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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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Family-owned businessbyProfessor Kobus VisserDepartment of ManagementUniversity of the Western CapeBellville, South Africa


Family business fb l.jpg
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


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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)


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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


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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 l.jpg
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


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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"



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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


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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?????


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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


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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


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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


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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


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Behaviour: Family versus workplace

  • Opinions & emotions

  • Challenge to management of family enterprises:

    • Separate home & workplace issues

    • Allegiance to family members redefined

    • Leader: taking sides?


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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


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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


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Geoffrey Seeff

Bill Venter

Harry Oppenheimer

Kunene

Brothers

Raymond Ackerman

Anton Rupert


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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


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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


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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


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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


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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(?)


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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


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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


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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


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Competencies for success: do family business possess these elements?

Technical &

Business

skills

Core

Entrepreneurial

skills

Interpersonal &

Leadership

skills


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TIME elements?Magazine covers


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