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Family-owned business by Professor Kobus Visser Department of Management University of the Western Cape Bellville, South Africa

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Family-owned business by Professor Kobus Visser Department of Management University of the Western Cape Bellville, South Africa. Family Business (FB). Objectives Challenges facing family-owned businesses Implement strategies for succession Skills & competencies required for succession

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slide1
Family-owned businessbyProfessor Kobus VisserDepartment of ManagementUniversity of the Western CapeBellville, South Africa
family business fb
Family Business (FB)
  • Objectives
    • Challenges facing family-owned businesses
    • Implement strategies for succession
    • Skills & competencies required for succession
    • New venture teams & family members
    • Dealing with crises in family enterprises
  • Tutorial on family business
introduction
Introduction
  • FB has become “popular” … again
    • Changing attitudes: young corporate bureaucrats return to FB as decision-makers
  • FB is a little-understood aspect of new ventures
  • FB range in size from very small to international conglomerates
  • Significant contribution to GNP
  • What is FB?
    • 2 or more (extended) family members influence the business
    • A business the founder intends to pass to heir(s)
some key points on fb
Some key points on FB
  • All healthy and growing companies will eventually have to hire a CEO to replace the founder
  • Exactly when this day happens, differs widely from business to business
    • For some businesses it comes before the business even starts doing business
    • For some it can be when the company is already an established player with decades of history
  • Family businesses make a significant contribution to the global economy and their contribution in South Africa is no exception
  • 84% of businesses in South Africa have been identified as family businesses
transfer of power authority responsibility
Transfer of power, authority, responsibility
  • Often a very sensitive issue for founding entrepreneurs
  • Deciding when it is time to “let go” requires the founder to be clear and honest about his or her own capabilities and skills, not to mention mortality
  • “Letting go” also requires forming goals and aspirations for the company that will outlive their own period of management and perhaps even their own lifetime
  • Many founders have a really hard time coping with the succession issue
transfer of power
Transfer of power, …
  • The fact is that most businesses are not runaway successes; therefore,
    • Most companies spend years struggling in obscurity with very little money
    • After a struggle like that it is hard for the founder to let go
  • The company has taken up the best part of their lives and thoughts for so long they tend to sympathize with Louis XIV who said “I am France.”
  • Conceptually the founders can not separate themselves from their companies
oldest family business in the world
Oldest family business in the world?
  • Kongo Gumi Co. Construction began in A.D. 593
    • Shigemitsu Kongo, traveled to Japan from the Korean kingdom of Paekche to buildShitennoji (the first Japanese temple commissioned by a royal), one of the oldest Buddhist complexes in Japan
  • Masakazu Kongo, 40th Kongo is now leading the company in Japan
  • 1410+ years old
  • 90% of the carpentry techniques Shigemitsu Kongobrought to Japan from Korea in AD 593 are still used today
  • Temples, shrines, schools and retirement homes
  • "Temples are our focus"
corporate versus personal goals
Corporate versus personal goals

Publicly-owned corporations

Personal goals

owner/manager

Corporate goals

Closely-held firms: non-family

Creates conflict and complications

Family enterprises

Family goals

types of involvement
Types of involvement
  • Why join a family business?
    • Family obligations
    • Meet career interests
    • Develop identity
    • Satisfy needs
  • Types of involvement in the family enterprise
    • Helper: duration unknown, which position, which level, “jack of all trades”
    • Apprentice: use enterprise as stepping stone, launchpad to other choices
    • Socialised successor: joins, becomes socialised, likely to take over
  • Convergent/divergent goals: clash/overlap?????
farming as a traditional form of succession
Farming as a traditional form of succession

Three children each inherit – economic unit

does not exist & changes into survivalist units

Three children inherit –

economic unit under

serious threat

Farmer on original

size of land –

economic unit

vision goals and plans
Vision, Goals and Plans

Future

(Vision)

