Professional Documents
Culture Documents
Section 2
Chapter and Lecture Notes
Chapter 1 Essence
Part 1 of the book (Chapter 1) encompasses a definition of the form of enterprise
referred to as family business. “Family business” includes some entrepreneurial, 100%
family-owned, and publicly traded but family-controlled companies. A theoretical
perspective of family businesses is offered. Family dynamics and ownership of the family
business are addressed in Chapters 2 and 3.
Part 2 (Chapters 4 and 5) address the succession process. Part 2 also discusses
leadership imperatives for key actors in business survival and growth: the CEO, the CEO
spouse, and the next-generation successor(s) to the CEO. Their leadership initiatives,
actions, and behaviors are central to the strategic task of business continuity.
Part 3 (Chapters 6 through 13) presents a collection of best management, family, and
governance practices that research and the family-business literature have highlighted as
most significant in promoting family-business continuity from generation to generation.
The future of family-owned and family-controlled companies depends on the effective
planning and implementation of a variety of these best practices.
7
8 Section 2 Chapter and Lecture Notes
Chapter 1 shows the importance of family businesses to the free economies of the
world. Family businesses represent the primary engine of economic growth and job and
wealth creation. This chapter also discusses how, being unique in their attributes, family
businesses are unique in their challenges and opportunities.
Four theoretical perspectives that dominate the study of family business are
discussed: systems theory, agency theory, resource-based theory, and stewardship theory.
In the systems theory approach, the family enterprise is modeled as comprising three
overlapping, interacting, and interdependent subsystems of family, management, and
ownership. The joint optimization of these subsystems is discussed as the opportunity for
significant adaptive capacity and competitive advantage by the firm. Agency theory
argues that the owner-agent overlap in a family company presents some cost reduction
opportunities but also highlights some agency costs that are unique to family firms; for
example, CEO entrenchment, inability to manage conflict, and the potential for risk-
aversive and self-dealing behaviors. Management and governance practices that reduce
the likelihood of incurring these agency costs are discussed. Resource-based theory holds
that competitive advantages derive from core competencies that are the result of the
unique overlap between owners and managers, between family and business. Speed to
market, long-term investment horizons, product differentiation through high-
quality/service strategies, and reduced administrative costs are some of the often-seen
advantages. They are the result of concentrated ownership, family unity, shareholder
loyalty and patient capital, company size, strategies that focus on proprietary products or
niche markets, and the transfer of skills and knowledge across generations. The unique
attributes and core competencies of family enterprises enable them to turn these resources
into competitive advantages.
Stewardship theory argues that founding family members view the firm as an
extension of themselves and therefore view the continuing health of the enterprise as
connected with their own personal well-being. Its continuity is often deemed a collective
responsibility of family members.
Discussion Questions
1. What is a family business?
Family business constitutes the whole gamut of enterprises where an entrepreneur or
next-generation CEO and one or more family members influence the firm through
their management participation, ownership and control, strategic preferences, and the
culture and values they impart to the enterprise.
2. What makes a family business unique?
Family businesses are unique because of:
• The presence of the family.
• The owner’s dream to keep the business in the family—the objective of business
continuity from generation to generation.
• The overlap of family, ownership, and management, with its zero-sum
propensities in the absence of firm growth.
Section 2 Chapter and Lecture Notes 9
Chapter 2 Essence
The presence of the family is the essential difference between a family business and
other forms of enterprise, whether ownership shares are privately held or publicly traded
but with family control. The most recent family-business literature cited in this chapter
highlights the role that the family and its culture play in creating both organizational
challenges and unique competitive advantages. In the past, and to the detriment of both
our understanding of family firms and of the management of firms in general, given how
ubiquitous family firms are, researchers and educators have largely ignored the family as
a fundamental variable in their research and teaching. To a large extent then, models and
theories of management have been less robust and generalizable than needed by
management science, an eminently pragmatic discipline and field of study. Perhaps even
more surprising is that even in the family-business literature, family members who are
not active in the management of the family business are often ignored in the process of
understanding or describing the business. Nevertheless, family members who do not
participate in the management of the business often have significant influence on the
deliberations, decisions, and long-term processes of the family-owned or family-
controlled corporation. And when their perspective and contributions are not considered,
not deemed legitimate, or underweighted, they may experience a sense of inequity. This
sense of injustice, whether by minority shareholders, female heirs, nonparticipating
members, or younger members of the family is often the cauldron for eventual family
conflict.
