WEEK THREE PRESENTATION

ENT 308
FAMILY BUSINESS AND SUCCESSION PLANNING

Module 1: INTRODUCTION

Unit 1: Introduction

Unit 2: Historical Presentations of the Family Business

Unit 3: Summaries of Major Studies of Family Business

Unit 4: Examples of Notable Family Businesses in the World

Module 2: DEFINING THE FAMILY BUSINESS

Unit 1: The Distinctiveness between family and non-family firm

Unit 2: Defining the Family Business by type of Family Involvement

Module 3: ECONOMIC IMPORTANCE OF FAMILY BUSINESS

Unit 1: The Prevalence of Family Business

Unit 2: Economic Contribution of Family Business

Unit 3: Case Studies

Module 4: THE COMPETITIVENESS OF FAMILY BUSINESSES

Unit 1: Uniqueness of Family Businesses

Unit 2 Strength of Family Businesses

Unit 3: Weaknesses of Family Businesses

Module 5: Governance in the Family Business

Unit 1: Introduction to Governance

Unit 2: The Need for Governance in Family Firms

Module 6 – FAMILY BUSINESS VALUES AND CULTURE

Unit 1: Family Firm Values

Unit 2: Culture of Family Firms

Unit 3: Family Values and Business Culture

Unit 4: Building a Resilient Business Culture

Module 7: FAMILY RELATIONSHIPS AND FAMILY BUSINESS

Unit 1: The Structure of the Family Firm

Unit 2: The Interpersonal Dynamics of the Family Firm

Module 8: SUCCESSION PLANNING

Unit 1: Creating a Family Culture that Promotes Business Succession

Module 9: CONFLICT MANAGEMENT

Unit 1: Challenges of Working together in a Family

Unit 2: Types of Conflict

Unit 3: Handling the Ownership

Unit: Understanding Conflict Management

Unit 10: WOMEN IN FAMILY BUSINESSES

Unit 1: Women‟s Contribution to Family Firms

Unit 2: Work-Life Balance

Unit 3: Couples‟ Challenges

Unit 4: Women, Communication, and Leadership

1. Family Business Life Cycle

The family business life cycle highlights the stages through which family-owned businesses
typically progress:

 Wonder Period: This is the startup phase where founders are highly motivated, and
enthusiasm for the business is at its peak. Innovations and visions for the future are
defined here.
 Blunder Period: As the business grows, operational challenges and managerial errors
may emerge. Decisions during this phase can impact the business trajectory as the
family seeks to learn and stabilize operations.
 Thunder Period: Representing the mature growth phase, the business establishes a
strong market position, achieving high profitability and stability. Many family
businesses expand significantly in this period.
  Sunder/Plunder Period: Challenges such as generational transitions, conflicts, or
succession issues can arise, potentially leading to business fragmentation. This stage
requires careful planning to maintain continuity and avoid decline.

2. Family Business Goals

Family businesses often pursue goals beyond profitability:

 Economic Goals: These goals focus on creating and preserving family wealth over
generations. Financial stability and growth ensure that the business remains a valuable
asset for future family members.
 Social Goals: Family businesses often see themselves as ambassadors of their
communities, committed to upholding reputational values and contributing to social
causes.
 Psychological Goals: Engaging family members within the business helps develop
their talents and supports their professional aspirations, fostering a sense of personal
achievement and belonging.
 Spiritual Goals: For some families, business activities provide an opportunity to
fulfill religious or philanthropic objectives, bringing a deeper meaning to their
enterprise beyond profits.

3. The Importance of Studying Family Business

Understanding family businesses is essential because they contribute significantly to:

 Employment Generation: Family businesses create jobs and help reduce

unemployment.
 Income Generation: They are a source of income for both family members and
employees, impacting local economies.
 Wealth Accumulation: The accumulated wealth supports family stability and
economic growth across generations.
 Community Engagement: These businesses often display loyalty to local
communities through sustained investments and philanthropy.
 Early Industrialization and Economic Growth: Historically, family businesses
have pioneered industry sectors and driven economic development in various regions.

4. Challenges of Family Business

Family businesses face distinct challenges that vary across environments, internal dynamics,
and educational needs:

 Environmental Challenges: These include lack of favorable policies for family-

owned businesses, inadequate financing options, and tax concerns, all of which may
hinder growth.
 Internal Family Issues: Managing family relationships within a business context can
be difficult, particularly when balancing family roles with professional
responsibilities, leading to complex dynamics around succession and ownership.
 Educational Challenges: A lack of family-business-specific education and training
for both current and upcoming family members often limits the business’s potential
for professionalized management.
5. Overview of Research on Family Business

Research on family businesses has gained prominence since the 1970s, with a focus on how
family dynamics influence business performance:

 Pioneering Research: Dr. Leon Danco’s work in 1975 and the later development of
dedicated journals laid the groundwork for understanding family business challenges
and strategies.
 Key Theories: Concepts like “founder centrality” show the influence founders have
within a family business even after their tenure. Research has also explored risk
aversion, altruism, and social capital within family businesses.
 Risk and Performance: Studies suggest that family firms are generally more risk-
averse than non-family firms, affecting performance outcomes, while altruism and
social ties within the family can have both positive and negative effects on business
longevity.

