Download VTU (Visvesvaraya Technological University) MBA 2nd Semester (Second Semester) 17MBA26-Entrepreneurial Development Module 4 Family Business Important Lecture Notes (MBA Study Material Notes)
FAMILY BUSINESS
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MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
Responsibilities of shareholders
? 8. Keep company info in strict confidence and
recognise that shareholders are not entitled to all
information on demand
? 9. Ask for only affordable and reasonable
remuneration from the company and for responsible
employment and other opportunities for family
members.
? 10. Generate business leads and provide additional
investment capital
? 11. Develop spouses and children to be responsible
towards the business.
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
Responsibilities of shareholders
? 8. Keep company info in strict confidence and
recognise that shareholders are not entitled to all
information on demand
? 9. Ask for only affordable and reasonable
remuneration from the company and for responsible
employment and other opportunities for family
members.
? 10. Generate business leads and provide additional
investment capital
? 11. Develop spouses and children to be responsible
towards the business.
Rights of shareholders from managers/board
? 1. Timely information on company goals , strategies,
important org changes and basic financial status
? 2. Openness by the managers/board to shareholders
views on the above in appropriate settings like
shareholders meetings
? 3. Ability to participate in election of board members,
appointment of auditors, and development of by-laws
? 4. Develop fair policies that protect shareholders
interests
? 5. Acceptable economic performance by the company
including reasonable dividends and capital gains
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
Responsibilities of shareholders
? 8. Keep company info in strict confidence and
recognise that shareholders are not entitled to all
information on demand
? 9. Ask for only affordable and reasonable
remuneration from the company and for responsible
employment and other opportunities for family
members.
? 10. Generate business leads and provide additional
investment capital
? 11. Develop spouses and children to be responsible
towards the business.
Rights of shareholders from managers/board
? 1. Timely information on company goals , strategies,
important org changes and basic financial status
? 2. Openness by the managers/board to shareholders
views on the above in appropriate settings like
shareholders meetings
? 3. Ability to participate in election of board members,
appointment of auditors, and development of by-laws
? 4. Develop fair policies that protect shareholders
interests
? 5. Acceptable economic performance by the company
including reasonable dividends and capital gains
Succession in Family Business
? Decision concerning the future operation
and management of the business is called
succession planning.
? Many family businesses go out of business
after a decade. 30% survive into 2
nd
generation and only 16% to the 3
rd
generation
? Life expectancy of a family business is 25
years
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
Responsibilities of shareholders
? 8. Keep company info in strict confidence and
recognise that shareholders are not entitled to all
information on demand
? 9. Ask for only affordable and reasonable
remuneration from the company and for responsible
employment and other opportunities for family
members.
? 10. Generate business leads and provide additional
investment capital
? 11. Develop spouses and children to be responsible
towards the business.
Rights of shareholders from managers/board
? 1. Timely information on company goals , strategies,
important org changes and basic financial status
? 2. Openness by the managers/board to shareholders
views on the above in appropriate settings like
shareholders meetings
? 3. Ability to participate in election of board members,
appointment of auditors, and development of by-laws
? 4. Develop fair policies that protect shareholders
interests
? 5. Acceptable economic performance by the company
including reasonable dividends and capital gains
Succession in Family Business
? Decision concerning the future operation
and management of the business is called
succession planning.
? Many family businesses go out of business
after a decade. 30% survive into 2
nd
generation and only 16% to the 3
rd
generation
? Life expectancy of a family business is 25
years
Barriers in succession planning
? Hurdle in succession planning is usually the founder
himself, he hangs on. Attempts to succeed is seen as
greedy move to swallow the business.
? Sibling rivalry
? Family members? fear of losing status
? Aversion to death, fear of loss or abandonment
Those who do not make succession planning leave
behind an unnecessary burden on those who live
behind
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
Responsibilities of shareholders
? 8. Keep company info in strict confidence and
recognise that shareholders are not entitled to all
information on demand
? 9. Ask for only affordable and reasonable
remuneration from the company and for responsible
employment and other opportunities for family
members.
? 10. Generate business leads and provide additional
investment capital
? 11. Develop spouses and children to be responsible
towards the business.
Rights of shareholders from managers/board
? 1. Timely information on company goals , strategies,
important org changes and basic financial status
? 2. Openness by the managers/board to shareholders
views on the above in appropriate settings like
shareholders meetings
? 3. Ability to participate in election of board members,
appointment of auditors, and development of by-laws
? 4. Develop fair policies that protect shareholders
interests
? 5. Acceptable economic performance by the company
including reasonable dividends and capital gains
Succession in Family Business
? Decision concerning the future operation
and management of the business is called
succession planning.