Secrecy, lack of information, and absence of education threaten continued
commitment by family members to the continuity of a family-controlled corporation.
Multigenerational families, because of the myriad ways in which us-and-them behavior
can manifest itself, are fertile ground for zero-sum dynamics. Family systems theory
makes a great contribution to the understanding of family dynamics and the influence of
the family in a family business. Family systems theory is a theory of human behavior that
considers the family to be the building block of emotional life and uses systems thinking
to understand the complex interaction between individual members of the family unit. In
the family systems literature, the family represents group-level phenomena, this being a
higher-order level than the individual. A higher-order system, from this perspective,
offers the opportunity of bringing about change at that system level and leveraging
changes at lower-level subsystems—that is, change in the family, whether brought about
by therapeutic intervention or some other means, is more likely to bring about sustainable
change in the individual members of the family.
12 Section 2 Chapter and Lecture Notes
The family systems perspective argues that the same interdependence that accrues
benefits of connectedness and the satisfaction of social/physical/intellectual/emotional
needs gives rise to unmet expectations and personal distress. The emotional
interdependence of families may very well have evolved to fulfill a primary mission of
family life—unity in the face of the need to protect, feed, and nurture family members,
particularly the next generation. But that same interdependence gives rise to many
conflicting needs, desires, and priorities as the family grows and ages.
The family systems perspective also argues compellingly for the tremendous
influence of an individual’s family of origin. The premise is that we all carry much
baggage from our two or three preceding generations, and that patterns and processes set
in motion then still matter. Therefore, the analysis of earlier generations is essential to
understanding what ails or distresses a family in the present. Bowen’s theory of family
systems in summary states that:
1. A family is a system.
2. Family systems transfer rules, patterns, messages, or expectations about the behavior
of its members.
3. Individuals and families can still learn behaviors and establish patterns different from
those transferred by messages from the family of origin.
4. Tension and distress tend to make individuals go back to patterns and behaviors
learned from their family of origin, unless by purposeful self-differentiation and
maturation, a different behavior is learned and used.
Because of the tremendous influence of family of origins, family genograms and
family histories represent a great study tool for family members in a family business. A
genogram, a cousin of the traditional family tree, informs us not just of family names,
relationships, ages, and lineal descendants, but it also captures critical events (e.g., a
divorce), the quality of relationships (highly conflictual or extremely close, for instance),
and important messages transmitted across generations (e.g., “education and hard work
are both important”). It can alert us to patterns of illness (e.g., heart attacks and
alcoholism) and to the role that a second marriage and the younger heirs could play in
estate and succession planning in the family.
On the text web site, the “Family Matters Project,” will guide students in the process
of completing a genogram, an analysis of family messages, and a family history. Whether
the project is assigned in class or not, I encourage students to invest time and energy on a
project like this one. Some students have launched such a project only to have other
interested members of the family join them and eventually publish a family history book
in celebration of an important family or family-business anniversary. I have several in my
personal library. They represent cherished gifts of love and hard work woven into the
story of the still-living American Dream.
Family meetings and family councils are a reliable forum for the education of family
members about the business. In family meetings, family members learn about the rights
and responsibilities that accompany being an owner-manager and about the important
distinctions between ownership and management. They also provide a forum to minimize
the potential for conflict within the family.
Family unity is a strong predictor of the successful use of best managerial and family
practices by multigenerational family-controlled companies; the same practices that have
Section 2 Chapter and Lecture Notes 13
been found to be highly correlated with family-business continuity. In this way, families
are the source of intangible assets that add value to the firm’s competitive capacity.
