What Is a Family Business?

1. Smith Family HardwareEst. 1935 Welcome 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

2. Family Concerns Care and nurturing of family members Employment and advancement in the firm Loyalty to the family Business Concerns Production and distribution of goods and/or services Need for professional management Effective and efficient operation of the firm Family and Business Overlap

3. 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 non-family employees • Capability to plan and prepare for the long haul • Emphasis on quality and value

4. Disadvantages of a Family Firm • Family problems affect business operations. • Business problems affect family relationships. • Little opportunity within a family business for non-family members. • Succession problems (and related transfer of ownership challenges).

5. The Culture of a Family Business • Organizational Culture • Patterns of behaviors and beliefs that characterized a particular firm • Cultural Configuration • The total culture of a family firm, consisting of the firm’s business, family, and governance patterns

6. Governance Pattern Business Pattern Cultural Paper Board Paternalistic Configuration Rubber-Stamp Board Laissez-faire of the Advisory Board Participative Family Firm Overseer Board Professional Family Pattern Patriarchal Collaborative Conflicted Cultural Configuration of a Family Firm Source: Adapted from W. Gibb Dyer, Jr., Cultural Change in Family Firms (San Francisco: Jossey-Bass, 1986), p. 22.

7. 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 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/destroying the parent–child relationship?

8. 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

9. Professional Managementof the Family Firm • “Best Practices” (John L. Ward) • Stimulate new thinking and fresh strategic insights. • Attract and retain excellent managers. • Create a flexible, creative organization. • Create and conserve capital. • Prepare successors for leadership. • Exploit the unique advantages of family ownership.

10. Professional Management of the Family Firm • The need for good management • Non-family employees in a family firm • Family Retreats • Family Councils

11. The Process of Leadership Succession • Available Family Talent • Mentoring • Guiding and supporting the work and development of a new or less-experienced 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.

12. Stage IIIIntroductoryFunctional Stage IPre-Business Stage IIIntroductory 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. Child works as part-time employee. Work becomes more difficult. Includes education and work for other firms. Entry of Successor Stage IVFunctional Stage VAdvanced 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. . . Transfer of Leadership Stage VI Early Succession Stage VIIMature Succession Successor assumes presidency. Includes period in which the successor becomes dejure head of company. Successor becomes defacto head of company. A Model of Succession in a Family Business

13. Conditions Favoring SuccessfulLeadership 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