FAMILY BUSINESS

By: Sharad Kamra, Visiting Faculty, IIPM, Entrepreneurship & Small Business Management

FAMILY BUSINESS

Chapter Objectives

To define the Family Business and discuss the history of Family Business in India To emphasize the roles and responsibilities of the founder To list the characteristics of able successor To describe the roles, rights and responsibilities of family members in a family Business To understand the best practices in managing Family business from across the world To deal with the issues of succession in Family Business To explain the role of non Family Managers

Session warm up

Name atleast 10 Business Families in India (3 Min) Name atleast 5 Business Families of the world (2 Min)

Did you know ?

Till 19th Century, most of the business in India were related to trading and not manufacturing Cawasji Dawar set up the first Cotton mill in Bombay (Mumbai) in 1854. Ananth Narsimhan and Ashok Soota are ther two professionals behind Wipro Growth and traansition into a Technology based Company Kongo Gumi in OSAKA, Japan is considered to be the oldest running family Business. The Business started in 578 A.D. and is presently run by the 40th Generation. Tatas have hardly 3% share holding in the TATA group. Pallonji Mistry is the single largest share holder with 18%

Definition of family business

A family business is a business in which

A high percentage of share capital is owned by a family either jointly or individually Management or ownership is controlled by direct descendents of the founders Family members are engaged in the highest decision making levels A number of generations of the same family are involved in Management or ownership.

Case in focus- Dabur India Ltd

Identify the factors which qualify Dabur in its earlier years as a closely held Family Business Why and at what stage/s do you think the transition of Dabur from Family owned to professionally managed business started Do you agree with A.C Burmans point of view to take company Public. Did going Public helped Dabur to grow? Comment on A C Burmans leadership abilities. Did he had any other qualities apart from being the eldest amongst the 4th generation in business? Comment on/ discuss the succession Planning in Dabur

Stages of Family Business Development

The typical family business goes through four stages in its development: 1. Entrepreneurial 2. Functionally-Specialized 3. Process-Driven 4. Market-Driven

Problem with family business

The interest of one family member may not be aligned with another family member Example: a family member who is an owner may want to sell the business to maximize their return, but a family member who is an owner and also a manager may want to keep the company because it represents their career and they want their children to have the opportunity to work in the business.

research
Several years ago, researchers David Sermon and Michael Hit examined the strategies behind successful family businesses. They found that success is tied directly to how well a company manages the five unique resources every family business possesses. Human capital. Social capital. Patient financial capital. Survivability capital. Lower costs of governance.

Proposition 1: A business firm may be considered a family business to the extent that its ownership and management are concentrated within a family unit. Proposition 2: A business firm may be considered a family business to the extent that its members strive to achieve, maintain, and/or increase intraorganizational family based relatedness. Proposition 3: A business firm may be considered a family business to the extent that its ownership and management are concentrated within a family unit, and to the extent its members strive to achieve, maintain and/or increase intraorganizational family based relatedness. The Litz definition of a family business, therefore, incorporates three broad issues: the extent of ownership and or management, the degree of family involvement and the availability of family members for generational transfer.

FAMILY BUSINESS SYSTEM

It is important to recognize that family business comprised of three separate, but overlapping domains.

Families exist to care for and nurture their members and provide safety and refuge in an impersonal world. Success in family is measured in terms of harmony, unity and the development of happy individuals with solid and positive self esteem.

Business, however are economic entities where success is measured in terms of productivity and profitability

Ownership is based on yet another set of rules. Success for owners is measured in terms of return on investment, protection of ownership interests and in terms of owners values and philosophy of business.

CHARACTERISTICS OF A HEALTHY FAMILY BUSINESS

Individuals can manage themselves and relationships with others Family has the ability to resolve conflicts with mutual support and trust Boundaries between work and family are appropriate and respected Knowledge is used wisely and isn't blocked by unresolved relationship problems Communications are open and clear Individuals are flexible and able to use advisors wisely Family has the ability to make decisions and move forward Family is clear about goals and navigates towards the goals Family has good direction and leadership Transitions are managed and marked by rituals and Intergenerational boundaries are appropriate and respected

CHARACTERISTICS OF AN UNHEALTHY FAMILY BUSINESS

The family has poor communications skills and is unable to manage conflict There is low trust between family members The goals and values of the family are unclear Family members roles and obligations are unclear The business lacks a sense of direction and does no strategic planning The business lacks sufficient expertise the family tries to do it all There is little thought to succession planning There is little collaboration between the family and non-family employees There is not a functioning board of directors There is no one to turn to for advice and help with key problems Family issues spill over into business issues and vice versa and Boundaries between work and family are unclear