Policies that are especially useful to family businesses include an employment policy,
a subcontractor policy, a board service policy, a family council coordinator and
committee service policy, a dividend policy, a liquidity policy, and a family constitution.
A sample family constitution is provided at the end of Chapter 11 and may prove a useful
resource for this chapter too.
Discussion Questions
1. What is the importance of family emotional intelligence to a family in business?
The concept of emotional intelligence refers to the capacity for recognizing our own
feelings and those of others and the ability to manage our emotions and our
relationships with others. Family emotional intelligence aims to improve the ability of
individual family members to know their feelings in order to use them appropriately
to make decisions. It also enables family members to manage their emotional life
without being hijacked by patterns in their family of origin and increases empathy for
others’ emotions. Ultimately, emotional intelligence seeks to increase the ability to
handle feelings with skill and harmony even in the face of differences between family
members, so that teamwork and loving family relationships can thrive.
2. What does the family-business interaction factor claim to be the value that
families add to a family business?
Family unity and the family-business interaction factor, as measured in the Discovery
Action Research Study, were correlated with effective management practices,
including planning activity, performance feedback, succession planning disclosure,
advisory boards, and family meetings. These findings indicate that investing in the
family’s health and harmony—via guidelines for employment of family members,
clear standards for succession and ownership transfer processes, and promotion of
cooperation and positive relations among family members—should pay off for the
firm. They further support the important role that family meetings and retreats can
play in fostering business effectiveness and continuity by creating a new reality for
family members. The findings also point to the utility of having advisors and family
members work with a principal architect of the family–ownership–management
system, such as the CEO or the CEO’s spouse, on addressing the consequences (both
intended and unintended) of his or her policies and practices.
The study also highlighted an idiosyncratic, inimitable, and intangible resource
residing in some family businesses, which provide these companies with an
opportunity for competitive advantage and superior performance. This resource for
the value-creation process of a particular firm is the result of the unique interaction
between the family and the business. If a firm’s unique family-business interaction is
not assessed and managed, or if a firm does not recognize this interaction and invest
in it as a valuable resource, its relative worth can quickly erode. The family-business
interaction can even become an encumbrance to the firm—resulting in, for example,
increased agency costs and threatening its competitive advantages.
14 Section 2 Chapter and Lecture Notes
Chapter 3 Essence
While family-controlled firms have been shown to outperform management
controlled-firms in terms of return on equity and shareholder value creation, governing
the relationship between family owners and the firm continues to be a unique challenge to
family-owned and family-controlled firms. A vicious cycle appears to easily take hold in
family firms beyond their first generation, when owners are not always owner-managers.
The cycle is precipitated by family members who are only shareholders and receive
insufficient information and often lower economic returns from the firm than their
relatives, who are employed as managers of the firm.
Shareholders who are not sufficiently informed and involved can get suspicious and
concerned. They can feel that the playing field is not even and that they are being taken
advantage of by shareholders who work in the business. Of course, this sense of disparity
is often exacerbated by the fact that those working in the business are receiving salaries
and other compensation. And as an attorney I know likes to say, on a day-to-day basis,
“Ownership return is measured by take-home pay.” This represents a kernel of wisdom,
since family businesses are illiquid, their value is hard to keep track of, and their
dividends are often minuscule to nonexistent.
Shareholders not active as employees in the business then harbor concerns about
excessive executive compensation and benefits—the new BMW company car and the
country club membership. Over time, these same shareholders become less willing to
invest in business expansion, preferring profit distributions through a dividend, bonus,
and/or board fee. When these shareholders become frustrated enough, they may consider
filing a lawsuit against the company and the active or majority shareholders claiming
they have been treated unfairly. Or they may sue the board and company officers for self-
dealing or mismanagement.
