A family business is defined as having a high percentage of family ownership and involvement in management. Key advantages include long-term orientation, a strong family culture, and willingness to withstand difficulties. Potential disadvantages are unclear roles, autocratic styles, unworthy family members, and succession battles. Founders start and build the business while guiding and involving family. The next generation needs experience, leadership skills, and good relationships. Non-family managers should have career paths and compensation comparable to industry standards to aid retention. Succession planning requires choosing, grooming, and introducing a successor through early or late entry into the business.

1. CHAPTER
FAMILY BUSINESS

2. WHAT IS A FAMILY BUSINESS
• High percentage of share capital owned by a family either jointly or
individually.
• Family members employed in the highest decision making posts
• Expression of intention to maintain family involvement in the future.
• A number of generations of the same family involved in management
or ownership
• Direct descendants of the founders have management or ownership
control

3. ADVANTAGES OF A
FAMILY BIZ
• There is a long term orientation as the continuity of the firm is of great concern to the
older generations.
• The family culture is a source of great pride for family and non-family employees alike.
• The family firm functions in a less bureaucratic manner and it is not impersonal in dealing
with employees and customers.
• Family firms have shown greater willingness to weather the bad times by ploughing back
profits.
• It is structured to impart training to younger members of the family.

4. DISADVANTAG
ES
• THEY MAY HAVE A CONFUSING STRUCTURE WHERE THE ROLE OF MANY FAMILY
MEMBERS IS NOT CLEARLY DEFINED.
• THE STYLE OF FUNCTIONING MAY BE AUTOCRATIC OR PATRIARCHAL.
• MANY OF THE YOUNGER GENERATION MAY NOT BE WORTHY OF THEIR POSITION
AND ROLE IN THE ORGANIZATION
• THERE CAN BE VERY STRENUOUS SUCCESSION BATTLES
• SOMETIMES FAMILY MEMBERS CAN SELFISHLY DRAIN THE FINANCES FROM THE
COMPANY.

5. ROLESOF THE
FOUNDER
• Starting the business
• Building the organization
• Providing guidance and direction to employees and family members
• Constructively involving family members in business
• Planning for succession

6. THE NEXT
GENERATION
• They know the business well.Ideally, they like or even love the nature of the
business
• They know themselves and their strengths and weaknesses
• They have had the necessary outside experience and education
• They want to lead and serve
• They are guided responsibly by the previous generation, advisors and the board
• They have good interpersonal relationships particularly with other family
members in business

7. THE NEXT
GENERATION
• They can count on competent non-family managers to complement
their own skills
• They have controlling ownership either directly or through allies
• They have earned the respect of employees, suppliers, customers and
other family members
• Their skills and abilities fit the strategic needs of the company
• They respect the past and focus their energies and resources on the
future of the business and the family

8. STEPPING UP
• Anew entrant should have a track record that gives legitimacy to his ideas and
his claims.
• It pays to consult the older generation while making the plan.
• Suggest a step by step approach.
• If the plan is still not acceptable, accept that there may be something wrong
with the plan.

9. RETAININGNON-FAMILY
MANAGERS
• Discuss career paths in the company and clearly state if top positions
are not open for them.
• Offer compensation and benefits that are at par with the others in the
industry.
• Involve non-family managers in top level decision making by getting
them to be part of decision making teams with other owner-
managers.
• Set targets and use performance measures to build motivation.
Achievement of targets provides significant motivation.

10. RETAININGNON-FAMILY
MANAGERS
• Emphasise the contribution of non-family managers in company meetings.
• Treat family members like employees at work. It helps build a healthy
atmosphere.
• Involve non-family managers in succession planning.
• Some senior non-family managers can be used as ‘bridge’heads to smoothen
the succession from one generation to another.
• Periodically assess the motivation level of non-family managers and the
working relationship between family members and non-family managers.

11. SUCCESSION
PLANNING
• Choose a successor
• Grooming the successor
• Planning
• Early entry
• Late entry

12. ADVANTAGES OF EARLY
ENTRY
• The successor becomes familiar with the nature of the business
• Gets a chance to develop relationships with other employees
• Gets to know other business associates
• Skillsspecifically required for the business can be acquired and
developed
• Good performance during employment willlead to credibility
with employees and other stakeholders

13. ADVANTAGES OF LATE
ENTRY
• Success outside the firm establishes credibility
• Best practices from other firms are brought into the family business
• Business perspective of the successor is broad
• The successor’s competence is judged with greater objectivity.

14. BEST PRACTICESIN FAMILY
BUSINESS
• Communication
• Independence
• Shared Vision
• Documentation
• Conflict resolution