? Many family businesses go out of business
after a decade. 30% survive into 2
nd
generation and only 16% to the 3
rd
generation
? Life expectancy of a family business is 25
years
Barriers in succession planning
? Hurdle in succession planning is usually the founder
himself, he hangs on. Attempts to succeed is seen as
greedy move to swallow the business.
? Sibling rivalry
? Family members? fear of losing status
? Aversion to death, fear of loss or abandonment
Those who do not make succession planning leave
behind an unnecessary burden on those who live
behind
Key factors in succession
? Pressures and interests inside the firm:
1. Family members:
? Pressure to get, control business
? Pressure to select family members as managers
? Pressure to nominate heir
? Pressure to build a dynasty
? rivalry among various members of the family.
2. Non-family members:
? Rewards for loyalty
? Sharing of equity growth and success
? Professionalism
? Bridging family transition
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
Responsibilities of shareholders
? 8. Keep company info in strict confidence and
recognise that shareholders are not entitled to all
information on demand
? 9. Ask for only affordable and reasonable
remuneration from the company and for responsible
employment and other opportunities for family
members.
? 10. Generate business leads and provide additional
investment capital
? 11. Develop spouses and children to be responsible
towards the business.
Rights of shareholders from managers/board
? 1. Timely information on company goals , strategies,
important org changes and basic financial status
? 2. Openness by the managers/board to shareholders
views on the above in appropriate settings like
shareholders meetings
? 3. Ability to participate in election of board members,
appointment of auditors, and development of by-laws
? 4. Develop fair policies that protect shareholders
interests
? 5. Acceptable economic performance by the company
including reasonable dividends and capital gains
Succession in Family Business
? Decision concerning the future operation
and management of the business is called
succession planning.
? Many family businesses go out of business
after a decade. 30% survive into 2
nd
generation and only 16% to the 3
rd
generation
? Life expectancy of a family business is 25
years
Barriers in succession planning
? Hurdle in succession planning is usually the founder
himself, he hangs on. Attempts to succeed is seen as
greedy move to swallow the business.
? Sibling rivalry
? Family members? fear of losing status
? Aversion to death, fear of loss or abandonment
Those who do not make succession planning leave
behind an unnecessary burden on those who live
behind
Key factors in succession
? Pressures and interests inside the firm:
1. Family members:
? Pressure to get, control business
? Pressure to select family members as managers
? Pressure to nominate heir
? Pressure to build a dynasty
? rivalry among various members of the family.
2. Non-family members:
? Rewards for loyalty
? Sharing of equity growth and success
? Professionalism
? Bridging family transition
Key factors in succession
? Pressures and interests outside the firm:
1. Family members:
? Income and inheritance
? Family conflicts and alliances
? Degree of involvement in the business.
2. Non-family members:
? Competition
? Market, product, supply and technology influence
? Tax laws
? Regulatory agencies
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
Responsibilities of shareholders
? 8. Keep company info in strict confidence and
recognise that shareholders are not entitled to all
information on demand
? 9. Ask for only affordable and reasonable
remuneration from the company and for responsible
employment and other opportunities for family
members.
? 10. Generate business leads and provide additional
investment capital
? 11. Develop spouses and children to be responsible
towards the business.
Rights of shareholders from managers/board
? 1. Timely information on company goals , strategies,
important org changes and basic financial status
? 2. Openness by the managers/board to shareholders
views on the above in appropriate settings like
shareholders meetings
? 3. Ability to participate in election of board members,
appointment of auditors, and development of by-laws
? 4. Develop fair policies that protect shareholders
interests
? 5. Acceptable economic performance by the company
including reasonable dividends and capital gains
Succession in Family Business
? Decision concerning the future operation
and management of the business is called
succession planning.
? Many family businesses go out of business
after a decade. 30% survive into 2
nd
generation and only 16% to the 3
rd
generation
? Life expectancy of a family business is 25
years
Barriers in succession planning
? Hurdle in succession planning is usually the founder
himself, he hangs on. Attempts to succeed is seen as
greedy move to swallow the business.
