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HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Succession & The Family Dynamic
How Family Stru...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Last week, we looked at the
characteristics and...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLEDHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLEDHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLEDHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
I gave you a definition of family business
base...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLEDHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
I also left you with a number of slides
that sh...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Some Family Businesses
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
I hope you went through those slides…
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Which gives us the introduction into this
week’...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
This Week’s Lecture
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Understanding the massive impact that
family ow...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
While many people would like to tell you
that f...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The family-owned business can take
many forms o...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
I have mentioned a document called a
Family Con...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
A Family Constitution sets the
foundation of ho...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
A badly written Family Constitution can
create ...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Family Constitution
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
A Family Constitution provides the
complete str...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Since competitive success, family
harmony and o...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
One of the most crucial items covered in
a Fami...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
While there are hundreds of reasons
why organiz...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Whether the reason is incompetency or
unprepare...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
What is succession?
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
There are 3 types of ineffective
succession tha...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Type 1 – Conservative
Even though the founder, ...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Type 2 – Rebellious
In an over-reaction to the ...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Type 3 – Wavering
The next generation is paraly...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Whether it be Conservative, Rebellious
or Waver...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
So how do we get it right?
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Building Family Businesses That Last
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Without vision and leadership from
members of 2...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
When you blur the boundaries among
family membe...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Add to that, the inability to adapt to
changes ...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
So, family businesses that lack multi-
generati...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
How to we get past this?
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
With ongoing discussions across
generations wit...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Businesses that have been built to last
underst...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Systems Theory
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Systems Theory says that family
business is...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Systems Theory
According to the Systems The...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Systems Theory
For the business to perform ...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Systems Theory
This model also shows that t...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Systems Theory
Put simply – everyone has to...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Systems Theory
The family business will alw...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Systems Theory
Issues, priorities and probl...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Systems Theory
A parent who is CEO and 100%...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Systems Theory
This phenomenon leads to a c...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Family-First Business
In family-first busin...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Family-First Business
Non-family managers w...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Family-First Business
Family-First business...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Family-First Business
The business becomes ...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Family-First Business
While well-managed an...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Family-First Business
The level of commitme...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Family-First Business
Family-first business...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Family-First Business
If neither generation...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Family-First Business
Even if family member...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Management-First Business
Management-First ...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Management-First Business
The beauty of thi...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Management-First Business
Compensation is b...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Management-First Business
The focus is on p...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Management-First Business
Another differenc...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Ownership-First Business
In Ownership-First...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Ownership-First Business
Ownership-First bu...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Ownership-First Business
Just a impatient a...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Ownership-First Business
These family membe...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Ownership-First Business
Patient capital – ...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Ownership-First Business
Siblings and cousi...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
The Ownership-First Business
If family unity su...
HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
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Succession and the Family Dynamic

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Transcript of "Succession and the Family Dynamic"

  1. 1. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Succession & The Family Dynamic How Family Structure Affects Family Business
  2. 2. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Last week, we looked at the characteristics and factors that make up what we call a family business
  3. 3. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLEDHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Our Working Definition of Family Business  Ownership control (15% or higher) by two or more members of a family or a partnership of families  Strategic influence by family members on the management of the firm, whether by being active in management, by continuing to shape the culture, by serving as advisors or board members, or by being active shareholders  Concern for family relationships  The dream (or possibility) of continuity across generations
  4. 4. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLEDHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Characteristics that Define a Family Business  The presence of the family  The overlap of family, management, and ownership, with its zero sum (win-lose) proposition, which in the absence of growth of the firm, render the family business vulnerable during succession  The unique source of competitive advantage derived from the interaction of family, management, and ownership, especially when family unity is high  The owner’s dream of keeping the business in the family (the objective of business continuity from generation to generation)
  5. 5. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLEDHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Characteristics that Define a Family Business  The fact that the family business managers are dealing with their own money and the inheritance of their children and are not as subject to the quarterly whims of Wall Street allows for more patient capital  They will act intelligently but boldly at critical junctures, knowing that the benefit or loss will directly affect the family  That knowledge keeps family managers making decisions that steadily contribute to the family’s incremental and long-term wealth  The goal is for each generation to grow the company’s value leaving behind a stronger and better than the one they inherited  This makes them more imaginative, innovative and progressive in their decision making
  6. 6. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED I gave you a definition of family business based on those characteristics…
  7. 7. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLEDHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Our Definition of a Family Business A Family Business is any enterprise in which an entrepreneur or next generation CEO and one or more family members significantly influence the firm. The influence can be managerial or Board of Directors participation, ownership control, the strategic preference of shareholders, and the culture and values family shareholders impart to the enterprise.