6. Examples of Known Family Businesses

Many renowned family-owned businesses illustrate the global impact of family enterprises:

 Examples Worldwide: Companies like Ford, Tata, H&M, and Lego are well-known
family businesses that have succeeded across generations. These firms exemplify how
strong family governance, long-term vision, and effective succession planning
contribute to sustainability and growth.

7. Ownership of Family Business

Ownership in family businesses often involves balancing legal and familial roles:

 Ownership Rights: Ownership is more than legal control over assets; it requires a
sense of responsibility. Family members must recognize that ownership means
contributing to the business’s success, not just benefiting from it.
 Boardroom Dynamics: Family members typically exercise ownership rights through
boardroom decisions, where family values and business strategies align. Good
governance ensures that family goals and business objectives coexist harmoniously.

8. Management of Family Business

Effective management of family businesses requires both family-oriented and business-

focused approaches:

 Balanced Management: Family businesses succeed when they balance emotional

ties with professional management practices. This involves understanding each family
member’s strengths and their potential contributions to the business.
 Leadership Styles: Family business leaders may adopt various leadership styles—
participative, autocratic, or laissez-faire—depending on the needs of the business and
family. A participative style often leads to higher satisfaction among family and non-
family employees.
9. Managing Conflict in Family Business

Conflict is inevitable in family businesses, where personal and professional roles overlap:

 Common Conflicts: Issues related to employment, compensation, and control are

frequent sources of conflict. Conflict resolution strategies include fostering open
communication and addressing issues directly.
 Conflict Management Strategies: These include establishing norms for one-on-one
discussions, utilizing third-party mediators, and promoting a safe communication
environment to prevent escalation.
 Significant Issues: Family meetings can address frustrations related to lack of
inclusion, perceived unfairness in hiring, and changing family dynamics, which, if left
unresolved, may hinder business progress.

10. Triangulation in Family Business

Triangulation refers to involving a third party in a family dispute to manage or mediate

conflict:

 Impact of Triangulation: While it can relieve immediate tension, triangulation often

complicates matters, as the third party might take sides or increase stress.
 Effects of Triangulation: It can result in biased decisions, perceptions of favoritism,
added stress, and diminished motivation for direct resolution between the original
parties.
 Guidelines to Minimize Triangulation: Encourage family members to resolve
conflicts directly, seek advice only from neutral parties outside the family, and use
third-party facilitators as necessary to avoid complicating family dynamics.

11. Five Unwanted Effects of Triangulating

Triangulation in family business occurs when a family member involves a third party
(another family member or outsider) to mediate conflicts rather than addressing issues
directly. This often has unintended negative effects:

 One-Sided Decisions: When one family member shares only their perspective, the
triangulated party may make biased decisions without a full understanding of the
conflict.
 Perception of Interference: The third party can be seen as intruding, leading to
mistrust and a sense that they are overstepping boundaries.
 Favoritism Allegations: Involvement in a conflict may lead others to view the third
party as favoring one side, which can create divisions within the family.
 Stress for the Mediator: The triangulated individual may feel overwhelmed by the
stress of handling the dispute and may inadvertently take on emotional burdens.
 Reduced Direct Communication: Triangulation discourages direct conflict
resolution, allowing tension to persist and blocking potential reconciliation between
the original parties.

12. Guidelines for Managing Triangulation

To avoid the pitfalls of triangulation, families can adopt guidelines for conflict management:

 Direct Communication Encouragement: Family members should be encouraged to

discuss issues face-to-face. This promotes openness and helps resolve conflicts
effectively.
 Outside Advisors: When third-party input is needed, seeking help from professional
mediators or advisors outside the family and business environment can provide an
objective perspective.
 Clear Communication Boundaries: Discussions should be planned at appropriate
times and places to allow for structured dialogue and to avoid emotional responses.
 Avoid Blame-Shifting: Conversations should focus on solutions rather than assigning
blame, fostering a positive atmosphere for problem-solving.
 Limit Dependence on Third Parties: While third-party support may help manage
conflict, family members should ultimately take responsibility for addressing their
issues directly.

1. Governance of Family Business

Governance in family businesses involves establishing a structure to guide decision-making,

oversight, and accountability:

 Governance Structure: Family governance typically consists of the family (with its
own institutions), a board of directors, and top management. Each part has a unique
role in ensuring that family values and business goals are harmonized.
 Family Governance Institutions: Many family businesses use family meetings,
assemblies, councils, or shareholders' committees to facilitate communication and
maintain unity within the family.
 Importance of Governance: Effective governance promotes long-term success,
providing clear rules and responsibilities, minimizing conflicts, and ensuring that
business decisions align with family values.