? Sibling rivalry
? Family members? fear of losing status
? Aversion to death, fear of loss or abandonment
Those who do not make succession planning leave
behind an unnecessary burden on those who live
behind
Key factors in succession
? Pressures and interests inside the firm:
1. Family members:
? Pressure to get, control business
? Pressure to select family members as managers
? Pressure to nominate heir
? Pressure to build a dynasty
? rivalry among various members of the family.
2. Non-family members:
? Rewards for loyalty
? Sharing of equity growth and success
? Professionalism
? Bridging family transition
Key factors in succession
? Pressures and interests outside the firm:
1. Family members:
? Income and inheritance
? Family conflicts and alliances
? Degree of involvement in the business.
2. Non-family members:
? Competition
? Market, product, supply and technology influence
? Tax laws
? Regulatory agencies
Developing a succession strategy
? It involves several important steps:
1. Understanding contextual aspects like
? time- earlier start, the better, need time
? type of venture
? capabilities of managers
? entrepreneur?s vision
? environmental factors
2. Identifying successor qualities
3. Written succession strategy
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
Responsibilities of shareholders
? 8. Keep company info in strict confidence and
recognise that shareholders are not entitled to all
information on demand
? 9. Ask for only affordable and reasonable
remuneration from the company and for responsible
employment and other opportunities for family
members.
? 10. Generate business leads and provide additional
investment capital
? 11. Develop spouses and children to be responsible
towards the business.
Rights of shareholders from managers/board
? 1. Timely information on company goals , strategies,
important org changes and basic financial status
? 2. Openness by the managers/board to shareholders
views on the above in appropriate settings like
shareholders meetings
? 3. Ability to participate in election of board members,
appointment of auditors, and development of by-laws
? 4. Develop fair policies that protect shareholders
interests
? 5. Acceptable economic performance by the company
including reasonable dividends and capital gains
Succession in Family Business
? Decision concerning the future operation
and management of the business is called
succession planning.
? Many family businesses go out of business
after a decade. 30% survive into 2
nd
generation and only 16% to the 3
rd
generation
? Life expectancy of a family business is 25
years
Barriers in succession planning
? Hurdle in succession planning is usually the founder
himself, he hangs on. Attempts to succeed is seen as
greedy move to swallow the business.
? Sibling rivalry
? Family members? fear of losing status
? Aversion to death, fear of loss or abandonment
Those who do not make succession planning leave
behind an unnecessary burden on those who live
behind
Key factors in succession
? Pressures and interests inside the firm:
1. Family members:
? Pressure to get, control business
? Pressure to select family members as managers
? Pressure to nominate heir
? Pressure to build a dynasty
? rivalry among various members of the family.
2. Non-family members:
? Rewards for loyalty
? Sharing of equity growth and success
? Professionalism
? Bridging family transition
Key factors in succession
? Pressures and interests outside the firm:
1. Family members:
? Income and inheritance
? Family conflicts and alliances
? Degree of involvement in the business.
2. Non-family members:
? Competition
? Market, product, supply and technology influence
? Tax laws
? Regulatory agencies
Developing a succession strategy
? It involves several important steps:
1. Understanding contextual aspects like
? time- earlier start, the better, need time
? type of venture
? capabilities of managers
? entrepreneur?s vision
? environmental factors
2. Identifying successor qualities
3. Written succession strategy
Pitfalls/challenges of family business
? Conflicting goals/values
? Conflicting personalities
? Expectations
? Work ethics
? Employment of family members
? Compensations
? Reluctance to plan
? Element of time (tough to manage family component
as time passes)
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
Responsibilities of shareholders
? 8. Keep company info in strict confidence and
recognise that shareholders are not entitled to all
information on demand
? 9. Ask for only affordable and reasonable
remuneration from the company and for responsible
employment and other opportunities for family
members.
? 10. Generate business leads and provide additional
investment capital
? 11. Develop spouses and children to be responsible
towards the business.
Rights of shareholders from managers/board
? 1. Timely information on company goals , strategies,
important org changes and basic financial status
? 2. Openness by the managers/board to shareholders
views on the above in appropriate settings like
shareholders meetings
? 3. Ability to participate in election of board members,
appointment of auditors, and development of by-laws
? 4. Develop fair policies that protect shareholders
interests
? 5. Acceptable economic performance by the company
including reasonable dividends and capital gains
Succession in Family Business
? Decision concerning the future operation
and management of the business is called
succession planning.
