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MHR454 Midterm 2

Terms in this set (78)

family business
one that is influenced by a family or family relationship and perceives itself as one
How many businesses worldwide are family businesses?
2/3
What percent of annual global GDP are family businesses?
70-90%
how many of the fortune global 500 are founder or family controlled?
1/3
what perspective helps develop a family business that gives it a long-term mindset?
A strong, intergenerational perspective
what aspects of the business have a long-term mindset? (5)
Essentially all aspects but especially:
1. Planning
2. Employee development
3. Capital Investment
4. Sustainability
5. Stewardship
what 3 issues generally come into play with family businesses?
1. PERSONALITY- induviduals finding it impossible to work together, disrespect, etc.,
2. STRUCTURE- malfunction in the structure of how the family interacts with the business
3. BUSINESS- the reason for business performance (e.g. lower profits, etc.,) cannot be determined. Is it family factors vs. business factors?
Special strengths of family businesses (7)
1. Culture and values
2. Predictable problem resolution
3. Commitment
4. Knowledge
5. Flexibility
6. Long-Range Thinking
7. Stable Culture
8. Reliability and Pride
Characteristics of the strength of culture and values in families (3)
1. better at defining and communicating shared goals and values
2. becomes an external manifestation of family values
3. helps to create strong foundation for long-term competitive advantage
Characteristics of the strength of predictable problem resolutions (2)
1. Structural problems are often forseen
2. Who will perform certain activities/positions, who makes certain decisions, can be determined in advance
CHaracteristics of the strength of commitment (3)
1. Strong family bond translates into dedication and commitment
2. Family members generally feel responsible to work hard
3. Maintains a stronger workforce
Characteristics of the strength of knowledge (2)
1. Long term business relationships
2. Valuable business methods and processes may be coveted
Characteristics of the strength of flexibility (2)
1. Are able to work as needed
2. Arises in pay expectations
Characteristics of the strength of long-range thinking (2)
1. Next generation is at a higher priority
2. Have strategic planning identified for upcoming 10-15 years
Characteristics of strengths of stable culture (4)
1. Executive leadership has been involevd for years
2. Key management committeed to longevity of the business
3. Interpersonal relationships have had time to develop and stabilize
4. Everyone knows structure and work is performed consistently
Characteristics of reliability and pride (2)
1. Pride in business, its history, and longevity for all family members
2. Often transforms into excellent customer service and/or quality products
Dilemmas and challenges of a family business (5)
1. Resistence to change
2. Business Challenges (modernizing outdated skills, managing transitions, raising capital)
3. succession (availability of capable, willing family members)
4. Emotional issues (may spill over)
5. Leadership (lack of training and/or empowerment to manage/lead
proprietor definition
dominant ownership and dominant decision-making, is often UNPROFESSIONAL
conductor definition
still controlling but more willing to delegate work and decision-making

fosters harmony and orchestrates family member involvement
technicians
company built based on creative or technological data, while willing to give up day-to-day management , still controlling regarding special processes/technological skills
women in key family business roles are
still holding unofficial/behind-closed-doors roles, although recently starting to change
husband and wife teams in family business roles are
lately having a greater equality between partners

each partner's personal temperaments are key
benefits of working with inlaws/marrying into a family business
successful, close-knit family and work opportunities within business
disadvantages of working with inlaws/marrying into a family busines
being treated like/feeling like an outsider, not meeting family norms
problems with multigenerational ownership arise when...
more generations come up
Husband and wife businesses then become...
sibling businesses
Sibling businesses then become...
cousin businesses
what happens to values from the initial business as generations arise
Potential dilution of values or considerable changes in values
What might happen with a non-family talented manager?
May resign because they have run out of opportunities, or politics and emotional issues often found in family businesses may prove too much of an interference
family behavior is based on _______ while business is based on ______
emotion
accomplishing planned tasks
conflict arises when....
family behavior arises within the business framework
Describe father-son conflict
founded (father) may have difficulty delegating authority while son increasingly seeks independence responsibility and power
Describe sibling rivalry
Working together daily perpetuates a normal rivalry part of family life
What is the family business life cycle?
1. Owner-managed business
2. Sibling partnership
3. Cousin Consortion
What are the overlapping systems of a family business?
Family, friction and conflict, and business
What is within the family system of a family business?
Emotion bases, subconscious behavior, inward looking, minimizing change
What is within the business system of a family behavior?
Task based, conscious behavior, outward-looking, delevoping change
What is the Three-Circle Model?
Family, Ownership, And Business are the 3 circles,

The overlapping part of:
-Family and Ownership is Family owners (non employees)
-Family and Business is Family Employees (non-owners)
-Ownership and Business is Owner employees (non-family)

