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UNDERSTANDING THE FAMILY

BUSINESS
Redwin A. Duay

What we will learn today?


Dynamics, Dimensions and Complexity of
Family Business
Family Values, Legacy, Relationships,
Business Culture
Vision and Values

Dynamics, Dimensions and Complexity of


Family Business
What makes family business complex?
Business issues
Ownership
Family issues

Three Stages of a Family Business


Entrepreneurial Stage
entrepreneur forms the founding generation
focused on creation of new business
everything is new, everything is different, everything
has to be created first
ownership is not really an issue
family is also not an issue

Three Stages of a Family Business


Early Generation and Smaller Families
children of the founders
there is now a need for consolidation because of the
rapid growth of the entrepreneurial stage that needs to
be structured as profitability comes to forefront
the culture tends to be evolutionary building on what
the founders established rather than changing the
business completely
ownership becomes an emerging and often emotional
issue
newer generations feels a sense of trying to escape
from the submission of the founding generation, wanting
to create their own personal worth

Three Stages of a Family Business


Later Generations and Larger Families
there can be several hundred family members all with
inherited share in the business
should the business continue doing the old way
(tradition) or adapt to new market needs (innovation)
ownership issue really comes to the fore
there is a need to address the larger degree of
diversity of interests, backgrounds, needs and addition
of new blood through spouses

Reconciling Tensions for Long-Term Success


identify which stage the family business is at, and
highlight relevant issues and conflicts associated with
that stage
take an unemotional, rational approach that separates
out the three dimensions of business, ownership and
family
reconciling conflicts should come from the business
culture
employ the family logic of together we are much
stronger

Tips for Navigating the Complexities of Family


Business

Embrace the Intangibles family business is the


embodiment of a familys values and culture.
Communication between family member is imperative
Define and Separate your Roles definition and
separation of roles is an important and progressive step
for family business to take
Integrate Business Strategy, Succession and
Investment to grow effectively and efficiently you
should have one single advisor who is a family business
expert

Tips for Navigating the Complexities of Family


Business
Consider a Board formal board can direct strategy,
major decision making, hiring and compensation of
managers
Earn Your Voice it is important to separate membership
in the family, a birthright, with involvement in the family
business, which needs to be earned.
Honesty is a Policy what may have work in the past
may not be good enough in the future
Keeping the Dialogue Going develop a system of
communication and accountability that ensures all this
hard work has lasting effect
- keeping the dialogue going, keeping family members
active and involved will only enhance performance of the
business and satisfaction of family members

Strong Family Values Bring Family Business Success


Keys to Family Business Success
Establish Clear Roles and Responsibilities clearly
defined roles for everyone helps the business run
smoother, and also limits the potential for
disagreements between family members
- the importance of maintaining separate roles also
extend to managing family members
- wear two hats that represent your separate role
as member of the company and the family

Strong Family Values Bring Family Business Success


Keys to Family Business Success
Plan Early for the Next Generation gradually
prepare the children for the transfer of leadership or
ownership
- let them learn from the ground up
- expose to all areas of business if the child is going
to take the leadership role in the future

Strong Family Values Bring Family Business Success


Keys to Family Business Success
The Culture of Your Business Starts at Home the
culture of a family will translate to the culture of the
business
- family values will influence the way work is done in
the business
- there is no competition and the work is done
together equally

Decision-Making on Family Business Matters


How Do Business Families Make Decisions?
Casting votes according to ones ownership
percentage with a simple majority (51 percent or more)
carrying the decision
Consensus Style utilized to gain broad acceptance
and valuable support when it comes time to implement
the decision

Family Business Matters on which a Family has Primary


Decision Responsibility

Family values/mission/vision
Communication in the family
Family education
Family relations
Aiding troubled family members
Resolving family conflicts
Philanthropy
Family/business relations
Family employment policy
Vacation home economics and use policy

How Do Families Make Good Decisions?


Centralized Leader normally the founding member of
the family business
- when faced with tough issues, many families
default to a senior generation or senior family member
- decisions on family matters related to business
may be made by the one who controls the business
- key factor is the level of trust and respect
commanded by the leader. The more trust and respect,
the more others will feel that the decision has been
made with consideration of broad input.

How Do Families Make Good Decisions?


Disadvantages:
1. rarely last
2.

becomes unfulfilling in that it does not allow all family


members to feel they have a voice and may even
contribute to apathy and reduced commitment to the
family member

Voting can bring decisions to quicker resolutions


- as long as everybody understand the rules the group
generally will be able to support the outcome
- may not achieve the same buy-in that would be gained
by those who seek consensus decisions
- eligibility must be defined, and it varies by the forum and
each familys own rules for who will have a voice

How Do Families Make Good Decisions?


Consensus offers the opportunity for greater
implementation success due to broad support derived
from the way the decision is made.
- some define it as 100 percent of the group must
agree on a decision (unanimity)
- takes time as group tries to formulate the questions
under consideration so that they may decide as a group
- one method is defining consensus as a majority
vote with an individual veto feature

How Do Families Make Good Decisions?