? Many family businesses go out of business
after a decade. 30% survive into 2
nd
generation and only 16% to the 3
rd
generation
? Life expectancy of a family business is 25
years
Barriers in succession planning
? Hurdle in succession planning is usually the founder
himself, he hangs on. Attempts to succeed is seen as
greedy move to swallow the business.
? Sibling rivalry
? Family members? fear of losing status
? Aversion to death, fear of loss or abandonment
Those who do not make succession planning leave
behind an unnecessary burden on those who live
behind
Key factors in succession
? Pressures and interests inside the firm:
1. Family members:
? Pressure to get, control business
? Pressure to select family members as managers
? Pressure to nominate heir
? Pressure to build a dynasty
? rivalry among various members of the family.
2. Non-family members:
? Rewards for loyalty
? Sharing of equity growth and success
? Professionalism
? Bridging family transition
Key factors in succession
? Pressures and interests outside the firm:
1. Family members:
? Income and inheritance
? Family conflicts and alliances
? Degree of involvement in the business.
2. Non-family members:
? Competition
? Market, product, supply and technology influence
? Tax laws
? Regulatory agencies
Developing a succession strategy
? It involves several important steps:
1. Understanding contextual aspects like
? time- earlier start, the better, need time
? type of venture
? capabilities of managers
? entrepreneur?s vision
? environmental factors
2. Identifying successor qualities
3. Written succession strategy
Pitfalls/challenges of family business
? Conflicting goals/values
? Conflicting personalities
? Expectations
? Work ethics
? Employment of family members
? Compensations
? Reluctance to plan
? Element of time (tough to manage family component
as time passes)
Strategies to improve capability of fam buss
? Need of professionalism
? Joint family
? Replinishing entrepreneurship
? Good management
? Ability to change
? Strategic plan
? Active board of directors- will help assess 4 key
foundations for business health. CEO?s readiness for
succession, critical family relations, ownership
structures, management structures
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
Responsibilities of shareholders
? 8. Keep company info in strict confidence and
recognise that shareholders are not entitled to all
information on demand
? 9. Ask for only affordable and reasonable
remuneration from the company and for responsible
employment and other opportunities for family
members.
? 10. Generate business leads and provide additional
investment capital
? 11. Develop spouses and children to be responsible
towards the business.
Rights of shareholders from managers/board
? 1. Timely information on company goals , strategies,
important org changes and basic financial status
? 2. Openness by the managers/board to shareholders
views on the above in appropriate settings like
shareholders meetings
? 3. Ability to participate in election of board members,
appointment of auditors, and development of by-laws
? 4. Develop fair policies that protect shareholders
interests
? 5. Acceptable economic performance by the company
including reasonable dividends and capital gains
Succession in Family Business
? Decision concerning the future operation
and management of the business is called
succession planning.
? Many family businesses go out of business
after a decade. 30% survive into 2
nd
generation and only 16% to the 3
rd
generation
? Life expectancy of a family business is 25
years
Barriers in succession planning
? Hurdle in succession planning is usually the founder
himself, he hangs on. Attempts to succeed is seen as
greedy move to swallow the business.
? Sibling rivalry
? Family members? fear of losing status
? Aversion to death, fear of loss or abandonment
Those who do not make succession planning leave
behind an unnecessary burden on those who live
behind
Key factors in succession
? Pressures and interests inside the firm:
1. Family members:
? Pressure to get, control business
? Pressure to select family members as managers
? Pressure to nominate heir
? Pressure to build a dynasty
? rivalry among various members of the family.
2. Non-family members:
? Rewards for loyalty
? Sharing of equity growth and success
? Professionalism
? Bridging family transition
Key factors in succession
? Pressures and interests outside the firm:
1. Family members:
? Income and inheritance
? Family conflicts and alliances
? Degree of involvement in the business.
2. Non-family members:
? Competition
? Market, product, supply and technology influence
? Tax laws
? Regulatory agencies
Developing a succession strategy
? It involves several important steps:
1. Understanding contextual aspects like
? time- earlier start, the better, need time
? type of venture
? capabilities of managers
? entrepreneur?s vision
? environmental factors
2. Identifying successor qualities
3. Written succession strategy
Pitfalls/challenges of family business
? Conflicting goals/values
? Conflicting personalities
? Expectations
? Work ethics
? Employment of family members
? Compensations
? Reluctance to plan
? Element of time (tough to manage family component
as time passes)
Strategies to improve capability of fam buss
? Need of professionalism
? Joint family
? Replinishing entrepreneurship
? Good management
? Ability to change
? Strategic plan
? Active board of directors- will help assess 4 key
foundations for business health. CEO?s readiness for
succession, critical family relations, ownership
structures, management structures
Role of board
? Board must simulate, provoke challenge and support
leaders
? Typical CEO of fam buss holds the post for a long time
like 20 yrs
? Not many are brilliant enough to hold it that long. Failed
leadership is a big problem in fam buss
? Advisors must focus on the company?s macro long term
issues
? Advisory board must have outsiders like 4:3
? Friends, former employees, paid advisors/accountants
must not be on the board
? Hold frequent off-site family meetings and have
mechanisms to resolve conflicts
FirstRanker.com - FirstRanker's Choice
MODULE 5
FAMILY BUSINESS
Meaning and definition
? Family business and small business are not the same.
