WHAT IS A FAMILY BUSINESS?
• Family Business can be defined as Two or more members of the
same family are directly involved in managing the business
• Ownership control passes from one generation of a family to
WHY FAMILY BUSINESS IS IMPORTANT?
• Family businesses are pervasive and significant
• Family businesses are more profitable
• Family businesses are better place to work
• Family businesses are complex
Global Families Indian Families
Ford Motor Company GMR Group
Marriott International Dabur Group
Cargill Murugappa Group
Perrier Mineral Water Apollo Hospitals
Heineken Beer Godrej 12-03-2014 4
FAMILY OWN BUSINESS
PERRIER MINERAL WATER
MARRIOTT INTERNATIONAL 12-03-2014 5
FAMILY VS. NON-FAMILY BUSINESSES
• Agency theory provides a framework for understanding differences
between family-owned businesses and non-family-owned businesses
or agent-managed businesses.
• Agent-managers, as contrasted with owners in this context, are the
managers who run a business without having an ownership stake.
• Owner-managers, by contrast, are predisposed to create business
value because their motivations are different ...their wealth is
generated from the successful growth of the business, not a salary paid
to them by the business.
INDIA TOPS IN FAMILY FEUDS OVER
• Forty percent of the globe's wealthy population have direct experience of
their family fortune leading to disputes, but the percentage is even higher in
India, where 61% of the rich have seen relationships deteriorate into feuds
over money, according to a new report. In contrast, 53% of respondents in
Singapore, 51% in Hong Kong have experienced family tension as a result of
wealth, as against just 11% in Qatar.
• 35% of global high net worth individuals do not have confidence in their
children to protect their inheritance.
of Next Gen
ADVANTAGES OF A FAMILY BUSINESS
• Strength of family relationships during challenging periods of business
• 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
DISADVANTAGES OF FAMILY BUSINESS
1. The joint family under the strict control of head of family tends to be conservative
and orthodox. It cannot change with times.
2. Member of family lack initiative because fruits of their initiative will ultimately be
shared by other members who may be lazy and idle. Therefore, nobody puts in
hard labor, which is so necessary for advancement in standard of living.
3. Due to lack of initiative in its members, the economic condition of the joint family
goes on deteriorating.
4. disharmony due to generation gap in the family which affects the progress of the
5. In a joint family the women look after household chores. Thus their talents are
wasted and their lives are rendered miserable.
6. The common property is looked after by none and its condition worsens for want of
FAMILY ROLES AND RELATIONSHIPS
• Parental Concerns in Passing the Business On:
• Does my child possess the temperament and ability necessary for business
• How can I, the founder, motivate my child to take an interest in the business?
• What type of education and expertise will be most helpful in preparing my child
• 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 or destroying the
FAMILY ROLES AND RELATIONSHIPS
• 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
• Sibling Cooperation, Sibling Rivalry
• Best case : siblings work as a team, each contributing services according to his or
• Worst case : siblings compete as rivals and disagree about their business roles.
• In-laws In and Out of the Business
• Disagreements about how to treat and reward in-laws and family
• Assign to different branches or to different business roles
• The Entrepreneur’s Spouse
• Communication between entrepreneur and spouse is critical for their
performance as an effective team for both the business and the family.
FAMILY ROLES AND RELATIONSHIPS
OF THE FAMILY FIRM
• The Need for Good Management
• Best Practices:
• Stimulate new thinking and fresh strategic insights.
• Solicit outsiders’ input to keep perspective.
• Attract and retain excellent managers.
• Create a flexible, creative organization.
• Create and conserve capital.
• Prepare successors for leadership.
• Exploit unique advantages of family ownership.
• Nonfamily Employees in a Family Firm
• Competition with family members for advancement
• Getting caught in the crossfire and politics of family competition within the
• Identify family-only reserved positions in advance.
• Treat both family and nonfamily employees fairly in matters of reward and
• Family Retreats
• A gathering of family members, usually at a remote location, to discuss family
• Use of an outside facilitator may be necessary.
OF THE FAMILY FIRM (CONT’D)
• Set a time and place.
• Distribute an agenda prior to the meeting.
• Plan a schedule in advance.
• Give everyone a chance to participate.
• Keep it professional.
• Family Councils
• An organized group of family members who gather periodically to discuss
family-related business issues.
• Represent the family to board of directors
• Useful in developing family harmony
• Increases understanding of family traditions and interest
• Family Business Constitution
• A statement of principles intended to guide a family firm through times of crisis
THE PROCESS OF LEADERSHIP
• Available Family Talent
• 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.
CONDITIONS FAVORING SUCCESSFUL
LEADERSHIP 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
RELUCTANT PARENTS AND AMBITIOUS
• Transfer of Ownership
• Passing ownership of a family business to the next generation
• Who will inherit the family firm? When?
• Should each heir receive an equal share?
• Should ownership be transferred gradually?
• How are tax considerations to be handled?
• What to do with other wealth and assets of the founding entrepreneur?
CAUSES OF CONFLICT IN THE FAMILY
THE OVERLAP BETWEEN THE FAMILY AND BUSINESS SYSTEMS
Figure 4.1 Conflict in Family Firms
Family Business management, Ibrahim & Ellis
CAUSES OF CONFLICT IN THE FAMILY
• Ambiguity of roles
• Differences in power and status among family and non-family members
• Hasty and /or unfair succession process
• Rivalries among family members
• Favorite Son/daughter syndrome
• Lack of clear and coherent policies regarding career development, compensation
• Lack of code of conduct
• Lack of proper job descriptions and clear boundaries
COMMON SOURCES OF CONFLICT
• Father-Son/Daughter Rivalry
• Rivalries between offspring
• Conflict between other members of the family
• Conflict between family and non-family members
• Setting Clear Guidelines
• Jurisdiction, compensation, career development, code of conduct, objectives,
performance assessment criteria
• Remove ambiguity
• Set clear expectations
• Managing confrontation
• Face-to-face meetings
• One-on-one meetings with CEO/Founder and employees involved in conflict
• Group meetings
• Breaking deadlocks
• Act early
CHALLENGES TO THE FAMILY BUSINESS
• Differing family member goals and expectations, and jealousy and interference
from some disgruntled family members (and their in-laws) can plague the
operation of family businesses in ways that do not affect non-family run
• The degree to which the business depends on one individual, namely, the
principal owner-manager or Godfather, substantially affects how well a family
• Many family business managers tend to be consumed with short-term
operational issues such as taxes, finances, marketing, and day-to-day
• Family businesses are commonly at a disadvantage when it comes to acquiring
resources, largely because their owners are predisposed to being more risk
• Many family owner-managers attempt to avoid bringing in outsiders as
resources because they believe that it threatens the security of the family.
THREATS IN FAMILY BUSINESS
3. Letting Emotions Run the Business:
4. Losing Non-Family Employees:
5. No Succession Plan:
TIPS TO MANAGE THREATS TO YOUR FAMILY
• Clearly define the goals of the company and make sure everyone is on the same
• Outline each family employee’s role and responsibilities and hold them accountable.
• Keep an open line of communication at all times.
• Address all concerns quickly and in a non-emotional manner.
• Create a fair promotion and salary system that is based on individual merit and
• Take a management course to learn how to separate your emotions from the
• Provide opportunities for advancement in your business for non-family employees.
• Be prepared and create a succession plan to ensure your business lives on after you