❖ Succession and Continuity

Lesson 1: Defining Family Enterprise

3 Patterns of Ineffective Succeesion:

❖ Family Business ● Conservative

- The parental shadow remains. The firm and
➔ Multiple members of the same family are involved as major strategies are locked in the past.
owners or managers. ● Rebellious
- When traditions, legacies, business model or its
Family Involvement in Ownership (FIO) and Family Involvement in “secret to success” are destroyed
Management (FIM) is measured by the percentage of equity they ● Wavering
own. - The next generation is paralyzed by indecisiveness,
unable to adapt to current business competitive
➔ Two or more members of the family have an interest in conditions
ownership and commitment to the continuation of the
enterprise
Lesson 2: Classic Systems of Family Enterprise
➔ Managed with intention to pursue the vision of the business

Listed companies meet the definition of family enterprise if the

person who established or acquired the firm or their families or
descendants posseses 25% of the decision-making rights

* natural person
- Owner of the business

* juridical/artificial
- Separate from the natural person
- Corporations

Characteristics of Family Business

1. Presence of the family

2. The overlap of the family, management, and ownership
3. Unique sources of competitive advantage
4. The objective being business continuity from generation to
generation
 At the start, the founder may own all the stock; later stock
Family Business Ownership
ownership may be broadened to include other family members, who
Family members not Non-family employees Non-family/business have varied interests in the enterprise.
involved in the owners
business Another term referring to ownership is shareholder.

Family owners not Family owners not

working in the working in the Shareholder is an individual or a company that legally owns
business business one or more shares of stock in a corporation

Non-family owners Non-family owners The Enterprise System

who work in the who work in the ➔ Those who work on the business or the enterprise
business business
➔ Examples of enterprises owned by families include operating
Family members who Family members who business(es), real estate (including vacation homes and other
work in the business work in the business property), diversified wealth portfolio(s), family offices, and
but are not owners but are not owners charitable foundations.

Family owners who Family owners who Family owners who

work in the business work in the business work in the business
Lesson 3: Representative Governance Systems in Family
Enterprises
The Family System
➔ Individuals, groups of individuals, two or more generations and
Governance is the method or system of defining and enforcing the rights
possibly even several branches of the family
and responsibilities of a family enterprise with its various participants,
➔ Include individuals who have responsibilities, values, needs, and
including owners, managers, and family.
goals that may or may not be the same as the other individuals in
the family system.
Enterprise Governance
➔ An individual’s connection to the enterprise may be direct (works in
the business or has an ownership interest). Could also be indirect
● Individual entrepreneur
➔ The individual may be married to or be a descendant of an owner or
● Partnership
family
● Corporation
are created to limit the entity’s liability of assets and to
The Ownership System
provide a governance system and sometimes to invite participation
➔ Usually consists of one or more subsets of the family system
by investors.
➔ Owners can be individuals or entities (businesses or trusts)
➔ Can include family and nonfamily (such as non-family managers,
employees, investors, and/or trustees of trusts).
Shareholders
➔ A typical corporation is owned by its shareholderes Some common tasks:
➔ Select a board of directors 1. Developing the structures, policies, and procedures to regulate the
family’s interaction internally and with the business
2. Responding to requests made by the ownership group.
3. Communicating the family’s interests in the enterprise to ownership.
4. Developing healthy and strong family relationships.
5. Preparing responsible next‐generation owners and family members.
6. Providing education and development opportunities for family
members.
7. Coordinating family philanthropy and stewardship.

Ownership Forum
Board of Advisors (informal and formal)
➔ The family lawyer, accountant, trusted colleagues, or consultant may
form a circle of informal advisors from the start of an enterprise.
➔ Has no responsibility and no formal power to make decisions but is
available to the founder for advice
Board of Directors
➔ Formal employees, higher-ups
➔ Set the goals, decision for the enterprise
➔ Selection committe of the top management
➔ Sometimes have more power than the family
➔ Discuss issues specific to owners of the enterprise
➔ Made up exclusively for owners
➔ Helps to develop healthy boundaries between the systems
Some common tasks:
1. Developing structure, policies, and procedures specifically for
owners, individually or as a group.
2. Responding to requests from the board and family.
3. Building collaboration and consensus among owners.
4. Coordinating owners’ directives and decisions.

The board’s functions are to represent the interests of the

shareholders and to hold management accountable for the success of the
enterprise by setting long‐range policy and selecting and setting compensation
for top management.

Family Council
➔ A way for all family members to learn about the enterprise
➔ Main responsibility is to be the family’s voice to the board of
directors and to build effective communication and consensus
among family members.
➔ comprised of family members only, whether or not they are owners.