May large corporates are family owned like Tatas,
Godrej, TVS, Vardhaman etc
? They are businesses that are owned, controlled and
managed by one or more family members.
? Family firms are organisations where 2 or more
extended family members influence the direction of
the business through the exercise of kinship ties,
management roles or ownership rights and/or which
the owner intends to pass on to a family heir.
Structural definitions:
? Focuses on the firms ownership or management
arrangements eg: 51% ownership by family members.
Process definitions:
? Focuses on how the family is involved in the business
? its influence on company policy, desire to
perpetuate family control of the business etc.
? (see page 289 Poornima?s book)
Reasons to create formal history
? Founders vision and mission
? Historical accuracy
? Honouring long time employees
? Thanking customers and vendors
? Background for the uninformed.
Benefits of creating history
? Accurate history recording
? Acknowledging contributions of different people
? Contribution of the firm to the society
? Succeeding family members can refer back to the legacy
and heritage and feel motivated
? Documenting companies contribution to the society will
boost the confidence of suppliers, venders, bankers,
employees, investors
? Strengthen ties within family members
? Improves company image and PR
? Portions of history in brochures videos etc can serve as
advertisements
Characteristics of family business
? Legacy: it creates a legacy which brings in a sense of
pride and accomplishment. Building on strengths of
the legacy is a strong motivator to the new
generation
? Key employees: key non-family employees cherish
the unique working environment created by family
business. Workplace tends to be less formal, hands-
on and more personal.
? Patience: family businesses tend to be more long
term driven than by short term results/goals. They
deploy ?patient capital?
Characteristics of family business
? Values: family businesses tend to pass on their
beliefs and values to the next generation. They
uphold these values and the work culture would
reflect it.
? Relationships: many employees are treated as
extended family members and a strong bond
develops.
? Sucession: they favour passing the business to the
next generation which can be motivating as well as
rewarding.
Types of family business
Basically 3 types:
? Family-owned business: a for-profit business where
controlling number of voting shares are owned by
members of a single extended family or owned by one
member but influenced by other members of the family
? Family owned and managed business: same as above in
terms of ownership but controlling interest permits
family members to decide on objectives, policies
strategies etc. this business has the active participation of
the family member in the top management and that the
family has ultimate management control.
Types of family business
? Family owned and led business: same as above but
the family member is in the board and is in a position
to lead the company in terms of direction, culture
and strategies.
Importance of family business
? Contributing to economic development: play a crucial
role in the economic development of any country. Small
scale retail and service sectors are generally owned by
family businesses. (see page 287)
? Spirit of entrepreneurship: they contribute to various
families initiating and coming up with new ventures
? Trust lowers transaction cost: partnership within the
family helps sort out conflicts amicable within the family
itself with an interest in safeguarding family business.
Outside partnerships often end up in problems
Importance of family business
? Quick decision-making: as size of the managing
group is small decisions are quicker and timely
? Information as source of advantage: information and
strategies about the business remains a secret within
the family and they need not be revealed to anyone
outside the family
? Community and philanthropy: most family
businesses are very active in their community. They
support the community with financial support and
employment opportunities. They help community
with philantropy.
Importance of family business
? Financial rewards: family businesses tend to reward
both family and non-family members with better
rewards than what they could get elsewhere.
? Labour pool: they have access to labour pool of
family members who are more loyal and committed
to the business. They are also more flexible in taking
on different functions and filling-in for others.
Responsibilities of shareholders
Legal responsibilities by virtue of being shareholders:
? 1. Elect directors of the company?s board annually
? 2. Appoint auditors of the company annually
? 3. Change corporate by-laws when needed, though
infrequently
Non-legal responsibilities:
? 1. Monitor business performance and be knowledgeable
about company operations.
