Transcript Small Business Management 13e

The Family
Business
Part 2 Starting from Scratch
or Joining an Existing Business
PowerPoint Presentation by Charlie Cook
The University of West Alabama
Copyright © 2006 Thomson Business & Professional Publishing.
All rights reserved.
Looking Ahead
After studying this chapter, you should be able to:
1.
Discuss the factors that make a family business
unique.
2.
Explain the cultural context of a family business.
3.
Outline the complex roles and relationships involved
in a family business.
4.
Identify management practices that enable a family
business to function effectively.
5.
Describe the process of managerial succession in a
family business.
Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.
5–2
What Is a Family Business?
• Family Business
–A company in whose ownership and/or functioning two
or more members of the same family are directly
involved
–A firm whose ownership passes from one generation
of a family to another (succession)
Smith Family Hardware
Est. 1935
Welcome
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5–3
The Three-Circle
Model of Family
Business
2
Ownership
4
5
7
1
Family
6
3
Business
Source: Three-Circle Model developed by Renato Tagiuri and John A. Davis. Found in “Bivalent Attributes of the Family Firm.” 1982.
Working paper, Harvard Business School, Cambridge, MA. Reprinted 1996, Family Business Review, Vol. IX, No. 2, pp. 199–208.
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Exhibit 5.1
5–4
Family and Business Overlap
• Family Concerns
• Business Concerns
– Care and nurturing of family
members
– Production and distribution
of goods and/or services
– Employment and
advancement in the firm
– Need for professional
management
– Loyalty to the family
– Effective and efficient
operation of the firm
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5–5
Advantages of a Family Business
• Strength of family relationships during challenging
periods of business change
• Financial sacrifices that family members make for the
good of the firm
• Operation as a family business distinguishes the firm
from its competitors
• Higher levels of concern for its community and nonfamily employees
• Capability to plan and prepare for the long haul
• Emphasis on quality and value
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5–6
Advantages of a Family Business
Exhibit 5.2
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5–7
The Culture of a Family Business
• The Founder’s Imprint on the Culture
–The founder’s core values become a transmitted part
of the culture (for better or worse)
• Organizational Culture
–Patterns of behaviors and beliefs that characterize a
particular firm
• Cultural Configuration
–The total culture of a family firm,
consisting of the firm’s business,
family, and governance patterns
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5–8
Cultural Configuration of a Family Firm
Governance Pattern
Business Pattern
Paternalistic
Laissez-faire
Participative
Professional
Cultural
Configuration
of the
Family Firm
Paper Board
Rubber-Stamp Board
Advisory Board
Overseer Board
Family Pattern
Patriarchal
Collaborative
Conflicted
Source: Adapted from W. Gibb Dyer, Jr., Cultural Change in
Family Firms (San Francisco: Jossey-Bass, 1986), p. 22.
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Exhibit 5.3
5–9
Family Roles and Relationships
• Parental Concerns in Passing the Business On:
– Does my child possess the temperament and ability
necessary for business leadership?
– How can I, the founder, motivate my child to take an
interest in the business?
– What type of education and expertise will be most helpful in
preparing my child for leadership?
– What timetable should I follow in employing and promoting
my child?
– How can I avoid favoritism in managing and developing my
child?
– How can I prevent the business relationship from damaging
or destroying the parent–child relationship?
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5–10
Family Roles and Relationships (cont’d.)
• Husband–Wife Teams
–Opportunity to share more in each other’s lives
–Business differences interfere with family life
–Work doesn’t leave time for family life
–Sharing family responsibilities eases the load
• Sons and Daughters
–Personal preferences different from the business
–Personal qualifications insufficient to assume role in
business
–Desire for personal freedom to choose another career
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5–11
Family Roles and Relationships (cont’d.)
• Sibling Cooperation, Sibling Rivalry
–Best case: siblings work as a team, each contributing
services according to his or her abilities.
–Worst case: siblings compete as rivals and disagree
about their business roles.
