THE FAMILY BUSINESS
General objectives:
Understand the
nature of family business and the core values.
Specific
objectives:
By the end of
the topic the learner should be able to:
i)
Explore the
tenets of family business
ii)
Explain the challenges of a family business
iii)
Explain the role of family business in enhancing economic growth
Introduction
Simply defined
as any business in which majority of ownership and control lies in within a
family in which two or more family members are involved.
It is a dual
system of the family and the business.
Over 60% of
the world businesses are family businesses.
Special nature
of family businesses due to roles and relationships.
•
Communication
can be speeded
•
Understanding
of each other
•
Trust
•
Commitment
(self-sacrifice).
Disadvantages
•
Family
dynamics interferes with business relations
•
Authority may
be harder to exercise
•
Confused roles
•
Business
pressures can burn out family relations.
CONCEPTUAL
MODEL OF FAMILY BUSINESS
•
Recognition of
the family as a dual system is not enough to understand the issues involved.
•
Actually there
are three systems instead of two:
•
Family
•
Ownership
•
Business
(management)
Each of the three systems
overlaps and goes through transition over time.
A model of family business
can be used to illustrate the relationship between the business, family and
ownership. This model is shown below:
The Three Circle Model
Source: Gersick, Lansberg, Desjardins and Dunn
(1999). Stages and transitions: managing change in family business. Family
Business Review. Vol 7 no.4 pp.287
Key players in a Family
business
The actors in the family business can be divided
into two groups:
(1) Family members and
(2) Non-family members.
Each group has its own perspective and set of
concerns and is capable of exerting pressures within the family and the
firm.
a) Family Members
Neither an Employee nor an Owner.
Children and in-laws are usually in this group. Although they may not be part of the business
operations, they can exert pressure within the family that affects the
business.
For example, children may resent the time a parent
spends in the business.
This creates a problem because parents usually develop
guilt feelings as a result of their neglect and the resentment expressed by the
children.
In-laws, on the other hand, are viewed either as
outsiders and intruders or as allies and therefore are usually ignored or
misunderstood.
For example,
a daughter-in-law is usually expected to support her husband's efforts in the
business without a clear understanding of family or business dynamics.
She may contribute to family problems or find
herself in the middle of a family struggle.
The son-in-law faces similar, if not worse,
problems. He may be placed in a competitive situation with his wife's brothers.
If he isn't involved in the family business, he can
still exert pressure on the business in his role as his wife's confidant.
An Employee but not an
Owner
This family member works in the business but does
not have an ownership position. For this individual, conflict may arise for a
number of reasons.
For example, if he or she compares himself or
herself to the family member who has an ownership position but is not an
employee, a sense of inequity may result.
The member may voice his or her resentment: “I'm
doing all the work, and they just sit back and get all the profits.” Or
resentment may occur when decisions are made by owners alone.
Here, he or she may feel: I'm working here every
day. I know how decisions are going to affect the company. Why didn't they ask
me?
Family members employed in or associated family
business generally expects to be treated differently from non-family employees.
An
Employee and an Owner
This individual may have the most difficult
position. He or she must effectively handle all the actors in both systems.
As an owner, he or she is responsible for the well
being and continuance of the business, as well as the daily business
operations.
He or she must deal with the concerns of both family
and non-family employees.
Often, the founder, as the sole owner and chief
executive, falls in this category.
Not
an Employee but an Owner
This group usually consists of siblings and retired
relatives. Their major concern usually is the income provided by the business;
thus, anything that threatens their security may cause conflict.
For example, if the managing owners want to pursue a
growth strategy that will consume cash and has an element of risk, they may
face resistance from retired relatives who are concerned primarily about
dividend payments.
a)
Non-family Members
An
Employee but not an Owner
This group deals with the issues of nepotism and
coalition building and the effects of family conflicts on daily operations.
Owners' concerns for non-owner employees usually
involve recruiting and motivating non-family employees and non-family
owner-managers
An
Employee and an Owner
With the emergence of stock-option plans, this group
has become more important.
Employees may become owners during a succession.
In companies where a successor has been chosen,
partial ownership of the company by its employees can foster cooperation with
the new management because the employees will personally share the benefits and
responsibilities of the company.
In cases where there is no successor, selling the
company to the employees who have helped build it makes good business sense.
Employees who
own the company will want to be treated like owners, which may be difficult for
family members to understand and accept.
INTERGENERATIONAL
TRANSITION CONCEPT
Difficulties
Ø Lack of
transition planning
Ø Lack of
viability of the business
Ø Little
desire on the part of the owner to transfer the firm
Ø Reluctance
of the off springs to join the firm
Ø Difficulties
in choosing a successor
Challenges
in choosing a successor
•
Fear of death
•
Reluctance to let go
•
Identifying the right qualities and the person
•
Personal loss of identity
•
Fear of loosing work activity
•
Feeling of jealousy/rivalry towards the successor
Structures
to facilitate transition
•
Family council
•
Estate planning \ will
•
Strategic planning
•
Grooming successor
•
Independent BOD.
Review questions
Discuss the main conflicts in a family business
Explain the major sources of family business
conflicts
Discuss the relationships between a family business
and its members
List of references
- Bangs, D. H., Jr. (1998). The business planning guide:
Creating a plan for success in your own business. (8th Edition). Chicago:
Upstart Publishing.
- Brenner, G., Ewan, J., & Custer, H. (1990). The
complete handbook for the entrepreneur. Englewood Cliffs, NJ: Prentice
Hall
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