MGT 4550 - Family Business Management

1. MGT 4550 - Family Business Management PROFESSIONAL, NON-FAMILY MANAGERS Chapter 8 Family Business Management, Concepts and Practice By A. Bakr Ibrahim & Willard H. Ellis Instructor: Dr. Irene Duhaime

2. Class Schedule - Week 8 (03/15) • PROFESSIONAL, NON-FAMILY MANAGERS • Reading: Chapter 8 FBM • Questions : 16, 60-66, 82 FBAB • Cases: • Baker, Inc., p. 287 FBM • Stewart Machinery Company Limited (A), p. 341 FBM Dr. Irene M. Duhaime

3. Contents • The Family Business Culture • Reason for Introducing Professional Management • Attracting and Retaining Professional Management • Outside Directors in the Family Business • Composition of the Board Dr. Irene M. Duhaime

4. The Family Business Culture • Informal entrepreneurial style • Decision-making process centralized • Employees are likely to resist formal planning, result-oriented and professional-style culture Dr. Irene M. Duhaime

5. The Family Business Culture • Reasons for resistance • Fear that formalization could lead to loss of competitive edge • Employees may lack the skill and competence to deal with decentralized decision-making • Employees fear loss of status, money and authority Dr. Irene M. Duhaime

6. Reasons for Introducing Professional Management Dr. Irene M. Duhaime

7. Reasons for Introducing Professional Management • Lack of a Qualified Successor Within the Family. Offspring may be: • ill-prepared • lack capacity to provide leadership and work independently • working elsewhere Dr. Irene M. Duhaime

8. Reasons for Introducing Professional Management • Family Infighting • Family feuds and disagreements about who get what • Introduce neutral professional management to ensure business functions effectively Dr. Irene M. Duhaime

9. Reasons for Introducing Professional Management • The Desire to Formalize the Decision-Making Process • Change from the informal and emotionally based, less objective methods • Introduce objective, result-oriented methods, using professional management to minimize problems in the change process. Dr. Irene M. Duhaime

10. Reasons for Introducing Professional Management • The Desire to Complement Family Members’ Skills. • Well-rounded management team, variety of skills and competencies • Increase competitive edge with more talented team of executives • Enrich the Family Business Culture Dr. Irene M. Duhaime

11. Reasons for Introducing Professional Management • To introduce an aggressive growth strategy like : • Acquisition • Diversification • Expansion Dr. Irene M. Duhaime

12. Reasons for Introducing Professional Management • Supervising Relatives, to reduce tension and conflict in: • Assigning tasks • Criticizing and/or evaluating Dr. Irene M. Duhaime

13. Attracting and Retaining Professional Management Dr. Irene M. Duhaime

14. Attracting and Retaining Professional Management • Nepotism • Eliminate advancement of family members on the basis of connections rather than qualifications • Develop and implement a clear policy on career development Dr. Irene M. Duhaime

15. Attracting and Retaining Professional Management • Family infighting • Be aware of non-family members being enlisted to be allies with quarreling family members Dr. Irene M. Duhaime

16. Attracting and Retaining Professional Management • Compensation • Offer compensation packages that are • Competitive in the area • Equal to those of family members • Include ownership (phantom stock) • Base compensation on objective measurable criteria • Individual performance • Industry trends Dr. Irene M. Duhaime

17. Attracting and Retaining Professional Management • Career development • Clear guidelines according to industry standards • Include training and promotion • Communicate to all employees • Distribution of power • Acceptance of non-family members as equals Dr. Irene M. Duhaime

18. Outside Directors in the Family Business • Outside directors can be critical to the survival of the firm especially during the succession process. They can: • Objectively resolve family conflict • Assist in the planning and setting of criteria in succession planning • Help in formulating policy and in developing a strategic plan …. continued Dr. Irene M. Duhaime

19. Outside Directors in the Family Business …continued • Improve decision-making through their talents and with more objective, less emotional inputs. • Assist the firm in performing to industry standards • Provide network of contacts • Act as a sounding board. Dr. Irene M. Duhaime

20. Composition of the Board • Include wide range of talent and experience for most effective board • Lawyer • Accountant • Banker • Other Founders Dr. Irene M. Duhaime

21. Questions and Cases • Questions : • 16, 60-66, 82 FBAB • Cases: • Baker, Inc., p. 287 FBM • Stewart Machinery Company Limited (A), p. 341 FBM Dr. Irene M. Duhaime

22. Question 16 Should a non-family employee who has been with the company a long time mentor and critique the successor(s)? Dr. Irene M. Duhaime

23. Question 60 How does the founder deal with a long-time non-family employee when a family member comes into the business and, later, becomes the successor CEO? Dr. Irene M. Duhaime

24. Question 61 How does the family business leader attract (and keep) good professional non-family managers and employees who most likely will never “run” or “own” the business? Dr. Irene M. Duhaime

25. Question 62 How do you attract young people today to middle management positions when so many want to work on their own for the freedom? Dr. Irene M. Duhaime

26. Question 63 Should a non-family employee have a contract? Dr. Irene M. Duhaime

27. Question 64 Should non-family employees expect equity? What are other options? Dr. Irene M. Duhaime

28. Question 65 Should non-family employees avoid socializing with family members outside the company? How can employees avoid taking sides in family squabbles? Dr. Irene M. Duhaime

29. Question 66 How can non-family employees help a successor grow professionally? Dr. Irene M. Duhaime

30. Question 82 How should family members’ compensation be set so it doesn’t initiate conflict? Dr. Irene M. Duhaime

31. Class Schedule - Following week (03/22) • FINANCIAL ISSUES FOR THE BUSINESS AND THE FAMILY • Reading: Chapter 9 FBM • Questions • 3, 4, 6, 42-51, 53-55, 67, 79, 97-100 FBAB • Cases: • Walsh Petroleum, p. 77 FBM • Francis Hankin & Co., Limited (A), p. 397FBM Dr. Irene M. Duhaime

32. Class Schedule - Following week (03/22) • MANAGING STRATEGIC CHANGE IN THE FAMILY BUSINESS • Reading: Chapter 11 FBM • Questions • 87-89, 95-97, 100, 101 FBAB • Case: • Monticello Pottery, Inc., p. 481 FBM Dr. Irene M. Duhaime