Mutum Amarjeet Mangang

Definition of family business

A family business is a business in which one or more
members of one or more families have a significant
ownership interest and significant commitments
toward the business’ overall well-being.
A business actively owned and/or managed by more
than one member of the same family or a corporation
that is entirely owned by the members of a single
family.
A business actively owned and/or managed by more
than one member of the same family .
 Stages of Family Business Development
The typical family business goes through four stages in its
development:

1. Entrepreneurial

2. Functionally-Specialized

3. Process-Driven

4. Market-Driven

Source:http://www.isb.edu/FamilyBusinessConference/India%27sBusinessFamiliesDefiningtheRoles.pdf
Source:http://www.isb.edu/FamilyBusinessConference/India%27sBusinessFamiliesDefiningtheRoles.pdf
Example : Dabur India Ltd.

In 1884, SK Burman began a direct mailing system

to send his herbal medicines to villages from his
shop in Calcutta. His mission was to make available
healthcare at affordable prices to all people.
In 1993 in order to grow, the company needed to go
public. Needless to say, family members were
somewhat sceptical.

Source :http://www.dennisjaffe.com/articles/DaburFamily.pdf
http://www.dennisjaffe.com/articles/DaburFamily.pdf
Six key aspects of Family
Head of the family takes all decision.
All members live under one roof.
Share the same kitchen.
Three generations living together (though often two
or more brothers live together, or father and son live
together or all the descendants of male live together)
Income and expenditure in a common pool- property
held together.
A common place of worship.
All decisions are made by the male head of the family.
 Problem with family business
The interest of one family member may not be
aligned with another family member.
Example: a family member who is an owner may
want to sell the business to maximize their return,
but a family member who is an owner and also a
manager may want to keep the company because it
represents their career and they want their children
to have the opportunity to work in the business.
  Who will participate in the business?
Common Family Business Issues, Deciding…

 How leadership and ownership will be transferred?

 How to help the founder change roles or leave the

business?
 About liquidity and estate taxes?

 If and how to attract and retain non-family executives.

 About family compensation – equity (genes) or merit.

 How to choose successors?

 How to strengthen family/shareholder harmony?

Communications, conflict resolution and
decision making require.
Formalized structures
Agreement about how to do these actions
A safe environment in which to conduct
the business (often requires a neutral
facilitator)
Separation between business and family
And what else?
The strategies behind successful family business
is tied directly to how well a company manages
the five unique resources every family business
possesses.

Human capital.
Social capital.
Patient financial capital.
Survivability capital.
Lower costs of governance.
 PROPOSITIONS

Proposition 1: A business firm may be considered a

family business to the extent that its ownership and
management are concentrated within a family unit.
 
Proposition 2: A business firm may be considered a
family business to the extent that its members strive to
achieve, maintain, and/or increase intraorganizational
family based relatedness.

Proposition 3: A business firm may be considered a

family business to the extent that its ownership and
management are concentrated within a family unit,
and to the extent its members strive to achieve,
maintain and/or increase intraorganizational family
based relatedness.
 
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Families exist to care for and nurture their members
and provide safety and refuge in an impersonal world.
Success in family is measured in terms of harmony,
unity and the development of happy individuals with
solid and positive self esteem.

Business, however are economic entities where

success is measured in terms of productivity and
profitability

Ownership is based on yet another set of rules.

Success for owners is measured in terms of return
on investment, protection of ownership interests
and in terms of owners values and philosophy of
business.
CHARACTERISTICS OF A HEALTHY FAMILY
BUSINESS
Individuals can manage themselves and relationships with
others
Family has the ability to resolve conflicts with mutual support
and trust
Boundaries between work and family are appropriate and
respected
Knowledge is used wisely and isn't blocked by unresolved
relationship problems
Communications are open and clear
Individuals are flexible and able to use advisors wisely
Family has the ability to make decisions and move forward
Family is clear about goals and navigates towards the goals
Family has good direction and leadership
Transitions are managed and marked by rituals and
Intergenerational boundaries are appropriate and respected
CHARACTERISTICS OF AN UNHEALTHY FAMILY
BUSINESS

The family has poor communications skills and is unable to manage
conflict

There is low trust between family members

The goals and values of the family are unclear

Family members’ roles and obligations are unclear

The business lacks a sense of direction and does no strategic planning

The business lacks sufficient expertise – the family tries to do it all

There is little thought to succession planning

There is little collaboration between the family and non-family
employees

There is not a functioning board of directors

There is no one to turn to for advice and help with key problems

Family issues spill over into business issues and vice versa and

Boundaries between work and family are unclear
Thank you