These goals & objectives create

major clashes between

founder and next generation

Goal

Goal

Plan 6

Plan 7

Here

&

Now

Goal

Plan 4

Plan 5

Plan 1

Plan 2

Plan 3

general considerations on fb
General considerations on FB
  • Starting on one’s own versus starting as a family
  • Decision-making
    • Stakeholders in a family business
    • Their agenda/s
    • Impact of these demands on the enterprise
  • Efficiency: doing things right
  • Effectiveness: doing the right thing
keep eye on the goal
Keep eye on the goal
  • Clear mission statement
  • Chains of command
  • Plans to establish goals
  • Good communication between family & non-family members
    • Language is personal:
      • It needs to become more impersonal
    • Attitudes are subjective:
      • Attitudes must become more objective
    • Roles are traditionally defined:
      • Redefine roles
  • Role transfer between home & business
behaviour family versus workplace
Behaviour: Family versus workplace
  • Opinions & emotions
  • Challenge to management of family enterprises:
    • Separate home & workplace issues
    • Allegiance to family members redefined
    • Leader: taking sides?
some thoughts
Some thoughts ……
  • Who is in charge? Patriarch/matriarch versus real manager
    • Permission to decide & clearance procedures: missed opportunities
    • Personalities & emotional reactions = inefficiency
    • Communication at work: continuation from home
remaining in charge
Remaining in charge …
  • Apply efficient management techniques
  • Rise above family “bickering” (i.e. family quarrels, famil disagreements, family infighting)
  • Be tough enough to make decisions (i.e. “tough love”)
  • Possible solutions:
    • Hire management for operational activities
    • = “freeing-up” family to strategise, set basic policy, growth
    • Do not exempt family from rules
slide18

Geoffrey Seeff

Bill Venter

Harry Oppenheimer

Kunene

Brothers

Raymond Ackerman

Anton Rupert

succession who takes over
Succession: who takes over?
  • Succession planning: illness, retirement
  • Neutral family meeting with (possible) external guidance
  • Agenda for succession planning - Issues to be raised:
    • Family goals for the future
    • Who stays in the business: aptitude, aspirations, role-definition
    • Grooming future leaders: how?
    • Timing: when to succeed
    • Preparations for stepping-down
    • Financial aspects of stepping down
more key issues
More key issues ….
  • Hiring more family: resisting family pressure, cultivate talent, provide special training, working with non-family member
  • Personnel problems: resentment by outside talent
    • Departure of skilled, outside talent
  • Spending money to save money
    • Resistance to expansion, opportunity and growth plans
    • Base argument on facts & supporting information
    • Demonstrate impact of opportunity
    • Utilise external assistance: e.g. banker, accountant
status quo versus growth
Status quo versus growth
  • Longevity (prolonged existence) & status quo
    • Increasing risk intolerance = blocking growth
    • Some possibilities: dilute their influence, reducing ownership
    • Encourage involvement in other directions
    • Restructure the enterprise
  • Acquiring capital for growth - outgrowing its resource-base:
    • Factoring (“selling” the Debtors/Accounts Receivable to a bank)
    • New supplier agreements
    • New investors
grooming the next generation de beers
Grooming the next generation: De Beers

Professional Management:

Julian Ogilvie-Thompson

G1

Ernest

Oppenheimer

G2

Harry

Oppenheimer

G3

Nicky

Oppenheimer

G4

Jonathan

Oppenheimer

G3 too young/

not ready to take over

family enterprises advantages
Family enterprises: advantages
  • Business performance:
    • Family members take long-term view of their investments
  • Commitment:
    • Strong (emotional) bonds through ownership
  • Customer/client appeal:
    • Strong sense of community
  • Beyond profits:
    • Notion of providing employment, commerce, social responsibility
  • Other:
    • Creativity & innovation, uniting family(?)
family enterprises disadvantages
Family enterprises: disadvantages
  • Discord (i.e. conflict, friction, disputes):
    • Private matters spilling over into enterprise
    • Anger, jealousy, resentment
    • Personal history & “bad blood”
  • Employment:
    • Entitlement (incompetence, under-qualified, lack of commitment, “soft” job)
  • Marital stress:
    • 24/7 syndrome
succession revisited
Succession revisited
  • Characteristics of effective succession:
    • Select managers for next generation
    • Put in place a comprehensive development programme for these members
    • Provide opportunities for next-generation managers to fulfill their personal & career goals
    • Develop plans for management succession: realistic assessments
    • Establish positive associations & good working relations
to conclude
To conclude ...
  • Family enterprises start as entrepreneurial ventures
    • Lead entrepreneurs demonstrate characteristics of successful entrepreneurs
  • Articulate (communicate) the vision to next generation
  • Leadership requirements differ as family business moves from start-up, through expansion and growth into maturity
  • Deal with complexity
    • Family as decision-makers, employees
competencies for success do family business possess these elements
Competencies for success: do family business possess these elements?

Technical &

Business

skills

Core

Entrepreneurial

skills

Interpersonal &

Leadership

skills

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