Includes education and work for other firms.
Introductory Functional
Entry of Successor
Stage IV
Functional
Potential successor begins work as full-time employee. . Includes all nonmanagerial positions.
Stage V
Advanced Functional
Potential successor assumes managerial position. Includes all management positions prior . to becoming president.
A Model of Succession in a Family Business
Transfer of Leadership
Stage VI
Early Succession
Successor assumes presidency. Includes period in which the successor becomes dejure head of company.
Stage VII
Mature Succession
Successor becomes defacto head of company.
Source: Justin G. Longenecker and John E. Schoen, Management Succession in the Family Business, Journal of Small Business Management, Vol. 16 (July 1978), pp. 16.
Exhibit 5.4
Conditions Favoring Successful Leadership Succession in a Family Firm

A sound, profitable business
Stable, healthy family relationships Advance planning for leadership succession
Positive family leadership and a team-oriented management structure

Presentation of career opportunities without pressure Open communication on family business issues
Succession in a Family Firm

Transfer of ownership
Passing ownership of a family business to the next generation
Who will inherit the family firm? Should each heir receive an equal share?
Should ownership be transferred gradually?

How to handle tax considerations? What to do with other wealth and assets of the founding entrepreneur?
521
Key Terms
family business organizational culture
cultural configuration
family retreat family council
family business constitution

mentoring stages in succession transfer of ownership
522

The Family Business: Part 2 Starting From Scratch or Joining An Existing Business

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The Family Business

Part 2 Starting from Scratch or Joining an Existing Business

Describe the process of managerial succession in a family business.

What Is a Family Business?

The Three-Circle Model of Family Business

Family and Business Overlap

Advantages of a Family Business

Advantages of a Family Business

The Culture of a Family Business

Cultural Configuration of a Family Firm

Governance Pattern Cultural Configuration of the Family Firm

Family Roles and Relationships

Family Roles and Relationships (contd.)

Sons and Daughters

Family Roles and Relationships (contd.)

Family Roles and Relationships (contd.)

The Entrepreneurs Spouse

Professional Management of the Family Firm

3. Create a flexible, creative organization.

6. Exploit the unique advantages of family ownership.

Professional Management of the Family Firm (contd.)

Professional Management of the Family Firm (contd.)

Plan a schedule in advance.

Professional Management of the Family Firm (contd.)

Family Business Constitution

The Process of Leadership Succession

A Model of Succession in a Family Business

Conditions Favoring Successful Leadership Succession in a Family Firm

Positive family leadership and a team-oriented management structure

Succession in a Family Firm

Should ownership be transferred gradually?

family business constitution

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