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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!
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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 ©
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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 ©
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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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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 ©
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