Shareholder disagreements regarding compensation, dividends, liquidity, return on
investment, business strategy, financial results, the estate plan, and management
succession are often responsible for the implosion of otherwise successful family
16 Section 2 Chapter and Lecture Notes
companies. This is not just a family dynamic issue, but an ownership issue, with
precedents in finance, business management, and corporate and criminal law.
If a family business is going to preserve one of its intangible yet well-documented
competitive advantages—its propensity to manage with a long-term horizon—
investments in the ownership subsystem are essential. That means investing in:
1. The design and execution of an appropriate ownership and control structure.
2. The education, access to information, and engagement of shareholders.
3. The creation of institutions that govern the ownership-firm interaction.
As pointed out in Chapter 1, one recent study showed that during the past decade, the
35 percent of the S&P 500 firms that were family-controlled outperformed management-
controlled firms by 6.65 percent in return on invested assets. Similar results were found
in terms of return on equity. Family-controlled firms were also responsible for creating an
additional 10 percent in market value, compared with the S&P firms that are
management-controlled. The evidence, therefore, says that U.S. firms with founding-
family ownership perform better, on average, than nonfamily firms. An earlier study on
the effects of ownership structure and control on corporate productivity among Fortune
500 companies (35 percent of which were also family-controlled) revealed that
ownership affects a firm’s productivity. Concentrated ownership was found to result in
higher overall corporate productivity. This higher performance seemed to be related to
the different posture taken by these firms toward diversification (concentrated ownership
leads to less diversification) and investment in training and development, and research
and development. The firms with concentrated ownership invested more, and more
consistently, regardless of economic cycles, in both people and innovation.
Notwithstanding the established influence of ownership on firm performance, it is not
unusual to listen to CEOs, particularly of first- and second-generation entrepreneurial and
family firms, comment, if not outright brag, about the fact that they held their last
shareholder meeting on the way to their favorite vacation spot. Understanding and
successfully leading the ownership of the family firm, its shareholders, is an essential part
of the CEO’s job. This is certainly the case the minute the firm stops being owned by the
single, founding entrepreneur.
Family shareholders inactive in the business, with little understanding of management
and the time cycles involved in new strategies or new investments, can hamper effective
operation of a family-controlled business.
Family shareholders expecting to fulfill their responsibility of aligning management
interests with shareholder priorities and holding management accountable need a
thorough understanding of financial statements. They need to be able to make sense of
what the numbers say about the firm and its competitive condition. Financial literacy is,
therefore, essential knowledge for every shareholder, not just the ones active in the
management of the company. Without it, the desirable alignment of management and
shareholders is at risk. Without it, family-business shareholders can easily become just as
indifferent or impatient, fickle, and greedy as investors on Wall Street. As part of their
financial literacy, owners should also be able to understand the capital structure of the
firm, know debt levels in relation to owners’ equity, and therefore be able to gauge their
ability to operate independently or risk influence by banks and other sources of capital in
how they run their business.
Section 2 Chapter and Lecture Notes 17
Discussion Questions
1. What leadership actions are the responsibility of the chairman and CEO with
regards to effectively governing the relations between majority-minority
shareholders and between shareholders and the firm?
Understanding and successfully leading the ownership of the family firm, its
shareholders, is an essential part of the CEO’s job. This is certainly the case the
minute the firm stops being owned by the single, founding entrepreneur.
As second-generation family members become owners, some may work in the
business, while others may not. Maintaining unity and a realistic assessment of
business and career opportunities among family members and shareholders in this
situation becomes very difficult. This challenge usually grows exponentially in third-
and later-generation family businesses. Shareholder disagreements regarding
compensation, dividends, liquidity, return on investment, business strategy, financial
results, the estate plan, and management succession are often responsible for the
implosion of otherwise successful family companies. This is not just a family
dynamic issue, but an ownership issue, with precedents in finance, business
management, and corporate and criminal law.
