CHAPTER 5

THE FAMILY
BUSINESS
THE FAMILY BUSINESS: A UNIQUE
INSTITUTION
 What is a family business: We define a family
business as a company that two or more
members of the same family own or operate
together or in succession.

 Family and business overlap: Business
interests (production and profitability)
overlap family interests (care and nurturing)
in a family business.


THE FAMILY BUSINESS

 Competition between family and business:
Entrepreneurs face difficult choices in reconciling
the competing demands of business and family,
and maintaining an appropriate balance between
the two is difficult.

 Advantages of a family business:
Ø Strong commitment of family members to the
success of the firm.
Ø The ability to use a family theme in advertising
Ø Firm-specific knowledge
Ø Shared social networks
Ø A focus on the long run
Ø Preservation of the firm’s reputation
Ø Reduced cost of control
THE FAMILY BUSINESS
 Breaking with the
past: Sometimes it
is important to
change the direction
or practices of the
family business so
that it can keep up
with emerging
realities, and this
often occurs as
leadership passes
from one generation
to the next.

THE FAMILY BUSINESS

FAMILY ROLES AND RELATIONSHIPS
 Mom or Dad, the founder: Entrepreneurs who
have children typically think in terms of passing
the business on to the next generation. Of all
relationships in a family business, the parent-
child relationship has been recognized as the
most troublesome.

 Husband-Wife teams: Some couples in
business together find their marriage
relationship strengthened, while others find it
weakened.


THE FAMILY BUSINESS

 Sons and Daughters: Many family
businesses have been launched with the
hope that one of the kids would take it over
when the time was right but he/she may be
an individual with unique abilities and
aspirations. But if the business relationship
is to be satisfactory, family pressure must be
minimized.

 Sibling Cooperation, Sibling Rivalry: Sons,
daughters, in-laws, and other relatives may
either cooperate or squabble with each other
as they work together in a family business.


THE FAMILY BUSINESS

 In-laws In and Out of the Business: In-law
play a crucial role in the family business,
either as direct participants or as sideline
observers.

 The Entrepreneur’s wife: The role of the
founder’s spouse is especially important, as
he or she often serves as a mediator in
family disputes and helps prepare the
children for possible careers in the family
business.


THE FAMILY BUSINESS

PROFESSIONAL MANAGEMENT OF THE
FAMILY FIRM
 The Need for Good management: Family
businesses experts have proposed a number of
“best practices” for family enterprises:

Ø Promote learning to stimulate new thinking and fresh

strategic insights.
Ø Solicit ample input from outsiders to keep things in
perspective.
Ø Establish channels for constructive communication
Ø Build a culture that accepts continuous change.
Ø Promote family members only according to their skill
levels.
Ø Attract and retain excellent nonfamily managers.
Ø Ensure fair compensation for all employees.
Ø Establish a solid leadership succession plan.
Ø
THE FAMILY BUSINESS
Exploit the unique advantages of family ownership.
 Nonfamily employees in a Family Firm: Family
members as well as nonfamily employees should
be treated fairly and consistently, in accordance
with their abilities and performance. Motivation of
nonfamily employees can be enhanced by open
communication and fairness.

 Family retreats: Family retreats bring all the family
members together to discuss business and family
matters. To ensure the success of a family
business retreat, these guidelines should be
followed:
Ø Set a time and place
Ø Distribute an agenda prior to meeting
Ø Plan a schedule in advance
Ø Give everyone a chance to participate
Ø Keep it professional

THE FAMILY BUSINESS
 Family Councils: Family councils provide a
formal framework for the family’s ongoing
discussion of family and business issues.

 Family business constitutions: a family
business constitutions cannot foresee every
eventuality but can guide a company
through times of crisis or change.


THE FAMILY BUSINESS

THE PROCESS OF LEADERSHIP
SUCCESSION
Available family talent: The quality of leadership talent
available in the family determines the extent to which
outside managers are needed.

 Stages in the process of Succession: Succession is a long-
term process starting early in the successor’s life.
Ø Pre-business stage: in stage 1 a potential
successor becomes acquainted with the business
as part of growing up. It simply forms a foundation
for the more deliberate stages of the process that
occur in later years. it includes introductions to
people associated with the company and part-time
jobs with the firm.

Ø Education and personal development stage:

Stage 2 usually begins when the potential
THE atFAMILY
successor goes off to study BUSINESS
a college. This stage
Ø Proof of competence stage: One way to
establish competence is for a son or
daughter to prove he or she can do the job
somewhere else first hoping that their
independent achievements will speak for
themselves and establish his or her
credibility.

Ø Formal start in the business stage: Stage 4

starts when a son or daughter comes to work
at the family business full-time.
Ø
Ø Declaration of succession stage: In stage 5
the son or daughter is named president or
general manager THE FAMILY
of the BUSINESS
business and
 Reluctant parents and Ambitious children:
Tension often arises between the founder
and the potential successor as the latter
gains experience.

 Transfer of ownership: Transfer of ownership
involves issues of fairness, taxes and
managerial control. Discussing and planning
the transfer of ownership is sometimes
difficult but usually desirable.


THE FAMILY BUSINESS