The overlapping part of all three circles: Family owner employees
How are vamily values often learned?
In informal ways, i.e. customs, anecdotes, and implicit codes of conduct
Main characteristics of a strong, healthy family(5)
1. Commitment (family unity & goal sharing)
2. Appreciation/Communication (recognizing positive qualities, open & frequent communication with clear boundaries
3. Time Together (quality and quantity)
4. Spiritual Health (sharing a unifying codes i.e. religion/morals)
5. Coping with Crisis & Strength (pulling together in difficult times, asking for outside help
Family Strategic Plan
helps families run business in a committed, organized way
Characteristics of a family strategic plan (2)
1. Chances of misunderstandings are reduced
2. Plans are more likely to be followed and agreed upon
Ingredients of successful planning (3)
1. Establish open communication
2. Constructive Vs. Destructive Conflict
3. Building Family Teamwork
What happens without open communication?
-Family members can be cautious and constrained with what they say to relatives
-Sensitive members/issues generate unpleasant conflict, which if left unresolved, can harm business
Constructive Conflict
different perspectives are accepted and appreciated

debate can lead to positive outcomes
Destructive Conflict
Centers on disputes about personal identity, relationships, and history

Debate causes further negative situations
Conflict is not negative if...
it is handled constructively
Characteristics of building family teamwork
Multiple roles within a family (i.e. 3 Circle Model) leads to role confusion

Conditions found in effective business teams are often not in family teams, in which then team dynamics take on a new family-team challenge

Team members must remember to acknowledge comments by other family-team members
what are the three steps to action planning (family governance?
1. create a timeline
2. family members responsible for implementation
3. monitoring/evaluation of plans
family council
An organized group of family members who gather periodically to discuss family-related business issues.
what happens in the family council?
policy making and developing of strategic plans
what is a family retreat?
relaxing, non confrontational environment for a family council to meet away from the distractions of daily business operations
family constitution
document that records the conclusions of their plannng and decision making and spells out the family's policies regarding the business
3 requirements of a family constitution
1. may take months to create
2. not everyone will agree with every decision involved in its creation
3. should include the process to be followed if amendments may be required
family governance
formalizing family communications and relationships
What's the problem with cousin companies?
it is not simply hierarchical
characteristics of the complex family network (3)
1. each family is a separate unit with separate family values, levels of business committments, geographical distance, etc.
2. many owners are not closely involved with company operations
3. interests of owners diverge (some may want salary increases vs. stock dividends etc)
family council
main forum for family communication
family assembly
informal open-for-all family shareholders/ family members to learn about business and as questions of those more involved
what happens in a family assembly?
relationships with siblings and cousins are further developed in an informal business setting
what form is used for each division of business in the family council?
representative form is used with 10-12 members per division using nomination and voting
importance of family council
acts as the bridge between the overall family and board of directors

also is responsible for sending clear signals to the board on strategic members
what percent of family businesses are still making a profit after the third generation?
5%
what fraction of family businesses successfully make the transition from one generation to the next?
2/3
Pros/cons of appointing a family member
+stays in the family
+chance to mentor the appointee
+trust
-may not be qualified
-conflict/ ill will
Pros/cons of appointing a caretaker/manager (passive)
+maintain decent business as is
+easier transition to appointee
+less expensive
-less profit incentive
-no growth
Pros/cons of appointing a professional manager (active)
+knowledgeable/qualified
+taking risks
-expensive
-interests of family or themselves?
-employee feelings
Pros/cons of selling the business?
+cash out
+sale to family=tax benefits
+business lives on
-how does it get split between family
Pros/cons of liquidating assets
+cash out
+cash instead of terms
-no more legacy of business
-prices below market
pros/cons of doing nothing
+more time to figure out stuff
+cheapest
-simply postponing
-missed opportunitites
6 ways to success a business
1. appoint a family member
2. caretaker manager (passive)
3. professional manager (active)
4. exit via sale of business
5. exit via liquidating business assets
6. do nothing
monarchs
do not leave company until forced out
generals
forced out but plot their return
ambassadors
leave gracefully and return to mentor new leader
governors
leave gracefully and switch to other employment outside company
impediments to succession via founder (3)
-fear of letting go power
-inability to choose among children
-fear of retirement or death
impediments to succession via family (2)
-founder's spouse may be reluctant to retirement
-children do not discuss parent's death or serious health issues
Steps to take to lead the transition (8)
1. start planning early
2. encourage intergenerational issues
3. develop a written succession plan
4. involve the family and colleagues
5. take advantage of outside help
6. establish an education and training process
7. plan for retirement
8. make retirement timely and mandatory
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