2. The Concept of Corporate Governance in a Business Family

Corporate governance in family businesses involves practices that support effective

management and continuity:

 Definition of Governance: Governance is the system by which the business is

directed, controlled, and held accountable. It involves strategic decision-making,
monitoring, and ensuring transparency.
 Core Elements of Governance: Family businesses often structure governance
around three pillars—the family, the board of directors, and management. This
structure helps balance family influence with business needs.
  Governance Functions: Family governance should steer the business’s long-term
direction, monitor managerial performance, and uphold accountability, ensuring that
business decisions serve all stakeholders.
 Importance of Clear Roles: Understanding the roles within governance (ownership,
management, and control) ensures that responsibilities are clearly defined, reducing
potential for conflict and helping to safeguard the family’s legacy.

3. The Competitive Advantage of a Committed Family Business

Family commitment to the business creates a unique advantage, fostering resilience, loyalty,
and a strong work ethic:

 Entrepreneurial Commitment: Founders often exhibit deep commitment, investing

financially and emotionally to ensure the business’s success. This commitment sets a
foundation for future generations.
 Long-Term Perspective: Unlike non-family businesses, family firms often prioritize
legacy over short-term profits, allowing them to make patient investments in growth
and innovation.
 Shared Values: Committed family members contribute to a cohesive culture rooted
in shared values and a strong work ethic, which benefits employees and enhances
customer trust.
 Sustained Resilience: Families often make personal sacrifices to support the business
during challenging periods, helping to sustain it over generations. This stability
attracts loyal customers and skilled employees.

4. Common Practices for Success in Business Families

Certain practices contribute to the long-term success of family businesses:

 Management Development Programs: Successful family businesses invest in

training for both family and non-family employees, which promotes professionalism
and competency.
 Family Ownership Training: Educating family members on the responsibilities of
ownership helps prevent nepotism and supports informed decision-making.
 Employee Loyalty: Fair treatment and loyalty toward employees often result in
reciprocated loyalty, creating a stable, committed workforce.
 Community Responsibility: Many family businesses are deeply invested in their
communities, contributing time and money to local projects, which strengthens their
reputation and customer loyalty.
 Long-Term Strategy Focus: Family businesses often emphasize value creation for
future generations, allowing them to focus on sustainable growth rather than short-
term gains.
 Innovation and Adaptability: Commitment to innovation and entrepreneurship
within the family allows businesses to adapt to changing markets and remain
competitive.

5. Women in Family Business

Women play an increasingly significant role in family businesses, contributing to diversity

and bringing unique perspectives:
  Growing Leadership Roles: Historically, women in family businesses often took on
supportive roles, but today many serve as key decision-makers and business leaders.
 Challenges and Expectations: Women in family businesses may face gender biases,
including expectations to balance professional responsibilities with family roles, but
they are breaking these stereotypes.
 Leadership Traits: Women often excel in nurturing and mediating, roles that are
valuable in family business environments where personal relationships are integral.
 Advancement and Ownership: Women are also increasingly taking ownership of
family businesses, sometimes through inheritance or starting their own ventures,
challenging traditional norms and broadening business perspectives.

6. Succession in Family Business

Succession is a crucial, complex process for family businesses, requiring careful planning and
consideration:

 Importance of Succession Planning: Succession involves the transfer of leadership

and ownership to the next generation. Without a clear plan, family businesses face
risks of disruption or decline during generational transitions.
 Key Elements of Successful Succession: Successful succession typically involves a
willing founder, a prepared successor, mutual trust, and cooperation from the family.
Mentorship and education play vital roles in preparing successors.
 Common Succession Challenges: Succession is often complicated by family
dynamics, such as resistance to change or generational conflict. A lack of alignment
between family values and business goals can create friction.
 Establishing a Family Council: To facilitate succession, families may form councils
to discuss and address transition issues collectively, ensuring that all members have a
voice in the process.
 Mistakes in Succession: Common mistakes include failing to distinguish between
ownership and management roles, viewing succession as a one-time event rather than
a process, and not encouraging open dialogue about each family member’s goals and
abilities.