If a family business is going to preserve one of its intangible yet well-documented
competitive advantages—its propensity to manage with a long-term horizon—
investments in the ownership subsystem are essential. That means investing in:
1. the education, access to information, and engagement of shareholders
2. the creation of institutions that govern the ownership-firm interaction
18 Section 2 Chapter and Lecture Notes
anybody else does. This makes a priority of preserving a low debt/equity ratio,
which restrains the amount of debt the company is willing to assume and as a
result the speed at which the Timken Company can grow.
Shareholders in a family firm have a responsibility to tell management, often
through the board of directors, what the family strategy and the family’s priorities
are. This principle rounds out the first responsibility of shareholders in family
companies: define a target and then demand that the target shareholder return on
invested capital is met. It affirms that expectations of management go beyond the
achievement of a set of financial goals. Both the economic and noneconomic
considerations of the owning family must be put on management’s agenda so that
a unique group of shareholders gets from top management not a one-size-fits-all
set of financial results but rather outcomes tailored to these shareholders’
priorities.
The family strategy may include preferences on locations in which the firm
operates, preferences regarding diversification within an enterprise or holding-
company structure (since the largest asset is usually the family firm), and the
owning family’s desired role in the management of the firm going forward; does
the family, for example, want to continue the tradition of owning-managing or
perhaps delegate the management to nonfamily executives in the next generation?
For a board, being a compass, providing direction, and conducting satisfactory
reviews of corporate behavior, business strategy, and managerial performance are
next to impossible without the owning family having defined the ultimate goal.
In order to successfully carry out their responsibilities, owners need to know what
those responsibilities are and how to exercise them. The ability to read and
understand a financial statement with a high degree of comprehension is a must for
shareholders. Of course, those statements first need to be provided on a frequent and
timely basis. Financial statements that aim to educate and inform, without the
presumption of an advanced degree in management, are essential to family-firm
shareholders being able to perform their responsibility as owners. Certainly, it should
be the responsibility of these same owners to do their part to become financially
literate through their own study and the careful and disciplined participation in
shareholder meetings designed for the purpose of educating and informing. An
outside advisor—perhaps an accountant, a lawyer, and/or a financial planner—can
also play a significant role in this education. Shareholders can reach accurate
conclusions about what the financial information means and the managerial actions it
should prompt only with study, perspective from the experience of others, and
information about competitors and others in the industry.
As part of their financial literacy, owners should also be able to understand the capital
structure of the firm, know debt levels in relation to owners’ equity, and therefore be
able gauge their ability to operate independently or risk influence by banks and other
sources of capital in how they run their business. How a particular company’s results
stack up against competitors’ and others’ in the industry is the ultimate arbiter of
whether the firm is winning or losing in the hypercompetitive marketplace, and
therefore whether the owners need to issue a wake-up call to management, replace
management, or make different capital allocation decisions going forward.
20 Section 2 Chapter and Lecture Notes
3. Why do ownership structures that worked well in one generation often prove
ineffective in later generations?
As businesses pass to succeeding generations, it naturally becomes more difficult for
family members active in the business to manage efficiently because of the ever-
expanding number of owners. This is an unavoidable consequence of successfully
transferring a family-owned company in which there are both active and inactive
shareholders to a larger number of next-generation family members. As a result, a
particular generation’s ownership structure is not appropriate for the next. Ownership
structures do not transfer well across generations.
One approach to this challenge is to redesign the capital or ownership structure of the
company by recapitalizing its stock. For example, restructuring the common stock into
two classes (voting and nonvoting) allows the senior generation to divide the estate
equally among heirs in terms of value, but differently in terms of corporate control.
Phantom stock can also be created in order to provide the incentives for key nonfamily
management to behave like owners. Phantom stock mirrors the value of regular
company stock but does not dilute the family’s actual ownership and has no voting
rights. It can also represent a very effective retirement vehicle for important nonfamily
members of the top management team, again without the risk of loss of control inherent
to regular voting stock.
