MGT 4550 - Family Business Management

MGT 4550 - Family Business Management

Succession - Leader Development & Implementation

Chapters 6 & 7Chapters 6 & 7Family Business Management,

Concepts and PracticeBy A. Bakr Ibrahim & Willard H. Ellis

Instructor: Dr. Irene Duhaime

MGT4550 - Dr. Irene M. Duhaime 2

Class Schedule - Week 7Class Schedule - Week 7

Succession - Leader Development & Implementation Reading: Chapter 6 & 7 FBM

Questions 10-18, 20, 22, 23, 25, 36, 37 FBAB

Chapters 6Chapters 6Family Business Management,


Planning For Succession


Contents Contents

Corporate Euthanasia Characteristics of Succession in Family

Business Planning for Succession Effective Succession Process

Continued ….


ContentsContents

…. Continued

Critical Issues in Succession Selecting the Successor Hostile Takeover People Involved in Succession Process


Corporate Euthanasia Death of family firms due to lack of

succession plan

Not many family firms survive beyond first or second generations

Survival of Family Firms depend on effective Succession Planning


Characteristics of Succession in Family Business

Dual Relationship Family Systems Business Systems Conflict among family members over

succession

….continued


Characteristics of Succession in Family Business

….continued Biological Necessity

Passing on a legacy Founder/CEO resist letting go.

Nonmarket-based Transfer of Power Not an arm’s length market-driven process Heir inherits the family business


Planning for Succession

Proper planning is critical Contributions from family and non-family

member Currently a small percentage of family

firms plan adequately


Planning for Succession - Guidelines

Include offspring early in the family firm Include offspring in the formulation of

corporate mission, vision and strategy Plan the gradual transfer of power Develop an inheritance plan and discuss it

with family members….continued



…continued Hire professional managers in some key

positions Provide a zone of comfort for siblings during

transition to avoid conflict. Adjust the job to fit the successor’s skills,

competence, capacity to lead and function effectively



…continued Encourage family and non-family members

to participate in succession plan. Consider the next generation family

members’ career, seniority, life stage and needs.

Establish and communicate clear guidelines concerning career development


Effective Succession Process

Figure 6.1 Ingredients of an Effective Succession ProcessFam ily Business M anagem ent, Ib rahim & E llis

EffectiveSuccession

The Successor's Ability The Strength of Relationship

Role AdjustmentFamily Support

De-coupling theTw o Systems: the

Family and theBusiness

Preparing theOffspring



Preparing the Offspring Pre-entry Acculturation (Prepare offspring for

leadership role at an early age, before joining the family business

Integrate offspring into the family business to promote interest and nourish commitment

Offspring work outside family firm to gain experience and be seen as earning the position.

…..continued



….continued. Preparing the Offspring

Summer jobs allow offspring to become familiar with different areas of the business

Shop-Floor Level entry allow the offspring to “learn the ropes of the trade”; establish relationships with employees at all levels; gain acceptance more easily.



Role Adjustment Process of disengagement or mutual adjustment

W.C Handler.

CEO/Founder'srole dim inishes

gradually

Successor'srole increases

Transfer of power, authorityand desision-making



De-Coupling of the Two-Systems Separate social functions (family) from the

business function Role of Family Members

Understand and respect each other’s needs, motivation and skills

Provide emotional support for departing CEO and administrative support for successor.



The Strength of Relationships Strong relationship between Founder and

offspring; and among siblings The Successor’s Ability

To work independently and provide leadership To understand and respect needs, motives,

career stages and skills of family and non-family employees


Critical Issues in Succession

Elder son often given the leadership role regardless of capabilities

Daughters are “the invisible successors” despite their skills and competence


Critical Issues in Succession

Founder as Advisor Presence or technical competence may be

critical to the firm’s survival Interference may undermine the new successor

Founder as Consultant has specific task(s) reports to new CEO


Selecting the Successor THREE COMMON MODELS Eldest Son becomes successor uncontested

Division of assets among male descendents; each son managing his own part

Consensus-type approach: decisions made by family council.



Figure 6.2 The Troika of a Successful Sucession: Key Dim ensions in Selecting a Successor inthe Fam ily BusinessFam ily Business M anagem ent, Ib rahim & E llis

EffectiveSuccession

Family Business M angement

Perception of Familyand Non-Family Employees

Suitability ofthe Offspring


The Troika of Succession in Family Business

Family Business Management assessment of skills required to manage

effectively capacity to provide leadership ability to work independently ability to manage conflict



Offspring Suitability Experience, skill and training Seniority Career plans and willingness to accept

leadership role.