7. The Common Mistakes of Succession in Family Business

Succession is a critical and challenging aspect of family business continuity. Mistakes in the
succession process can lead to conflicts, business decline, and even failure. Some common
pitfalls include:

 Failing to Differentiate Ownership, Governance, and Management: Family

members may not recognize that ownership, governance, and management are distinct
roles. Each role requires specific skills, responsibilities, and structures. When these
roles are blurred, it often leads to confusion, mismanagement, and unclear
accountability.
 Viewing Succession as an Obligation to the Past Rather Than an Opportunity for
the Future: Succession can become a source of conflict if older generations view it as
an obligation to preserve the past. If children feel pressured to carry on the family
legacy without personal interest or commitment, they may lack the passion and
dedication needed to grow the business. Succession should be seen as an opportunity
for innovation and renewal.
  Treating Succession as a One-Time Event Instead of a Process: Successful
succession is a gradual process that involves years of preparation, training, and
mentorship. Treating it as a single event—like the formal transfer of title or leadership
—overlooks the need for ongoing support, guidance, and gradual responsibility
handover. Without adequate preparation, successors may lack the skills or confidence
to lead effectively.
 Failing to Pass on an Entrepreneurial Orientation: Each generation of a family
business needs to bring a fresh entrepreneurial perspective to adapt to changing
markets and challenges. If previous generations don’t foster an entrepreneurial
mindset and innovation in successors, the business may become stagnant and struggle
to compete.
 Lack of Communication and Open Dialogue: Effective succession requires
transparent discussions about expectations, values, and goals. Without a culture of
open communication, assumptions and misunderstandings can lead to resentment and
conflict. This lack of dialogue often results in successors who feel unprepared or
unsupported.

8. How to Avoid Mistakes of Succession in Family Business

To ensure a smooth succession process, family businesses can implement strategies that
address the common pitfalls and prepare successors effectively:

 Clarify and Respect Distinctions Between Roles: Educate family members on the
differences between ownership, governance, and management. By defining each role
clearly, family members can understand their specific responsibilities and develop the
necessary skills for their roles. For example, ownership implies long-term investment,
governance involves oversight, and management requires day-to-day operational
expertise.
 Promote Succession as a Path for Future Growth: Succession should be viewed as
an opportunity for growth and evolution. Older generations can encourage successors
to bring new ideas and innovations, framing succession as a way to strengthen the
business. This helps successors feel valued and motivated to build on the legacy rather
than simply maintaining it.
 Treat Succession as an Ongoing Process: Start planning succession early, ideally
years before the transition, to allow for gradual development and confidence-building.
Incorporate mentorship, training, and phased responsibility transfer, allowing
successors to gain experience while still receiving guidance from their predecessors.
A family council or advisory board can also provide continuous support throughout
the transition.
 Foster an Entrepreneurial Spirit: Encourage successors to think like entrepreneurs
by supporting creativity, risk-taking, and strategic decision-making. Allowing them to
lead smaller projects or initiatives within the business can help them develop these
skills. This keeps the business dynamic and competitive, with each generation
contributing to growth.
 Encourage Open Communication and Regular Dialogue: Schedule regular family
meetings to discuss the succession process openly. Allow successors to express their
goals, concerns, and expectations, and create a culture of listening and respect.
Transparency helps avoid misunderstandings and ensures that all family members feel
included and valued in the process.
9. Characteristics of Successful Successors

Successful successors embody certain qualities and characteristics that enable them to lead
the family business effectively. These traits help them navigate the unique challenges of
family-owned businesses while honoring the family legacy:

 Deep Knowledge of the Business: Successful successors understand the business

thoroughly, including its history, operations, values, and culture. This knowledge
allows them to make informed decisions that align with the company’s vision and
goals.
 Passion for the Business and Industry: Passion is essential for motivation and long-
term commitment. Successors who genuinely enjoy the nature of the business are
more likely to invest the time and energy needed to drive success.
 Self-Awareness and Understanding of Strengths and Weaknesses: Effective
successors have a clear sense of their abilities and limitations. They pursue personal
development to strengthen their skills and know when to seek support from others,
particularly in areas where they may lack expertise.
 Leadership and Service Orientation: Successful family business leaders often view
their role as one of service, both to the business and the family. They are committed to
the well-being of employees, customers, and stakeholders and aim to lead by example
with integrity and accountability.
 Support from the Previous Generation and Advisors: Successors benefit from
having mentors within and outside the family. Guidance from the previous generation,
trusted advisors, and experienced board members helps successors navigate
challenges and learn from past experiences.
 Good Relationship-Building Skills and Diplomacy: The ability to build and
maintain strong relationships with both family and non-family employees is crucial.
Effective successors are diplomatic and sensitive to family dynamics, balancing
business goals with family unity and morale.
 Strategic Vision for the Future: Beyond understanding current operations,
successors need a forward-looking perspective. This involves setting a vision for
growth and aligning the business with industry trends and innovations, ensuring its
long-term relevance and competitiveness.
 Respect for Family Legacy with a Focus on Future Growth: Successful successors
honor the achievements of previous generations while actively seeking ways to
improve and expand the business. They respect the family’s values and reputation but
are unafraid to implement necessary changes to sustain the business’s relevance.