Buy–sell agreements are also typically used by family business owners to facilitate an
orderly exchange of stock in the corporation for cash. The most obvious benefit of a
buy–sell agreement is that it allows some family members to remain patient
shareholders while providing liquidity to family members with other interests or goals.
In this way, families can prune the corporate family tree across generations. A buy–sell
agreement is often the primary vehicle through which family shareholders can realize
value from their highly illiquid and unmarketable wealth—company stock. The ability
to sell their stock and achieve liquidity, even if unexercised, often leads previously
dissatisfied shareholders to a happier place.
Although most buy–sell agreements are written so that only death or discord triggers
their use, some are created to provide liquidity windows for family members in general.
Dissident shareholders for instance, may be mollified by an annual redemption program
funded by annual contributions from cash flow or retained earnings earmarked for this
shareholder redemption fund or pool. This would only apply in the case of privately
held, family-owned companies. The redemption fund is typically constrained by risk-
management limits. The debt-to-capital ratio of the firm, for instance, cannot exceed a
safe limit determined by the board and still have stock redeemed that year.
Title: Geological facts; or, the crust of the earth, what it is, and
what are its uses
Author: W. G. Barrett
Language: English
OR,
WHAT IT IS,
BY
Medici, 1642.
LONDON:
ARTHUR HALL, VIRTUE, & CO.
25, PATERNOSTER ROW.
1855.
LONDON:
R. CLAY, PRINTER, BREAD STREET HILL
PREFACE.
Manchester,
July, 1855.
CONTENTS.
CHAPTER I.
PAGE
Introductory 1
CHAPTER II.
Preliminaries 15
CHAPTER III.
CHAPTER IV.
CHAPTER V.
CHAPTER VI.
CHAPTER VII.
CHAPTER VIII.
CHAPTER IX.
CHAPTER XI.
CHAPTER XII.
CHAPTER XIII.
BY S. & G. NICHOLLS.
PAGE
Basaltic Columns, Regia, Mexico Frontispiece.
Section of the Earth’s Crust 16
Ditto 21
London Basin 25
Section of ditto 25
Artesian Well 27
Mining District 41
Section of a Mine 43
Trilobite 56
Ditto 57
Eyes of ditto 58
Crystallization on Cornish Slate 60
Bellerophon 61
Silurian Remains 61
Ditto 62
Coralline 62
Land’s End 66
Fish Scales 74
Fish Tails 75
Cephalaspis 76
Coccosteus 77
Pterichthys 78
Osteolepis 79
Extinct and existing Ferns 87
Flora of the Carboniferous System 95
Asterophyllite and Sphenopteris 97
Pecopteris, Odontopteris, and Neuropteris 98
Calamites 100
Stigmaria Ficoides 101
Miner at Work, and Lamp 105
Casts of Rain drops 111
Footprints of Bird 113
Ditto 114
Footprints of Labyrinthodon 116
Ammonites 130
Ditto and Nautilus 131
Ditto 132
Ichthyosaurus 137
Plesiosaurus 140
Dirt-Bed, Portland 150
Oolite Coral 151
Ditto 152
Pear Encrinites 164
Ditto 165
Ditto, with Coral 166
Ammonites Jason 166
Oolite Shells 169
Discovering the Pterodactyle 170
The Philosopher and Ditto 171
Pterodactyle Skeleton 173
Ditto, restored 174
Fauna of the Oolitic Period 195
Royston Heath 206
Fossil Teeth (Greensand) 209
Fossils from the Gault (Folkstone) 210
Ditto 211
Fossils from the Chalk 212
Fossil Fish 214
Ditto 215
Waltonian and Mantellian Fishermen 223
Fossils from the London Clay 238
Wood perforated by the Teredina 241
Septaria 242
Fossils from Red Crag 245
Megatherium 248
Mastodon 250
Fossil Man 251
Cliff, Guadaloupe 252
The Geologist’s Dream 254
The Reconciliation 288
GEOLOGY.
CHAPTER I.
INTRODUCTORY.
“In the beginning God created the heaven and the earth.”
Moses.