Perception of Family and Non-Family Employees ability to provide leadership and guidance management style fairness overall suitability


Hostile Takeover

Usually results from unfair or hasty succession

Scenarios: Elder son is ignored Successor takes over against the founder’s will Founder too sick to manage the business Founder suddenly dies


People Involved in Succession Process

Family Members Wives, sons, daughters, brothers, sisters

Non-family members Friends, senior employees, professionals

(accountant, lawyer, banker) (Consulted at different levels to provide neutral and more objective point of view.)

Chapter 7Chapter 7Family Business Management,


Managing The Transition


Contents Contents

Next Generation Problems During the Transition Romancing the Past Successful Transition Restructuring


Next Generation

Transition to the next generation is often confrontational

Survival rate beyond first generation is 30% and beyond second generations is 13%

Difference in values Drive to equal or outdo predecessor


Problems During the Transition

Decision-making which does not include the senior family and non-family executives

Family infighting resulting from lack of a proper succession plan and/or restructuring which results in loss of power and/or

status for family members

….continued


Problems During the Transition

…continued Non-family executives abandon the ship,

out of frustration with the succession process and outcome.

Disruptive behavior from non-family members who feel betrayed or insufficiently rewarded for their loyalty.


Romancing the Past

Strong attachment to the past Block out negative or bad memories Family and non-family employees idealize

former leader’s virtues. New leader expected to live up to those

ideals.


Successful Transition

Figure 7.1 Successful Transition from Generation to GenerationFam ily Bus iness M anagem ent, Ib rah im & E llis

SuccessfulTransition

Effective management of changerequires proper communication andparticipation in the change process

Pow er orientationHigh need for social pow er

Accommodation oftension polarities and

paradoxesAllow time to learnnew behavior andreadjust



Time to readjust Implementation of new socio-political systems

and new management styles should be gradual and should evolve over time.

Effective Change Management Changes include new technologies, new culture,

and new management techniques Effective communication of the change process

and the rationale Participation of others in the change process



Accommodation Recognize tensions, polarities and paradoxes. Use consensual decision-making approaches Use conflict-bargaining procedures

Power Orientation Social Power - need to help others Personal Power - need to control others



Successor’s Management Skills Gain experience outside family business Maintain an open door policy with family and

non-family employees Avoid the trappings of the older generation Earn respect and legitimacy from within the

business Plan a strategy to deal with older generation



Interpersonal Relationship of Key Family Members Intergenerational relationships (between

current and next generations Intragenerational relationships (between

siblings and other relatives)


Restructuring Step-by-step restructuring to get feedback,

reduce conflict and tension Involve family and non-family in the

restructuring process. Communicate purpose and methods of

restructuring. Involve neutral party like management

consultant.


Questions and Cases Questions and Cases

Questions 10-18, 20, 22, 23, 25, 36, 37 FBAB


Question 10

How does a successor prove that she/he is capable and got the job based on

ability rather than genes ?


Question 11

Should a successor or in-law joining a family business have an employment

contract ?


Question 12

Where should a successor start in the family business and how much should

she/he be paid?

How should responsibilities be determined?


Question 13

When and how is it appropriate for a successor to make a suggestions for

change in the business?


Question 14

How should a successor address his father, mother, uncle or other relatives

while in the office?

Does it make a difference?


Question 15

How can a successor be judge as a fellow employee and not just as a son or daughter of the founder or head?


Question 16

Should a non-family member who has been with the company for a long time mentor and critique the successor(s)?


Question 17

How does a successor maintain a sense of privacy while working in a family

business?


Question 18

How does a successor deal with employees who use him to influence the boss and owner, who may be a

parent?


Question 20

Is there room in family business for a successor to grow personally and

professionally?


Question 22

What role do daughters play as possible successors and is it different from that

of sons or sons-in-law?


Question 23

How does the female successor deal with male resentment and domination

and gain the respect of family members and others associated with the

business?


Question 25

Can a female who is seen as a good little girl, change that image, be more

assertive and confident with male colleagues and be treated as an adult?


Question 36

When should successors begin to receive equity?

Are there different options?

How can the family prevent resentment that can be caused by your estate plans?


Question 37

How long does a good succession process take and exactly how should it

begin?


Class Schedule - Class Schedule - Next WeekNext Week

Professional, Non-family Managers Reading: Chapter 8 FBM

Questions 16, 60-66, 82 FBAB

Cases: Baker Inc., p. 287 FBM

MGT 4550 - Family Business Management

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