Majority Vote with an Individual Veto Feature
For it
Against it (its not my first choice but I can live with it)
Abstain ( if the family member feels he/she does not have
enough information)
Object (no consensus if one objects)
How to resolve objections?
Modify the proposal right away and vote again
Discussion and development of an alternative proposal at
another date
Impasse no progress seems possible
Breaking the deadlock

How Do Families Make Good Decisions?


How to resolve objections?
Requiring a 30-, 60-, 90- day cooling-off period in order
to allow further study to explore an issue or get more
data
Write the arguments on both sides of the decisions
and allow a third party to weigh in and render an
opinion
Create a task force to study the issue and attempt to
draft a new proposal

Dos and Donts for Bringing the Next Generation into the
Family Business
The most important preparations happen years before the
new family employee actually joins the family business, ideally
when they go to work at another company.
Do..
Plan ahead outside experience gives the new family hire
instant credibility with other employees that can otherwise
take years to develop
Start the new family member at an appropriate level this will
ensure that the quality of work they will give to the business is fitted to
his/her experience

if automatically at top position, there is a risk that other members of he


organization who are not family members are given unfair advantages
if too low especially if with outside experience, then you risk putting them in a
boring situation or causing them a lot of frustration that lead them to leave

Dos and Donts for Bringing the Next Generation into the
Family Business

Do..
Announce the new family employees arrival in a
matter-of-fact manner
Have the new family employee report to a
longstanding employee and well-regarded nonfamily
At a minimum, provide the new family employee with
the same performance feedback process as all other
comparable employee
Involve the board
Communicate family members may have many
qualities but mind reading is not one of them

Dos and Donts for Bringing the Next Generation into the
Family Business

Dont..
Create a job for the new family member
Put all responsibility for the career entry and
development of the new family hires on just one
generation

VISION and VALUES


Vision the ability or an instance of great perception, esp. of future
developments
- the stated aims and objectives of a business or other organization
- future scenario for the company itself or for the society
Mission a specific task or duty assigned to a person or group of people
- a persons vocation (mission in life)
- the specific task of the organization what the company does or commits
to do in support to the vision to make it real
Value/s the desirability of a thing, often in respect of some property such as
usefulness or exchangeability: worth, merit, or importance
- the moral principles and beliefs or accepted standards of a person or
social group
- are the principles of behavior in the company
Collins English Dictionary (2003)

EXPANDED DEFINITION OF VALUES


a. concepts or beliefs
b.

pertain to desirable end states or behaviors

c.

transcends specific situation

d.

guide selection or evaluation of behavior, things and events

e.

specify an individuals personal beliefs about how he or she


should or ought to behave

VISION and VALUES


Sample Company Vision
To be the Urban Resort of Reference in Europe (Hotel Rey
Juan Carlos I, Barcelona.)
Our purpose is to be the global leader in nourishing people.
(Cargill)
Sample Company Values
Integrity First, Service before Self, Excellence in all We Do.
U.S. Air Force.)
Honesty: we respect; Entrepreneurship: we act; Responsibility:
we care; Quality: we deliver. (ISS Facility Services.)

VALUES Comparison
The values of family-owned firms are often more humane,
more emotional and more fundamental, whereas the values in
non-family businesses are more transactional, more impersonal
and directed toward economic outcomes (Ward, 2008)

VISION and VALUES


Importance of Values in Family Business
strongly determines the kind of behavior that will be
acceptable or unacceptable in their organization
drives key decisions in business strategy, organizational
structure, corporate culture, governance, owners commitment
and leadership style
direct their approach to the stewardship of assets and affect
their attachment to the family legacy
dramatically determine how the family business is governed
shape the family members commitment to the firm
they drive all that happens in both the family and the business

Non-Family Firms vs. Family Firms (Values)

Analysis of the Values Unique to Family Owned Firms


Generosity the value of generosity is fundamental in that it
will help to preserve the heritage across generations, and also
provide families in business with powerful resources to deal
successfully with the three of their key challenges: good
management of the family patrimony, power and status
Humility can often be traced to the humble origins of many
family business, in which the founder launched the business
through determination, responsibility, dedication and hard work
Communication communication processes are vital to family
functioning and well being, helps family businesses overcome
unavoidable challenges that go along with passing the business
from one generation to another.

Analysis of the Values Unique to Family Owned Firms


Service the service offered to customers in family-owned firms is a
reflection of the owning family; hence it is not surprising to find that
family owned firms value customer practices that involves consideration
of employees and customers more than solely financial profit
Creativity value of creativity is an important competitive advantage; it
is part of their history
Excellence and Quality having the family name on a brand gives
family business leaders a sense of stewardship and responsibility
toward their family and the society in which the company operates
Entrepreneurship this is deeply rooted in the history of family-owned
firms, especially within the founders initiative to set up a business and
the existence of a business climate in the founders family across
generation