  8. 8. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED I also left you with a number of slides that showed you the worldwide impact of family businesses on the global economy
  9. 9. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Some Family Businesses
  10. 10. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED I hope you went through those slides…
  11. 11. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Which gives us the introduction into this week’s lecture…
  12. 12. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED This Week’s Lecture
  13. 13. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Understanding the massive impact that family owned businesses have had on the global economy, we can now move forward to understand the dynamics that run these businesses
  14. 14. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED While many people would like to tell you that family-owned businesses are all in one structure, they would be wrong!
  15. 15. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The family-owned business can take many forms of operation and many of those forms depend heavily on the structure and vision of the family elders and founders of the business
  16. 16. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED I have mentioned a document called a Family Constitution a couple times in class – so let’s take a minute to understand what it is and it’s impact
  17. 17. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED A Family Constitution sets the foundation of how the business is and will be run. This includes succession, family members and non-family members employment, and Board of Directors activities.
  18. 18. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED A badly written Family Constitution can create problems for generations to come. A well written one will be the basis for the success that the business achieves today, tomorrow and in the future.
  19. 19. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Family Constitution
  20. 20. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED A Family Constitution provides the complete structure of how the founders want the company to be run, grown and carried forward – even after they are no longer involved in the decision making process
  21. 21. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Since competitive success, family harmony and ownership returns are all at stake at the same time in the firm, having a carefully drafted document to guide generations is essential for founders
  22. 22. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED One of the most crucial items covered in a Family Constitution is the concept of succession.
  23. 23. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED While there are hundreds of reasons why organizations fail, in family-owned and family-controlled businesses, the most common reason is succession planning.
  24. 24. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Whether the reason is incompetency or unprepared successors, unclear succession plans, a tired strategy that is unable to contain competitors or family rivalries and attempts are power grabs, if the business is going to survive, it must successfully craft the succession process.
  25. 25. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED What is succession?
  26. 26. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED There are 3 types of ineffective succession that you must assure do not happen
  27. 27. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Type 1 – Conservative Even though the founder, or previous leader, has exited the business, the shadow remains and the firm and its strategies are locked in the past.
  28. 28. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Type 2 – Rebellious In an over-reaction to the previous generation’s leadership, the next generation launches a “clean slate” approach to the organization.
  29. 29. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Type 3 – Wavering The next generation is paralyzed by indecisiveness, unable to adapt the business to current competitive conditions
  30. 30. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Whether it be Conservative, Rebellious or Wavering, they all lead down the same road – the destruction of the company’s traditions, legacies, and “secret to success” – ending in the closure of the company.
  31. 31. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED So how do we get it right?
  32. 32. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Building Family Businesses That Last
  33. 33. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Without vision and leadership from members of 2 generations & the use of select family, management and governance practices, the future is bleak for family-controlled enterprises
  34. 34. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED When you blur the boundaries among family membership, family management, and family ownership, it subjects the business to the potential for confusion, slow decision making, or even corporate paralysis
  35. 35. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Add to that, the inability to adapt to changes in the competitive marketplace or powerless to govern the relationship between family and business will ultimately undermine the enterprise
  36. 36. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED So, family businesses that lack multi- generational leadership and vision have difficulty positioning to retain the competitive advantages that made it successful in the first place
  37. 37. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED How to we get past this?
  38. 38. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED With ongoing discussions across generations with owners about their vision for the company to build a business that withstands and excels across challenges
  39. 39. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Businesses that have been built to last understand the tension between preserving & protecting the core of what made it successful, and promoting growth and adaptation to changing competitive dynamics
  40. 40. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED Systems Theory
  41. 41. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Systems Theory says that family business is modeled with 3 overlapping, interacting and interdependent subsystems of family, management and ownership
  42. 42. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Systems Theory According to the Systems Theory model, each subsystem maintains boundaries that separate it from the other subsystem and the general external environment that the business operates.
  43. 43. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Systems Theory For the business to perform optimally, the subsystem must be integrated so that the entire system functions in a unified way.
  44. 44. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Systems Theory This model also shows that the family firm is best understood and studied as a complex and dynamic social system where integration is only achieved through reciprocal adjustments among the subsystems.