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5–12
Family Roles and Relationships (cont’d.)
• In-laws In and Out of the Business
–Disagreements about how to treat and reward in-laws
and family members/children
• Assign to different branches or
to different business roles
• The Entrepreneur’s Spouse
–Communication between
entrepreneur and spouse is
critical for them to perform as
an effective team for both the
business and the family.
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5–13
Professional Management
of the Family Firm
• “Best Practices” (John L. Ward)
1. Stimulate new thinking and fresh strategic insights.
2. Attract and retain excellent managers.
3. Create a flexible, creative organization.
4. Create and conserve capital.
5. Prepare successors for leadership.
6. Exploit the unique advantages of family ownership.
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5–14
Professional Management
of the Family Firm (cont’d.)
• Nonfamily Employees in a Family Firm
–Hazards:
• Competition with family members for advancement
• Getting caught in the crossfire and politics of family
competition within the firm
–Solution:
• Identify family-only reserved positions in advance.
• Treat both family and nonfamily employees fairly in matters of
reward and promotion.
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5–15
Professional Management
of the Family Firm (cont’d.)
• Family Retreats
– Are a gathering of family
members, usually at a
remote location, to discuss
family business matters
– Use of an outside facilitator
may be necessary.
• Guidelines
– Set a time and place.
– Distribute an agenda prior to
the meeting.
– Plan a schedule in advance.
– Give everyone a chance to
participate.
– Keep it professional.
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5–16
Professional Management
of the Family Firm (cont’d.)
• Family Councils
–An organized group of family members who gather
periodically to discuss family-related business issues
• Represent the family to board of directors
• Useful in developing family harmony
• Increases understanding of family
traditions and interest
• Family Business Constitution
–A statement of principles
intended to guide a family
firm through times of crisis and change
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5–17
The Process of Leadership Succession
• Available Family Talent
–Mentoring
• Guiding and supporting the work
and development of a new or lessexperienced organization member
–Allowing only qualified competent
family members to assume leadership
roles in the firm increases the value of
the firm for all who have an ownership
interest in it
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5–18
Stage III
Stage I
Stage II
Pre-Business
Introductory
Child becomes aware of
facets of firm and/or
industry. Orientation of
child by family member
is informal.
Child is exposed to
business jargon,
employees, and the
business
environment.
Introductory
Functional
Child works as part-time
employee. Work
becomes more difficult.
Includes education and
work for other firms.
Entry of Successor
Stage IV
Stage V
Functional
Advanced Functional
Potential successor begins
work as full-time employee.
. Includes all nonmanagerial
positions.
Potential successor assumes
managerial position. Includes
all management positions prior
. to becoming president.
A Model of
Succession
in a Family
Business
Transfer of Leadership
Stage VI
Stage VII
Early Succession
Mature Succession
Successor assumes presidency.
Includes period in which the
successor becomes dejure head
of company.
Successor becomes defacto
head of company.
Source: Justin G. Longenecker and John E.
Schoen, “Management Succession in the
Family Business,” Journal of Small Business
Management, Vol. 16 (July 1978), pp. 1–6.
Exhibit 5.4
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5–19
Conditions Favoring Successful
Leadership Succession in a Family Firm
• A sound, profitable business
• Stable, healthy family relationships
• Advance planning for leadership succession
• Positive family leadership and a team-oriented
management structure
• Presentation of career opportunities without
pressure
• Open communication on family business issues
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5–20
Succession in a Family Firm
• Transfer of ownership
–Passing ownership of a family business to the next
generation
• Who will inherit the family firm?
• Should each heir receive an equal share?
• Should ownership be transferred gradually?
• How to handle tax considerations?
• What to do with other wealth and assets of the founding
entrepreneur?
Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.
5–21
Key Terms
family business
organizational culture
cultural configuration
family retreat
family council
family business constitution
mentoring
stages in succession
transfer of ownership
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5–22