Chapter 7 Family Business.ppt

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Family Business

C18TP

•Enterprise Concepts and Issues © Goodfellow Publishers 2016

Lecture Overview Introduction

Definition

Global significance

Essential characteristics Family relationships Company culture Succession planning

Family business research•Enterprise Concepts and Issues ©

Goodfellow Publishers 2016•2

Introduction Constitute between 60 and 70% of small firms

across most countries Even higher in developing countries Great variety of types and business models

employed Key characteristic is their endurance However, just a small number survive to the 2nd

generation and beyond Exemplary examples become multinationals


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Definition No universal definition! Definitions are crucial for conducting research

To compare studies particularly between countries Important to governments, so they can support the

growth and development of family businesses given their economic contribution

Research with clear goals attracts funding

Consensus that a universal definition difficult to achieve particularly across countries Due to country differences like laws & regulations


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Definition General agreement that the following

dimensions set family businesses apart from nonfamily businesses Ownership (major stakeholders) Management (TMT) Board-membership (family control board

membership)

Family can be an all-embracing term Immediate family, extended family and family by

marriage


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Global significance• Many multinationals began or still are

family businesses!• Entrepreneurial flair and innovation

facilitated growth and global expansion • For example Bosch, BMW, Hyundai,

Samsung, Fiat, Tata etc.

• University of St. Gallen, Switzerland• Global Family Index – Largest 500 family

businesses• Account for $U.S. 6.5 trillion in annual sales


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Essential characteristics Possess unique merits and disadvantages Merits:

Family reliance when first established common Business advice Low or zero interest rates

Disadvantages: Family interference

Most significant issues faced are family relationships, company culture and succession planning


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Family Relationships“[b]eing part of a family is a universal human experience, at once suffocating, infuriating, comforting and supportive” (Kennedy, 2000, p.1).•The influence of family relationships on family businesses•Nepotism

• Nonfamily dissatisfaction and go elsewhere• Link between performance and compensation lost• Incompetent family members are not dismissed!

•Enterprise Concepts and Issues ©


Family relationship Family rivalry

Glass ceiling for female family members

Difficulty to management multiple roles Parent vs Professional manager roles Different styles of behaviour required

Too much family involvement! Increases the probability of disagreements

Succession delays•Enterprise Concepts and Issues ©


Family relationship Husband and wife rivalries

Ownership and control Over time family ownership can reduce and

nonfamily management control can increase as family firms grow

Despite diminishing family ownership and control overtime it is common for the family name and key individuals to be retained.


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Company culture• Common values and principles that positively

guide management and employee behaviour• Endows family firms with key advantages

• “Sense of future”• Judicious and long-term view• Often better prepared to survive downturns• Founder’s entrepreneurial flair inspires and

motivates• Base of knowledge, skills and contacts• Reputation


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Succession planning Identifying and developing potential

candidates to fill important positions

Increase the availability of experienced & skilled employees

Caused by retirement, death, ill-health or the pursuit of other opportunities

Critical to all businesses, not just family businesses


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Succession planning• Approaches for ensuring the transfer of

ownership between generations (Harvey, 2004)• Appointment of a single heir – “the crown prince”• “Sibling partnership”• “Cousin consortium”• “Stop-gap manager”• Appointment of professional management• Management buyout


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Succession planning Succession difficulties

Next generation have different ambitions No capable heir apparent exists within the family Founder / owners does not want to relinquish

control Sibling rivalry (News Corporation) Owners ignore the need for a successor

This is a widespread problem Successor fails to make decisions or take

responsibility•Enterprise Concepts and Issues ©


Succession planning• Practical considerations

• Experienced mentors are useful to guide the successor

• Successor needs to stay close to the firm’s customer base

• Successor requires relevant training and experience

• Succession planning guides are available from:• Government agencies such as Scotland’s “Business

Gateway” service


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Succession planning• The United Kingdom’s Institute for Family Business is

another useful source of information• http://www.ifb.org.uk

• Banks, accountancy firms and consultancies also provide advice and information, but may incur costs

• Typical succession advice• Do not underestimate the time and effort required• Plan proactively and early• Involve appropriate family and business

colleagues


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http://www.ifb.org.uk/

Succession planning• Make use of external assistance offered by

government agencies such as Scotland’s Business Gateway

• Establish a training process for the Next Generation

• Succession planning is particularly important for family businesses with investors• Investors don’t like uncertainty• Investors want a clear understanding of where the

family business is going


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Family business research Underdeveloped area of research

Popular press in the ascendancy Many case studies and entrepreneurial profiles

Sharp increase since the 2000s

Most popular areas are: Succession, corporate governance, application of

organisational theory and company culture

Areas of research scarcity Gender and ethnicity


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What you should have learned… Family businesses are economically significant Take care no universal definition exists

General agreement that ownership, management and board membership mark them out as different

Key characteristics that differ between family and nonfamily businesses Family relationships, company culture &

succession planning

Underdeveloped area of research•Enterprise Concepts and Issues ©


Chapter 7 Family Business.ppt

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