? 2. Monitor financial performance and be knowledgeable
about income statement, balance sheet etc
Responsibilities of shareholders
? 3. Attend shareholders? meeting and other important
functions to indicate family?s support to business
? 4. Ask questions to management in appropriate
forums and make suggestions without interfering
with their work
? 5. Understand board member qualifications and
participate in screening of board members
? 6. Check whether shareholders feel they are properly
represented in the board
? 7. Be a positive ambassador of the company by
publicly talking and supporting it.
Responsibilities of shareholders
? 8. Keep company info in strict confidence and
recognise that shareholders are not entitled to all
information on demand
? 9. Ask for only affordable and reasonable
remuneration from the company and for responsible
employment and other opportunities for family
members.
? 10. Generate business leads and provide additional
investment capital
? 11. Develop spouses and children to be responsible
towards the business.
Rights of shareholders from managers/board
? 1. Timely information on company goals , strategies,
important org changes and basic financial status
? 2. Openness by the managers/board to shareholders
views on the above in appropriate settings like
shareholders meetings
? 3. Ability to participate in election of board members,
appointment of auditors, and development of by-laws
? 4. Develop fair policies that protect shareholders
interests
? 5. Acceptable economic performance by the company
including reasonable dividends and capital gains
Succession in Family Business
? Decision concerning the future operation
and management of the business is called
succession planning.
? Many family businesses go out of business
after a decade. 30% survive into 2
nd
generation and only 16% to the 3
rd
generation
? Life expectancy of a family business is 25
years
Barriers in succession planning
? Hurdle in succession planning is usually the founder
himself, he hangs on. Attempts to succeed is seen as
greedy move to swallow the business.
? Sibling rivalry
? Family members? fear of losing status
? Aversion to death, fear of loss or abandonment
Those who do not make succession planning leave
behind an unnecessary burden on those who live
behind
Key factors in succession
? Pressures and interests inside the firm:
1. Family members:
? Pressure to get, control business
? Pressure to select family members as managers
? Pressure to nominate heir
? Pressure to build a dynasty
? rivalry among various members of the family.
2. Non-family members:
? Rewards for loyalty
? Sharing of equity growth and success
? Professionalism
? Bridging family transition
Key factors in succession
? Pressures and interests outside the firm:
1. Family members:
? Income and inheritance
? Family conflicts and alliances
? Degree of involvement in the business.
2. Non-family members:
? Competition
? Market, product, supply and technology influence
? Tax laws
? Regulatory agencies
Developing a succession strategy
? It involves several important steps:
1. Understanding contextual aspects like
? time- earlier start, the better, need time
? type of venture
? capabilities of managers
? entrepreneur?s vision
? environmental factors
2. Identifying successor qualities
3. Written succession strategy
Pitfalls/challenges of family business
? Conflicting goals/values
? Conflicting personalities
? Expectations
? Work ethics
? Employment of family members
? Compensations
? Reluctance to plan
? Element of time (tough to manage family component
as time passes)
Strategies to improve capability of fam buss
? Need of professionalism
? Joint family
? Replinishing entrepreneurship
? Good management
? Ability to change
? Strategic plan
? Active board of directors- will help assess 4 key
foundations for business health. CEO?s readiness for
succession, critical family relations, ownership
structures, management structures
Role of board
? Board must simulate, provoke challenge and support
leaders
? Typical CEO of fam buss holds the post for a long time
like 20 yrs
? Not many are brilliant enough to hold it that long. Failed
leadership is a big problem in fam buss
? Advisors must focus on the company?s macro long term
issues
? Advisory board must have outsiders like 4:3
? Friends, former employees, paid advisors/accountants
must not be on the board
? Hold frequent off-site family meetings and have
mechanisms to resolve conflicts
Improving family business performance
Certain core business values are responsible for good/bad
performance of family businesses.
Dysfunctional critical core business values impacting fam buss
adversely are:
? Training: formal training, additional training, and working outside
fob for sometime overlooked.
? Future outlook: concern for future and necessity to change is
seriously lacking.
? Accountability: performance criteria and evaluation and dealing
with non-performers lacking.
? Finances: chronically cash poor because of overdrawing and greed.
Vulnerable to business downturns
? Addressing the issue: structured approach to evaluate core values
like training, future, accountability, finances, decision-making
process, internal communications, method of conflict resolution,
compensation, operating procedures.
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This post was last modified on 18 February 2020