  45. 45. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Systems Theory Put simply – everyone has to give to make the business successful. Each part of the system has a role, but each one must give and take to make the rest of the model successful
  46. 46. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Systems Theory The family business will always have adjustments to make, especially when next generation family members join, earlier generations age and the firm sees new periods of growth due to product and/or service innovations.
  47. 47. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Systems Theory Issues, priorities and problems will be defined differently by different members of the family in business. The definitions will depend on where the individual stands in the system.
  48. 48. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Systems Theory A parent who is CEO and 100% owner of the firm (1) will likely view things differently than a family member who is not active in management and does not own shares in the business (6). Just like a non-family member will have a different perspective (7). 1 6 7
  49. 49. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Systems Theory This phenomenon leads to a categorization of family businesses based on their ability to have a family-first, ownership-first, or management-first perspective on issues and their resolution. 1 6 7
  50. 50. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Family-First Business In family-first businesses, employment in the business is a birthright. Employment is based solely on the applicant’s last name, merit and other important criteria in the process are devalued or entirely irrelevant.
  51. 51. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Family-First Business Non-family managers with high career aspirations are not usually willing to join family businesses out of concern for their future prospects. High-potential non-family managers will never join a family-owned or family-controlled business.
  52. 52. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Family-First Business Family-First businesses exist primarily for the purposes of the family, perks that transfer from the business to family members are often extensive, financial systems will lack transparency to protect this fact.
  53. 53. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Family-First Business The business becomes part of a lifestyle.
  54. 54. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Family-First Business While well-managed and well-governed family businesses may have sound reasons for paying all members of the family the equal or nearly equal compensation, Family-First businesses tend to equalize compensation regardless of the responsibilities, results, and overall merit.
  55. 55. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Family-First Business The level of commitment of family-first businesses to the continuity of the business across generations depends on the agendas of individual family members and the levels of conflict associated with running the business.
  56. 56. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Family-First Business Family-first businesses are likely to choose continuity only if members of both the current and succeeding generations aspire to this goal and if the current generation has sufficient resources in retirement to make this possible.
  57. 57. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Family-First Business If neither generation dreams of continuing the business, it is likely to be sold at the end of the generation.
  58. 58. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Family-First Business Even if family members want to keep the business running, there is great difficulty because successor selection, strategic renewal and governance between family and business require a strong commitment to sound business management principles, which don’t exist in this model.
  59. 59. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Management-First Business Management-First businesses actively discourage family members from working in the business and/or to require work experience outside the family business as a requirement for employment.
  60. 60. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Management-First Business The beauty of this style of family business is that the performance of employed family members is reviewed in the same manner as the performance of non-family members and HR policies generally apply equally to family and non-family employees.
  61. 61. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Management-First Business Compensation is based on the responsibility and performance, not on the position in the family hierarchy.
  62. 62. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Management-First Business The focus is on profitability, return on assets, market share, revenue growth, and return on equity.
  63. 63. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Management-First Business Another difference is that there is no automatic commitment to business continuity because the enterprise is seen as a productive asset. As an asset, it could just as easily be folded into a large company or sold through an employee stock ownership plan.
  64. 64. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Ownership-First Business In Ownership-First family businesses, investment time horizons and perceived risk are the most significant issues. Here the shareholders come first.
  65. 65. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Ownership-First Business Ownership-First businesses have shorter time frames within which financial results are evaluated.
  66. 66. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Ownership-First Business Just a impatient and greedy investors on Wall Street can pressure well-managed publicly traded companies into short-term thinking, family shareholders who are not active in the business, can get in the way of effective operation of a family-controlled business.
  67. 67. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Ownership-First Business These family members can cause the business to lose the founding culture, which valued the role of patient capital, or investing in the family business for the long term.
  68. 68. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Ownership-First Business Patient capital – one of the most significant sources of competitive advantages of many family businesses – disappears at the hands of greedy shareholders.
  69. 69. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Ownership-First Business Siblings and cousins, caught in the web of high expectations for short-term returns via dividends, distributions, or the creation of shareholder value, are prone to second guessing family members in management.
  70. 70. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED The Ownership-First Business If family unity suffers as a result of this pressure by some family members for high returns and short time frames, a loss of will and vision may result. Family business continuity may be abandoned in favor of immediately recapturing the value created by previous generations – even through the sale of the company.
  71. 71. HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
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