Family business
Encyclopedia
A family business is a business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...

 in which one or more members of one or more families
Family
In human context, a family is a group of people affiliated by consanguinity, affinity, or co-residence. In most societies it is the principal institution for the socialization of children...

 have a significant ownership interest and significant commitments toward the business’ overall well-being
Quality of life
The term quality of life is used to evaluate the general well-being of individuals and societies. The term is used in a wide range of contexts, including the fields of international development, healthcare, and politics. Quality of life should not be confused with the concept of standard of...

.

In some countries, many of the largest publicly listed firms are family-owned. A firm is said to be family-owned if a person is the controlling shareholder; that is, a person (rather than a state, corporation, management trust, or mutual fund) can garner enough shares to assure at least 20% of the voting rights and the highest percentage of voting rights in comparison to other shareholders.

Definition

In a family business, two or more members within the management team are drawn from the owning family. Family businesses can have owners who are not family members. Family businesses may also be managed by individuals who are not members of the family. However, family members are often involved in the operations of their family business in some capacity and, in smaller companies, usually one or more family members are the senior officers and managers. Many businesses that are now public companies
Public company
This is not the same as a Government-owned corporation.A public company or publicly traded company is a limited liability company that offers its securities for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets...

 were family businesses.

Family participation as managers and/or owners of a business can strengthen the company because family members are often loyal and dedicated to the family enterprise. However, family participation as managers and/or owners of a business can present unique problems because the dynamics of the family system and the dynamics of the business systems are often not in balance.

Problems

The interests of a family member may not be aligned with the interest of the business. For example, if a family member wants to be president but is not as competent as a non-family member, the personal interest of the family member and the well being of the business may be in conflict.

Or, the interests of the entire family may not be balanced with the interests of their business. For example, if a family needs its business to distribute funds for living expenses and retirement but the business requires those to stay competitive, the interests of the entire family and the business are not aligned.

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

Structuring

When the family business is basically owned and operated by one person, that person usually does the necessary balancing automatically. For example, the founder may decide the business needs to build a new plant and take less money out of the business for a period so the business can accumulate cash needed to expand. In making this decision, the founder is balancing his personal interests (taking cash out) with the needs of the business (expansion).

Most first generation owner/managers make the majority of the decisions. When the second generation (sibling partnership) is in control, the decision making becomes more consultative. When the larger third generation (cousin consortium) is in control, the decision making becomes more consensual, the family members often take a vote. In this manner, the decision making throughout generations becomes more rational (Alderson, K., 2011).

Scenarios

Balancing competing interests often become difficult in three situations. The first situation is when the founder wants to change the nature of their involvement in the business. Usually the founder begins this transition by involving others to manage the business. Involving someone else to manage the company requires the founder to be more conscious and formal in balancing personal interests with the interests of the business because they can no longer do this alignment automatically—someone else is involved.

The second situation is when more than one person owns the business and no single person has the power and support of the other owners to determine collective interests. For example, if a founder intends to transfer ownership in the family business to their four children, two of whom work in the business, how do they balance these unequal differences? The four siblings need a system to do this themselves when the founder is no longer involved.

The third situation is when there are multiple owners and some or all of the owners are not in management. Given the situation above, there is a higher chance that the interests of the two sons not employed in the family business may be different than the interests of the two sons who are employed in the business. Their potential for differences does not mean that the interests cannot be aligned, it just means that there is a greater need for the four owners to have a system in place that differences can be identified and balanced.

These three scenarios can be mitigated by following the guidelines of TMP, or "The Maria Principle"

Succession

There appear to be two main factors affecting the development of family business and succession process: the size of the family, in relative terms the volume of business, and suitability to lead the organization, in terms of managerial ability, technical and commitment (Arieu, 2010).
Arieu proposed a model in order to classify family firms into four scenarios: political, openness, foreign management and natural succession (See Succession planning
Succession planning
Succession planning is a process for identifying and developing internal people with the potential to fill key business leadership positions in the company. Succession planning increases the availability of experienced and capable employees that are prepared to assume these roles as they become...

).

One of the largest trends in family business is the amount of women who are taking over their family firms. In the past, succession was reserved for the first born son, then it moved on to any male heir. Now, women account for approx. 11-12% of all family firm leaders, an increase of close to 40% since 1996. Daughters are now considered to be one of the most underutilized resources in family businesses. To encourage the next generation of women to be valuable members of the business, potential female successors should be nurtured by assimilation into the family firm, mentoring, sharing of important tacit knowledge and having positive role models within the business (Alderson, 2011).

Success

Successfully balancing the differing interests of family members and/or the interests of one or more family members on the one hand and the interests of the business on the other hand require the people involved to have the competencies, character and commitment to do this work.

Family-owned companies present special challenges to those who run them. The reason? They can be quirky, developing unique cultures and procedures as they grow and mature. That's fine, as long as they continue to be managed by people who are steeped in the traditions, or at least able to adapt to them.

Often family members can benefit from involving more than one professional advisor, each having the particular skill set needed by the family. Some of the skill sets that might be needed include communication, conflict resolution
Conflict resolution
Conflict resolution is conceptualized as the methods and processes involved in facilitating the peaceful ending of some social conflict. Often, committed group members attempt to resolve group conflicts by actively communicating information about their conflicting motives or ideologies to the rest...

, family systems, finance, legal, accounting, insurance, investing, leadership development, management development, and strategic planning
Strategic planning
Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. In order to determine the direction of the organization, it is necessary to understand its current position and the possible avenues...

.

Ownership in a family business will also show maturity of the business. If all the shares rest with one individual, a family business is still in its infant stage, even if the revenue is strong.

Family Businesses Examples

  • Samsung
    Samsung
    The Samsung Group is a South Korean multinational conglomerate corporation headquartered in Samsung Town, Seoul, South Korea...

  • Trump Organization
    Trump Organization
    The Trump Organization is a limited liability corporation conglomerate based in Trump Tower in Manhattan, New York. The organization owns, operates, and develops hotels, resorts, residential towers, and golf courses in different countries, as well as owning several pieces of high-end real estate in...

  • Wal-Mart
    Wal-Mart
    Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...

  • Ford
  • Dillard's
    Dillard's
    Dillard's, Inc. is a department store chain in the United States, with 330 stores in 29 states. Headquartered in Little Rock, Arkansas, Dillard's locations are concentrated in Texas and Florida; with a major presence in other states including Arizona, Iowa, Colorado, Wyoming, Kansas, Missouri,...

  • Raymond
    Raymond
    Raymond is a male given name . It was borrowed into English from French...

  • Panda Energy International
    Panda Energy International
    Panda Energy International, Inc. is an American privately held company that constructs, maintains and operates environmentally friendly power plants, with the name of the company a reference to the endangered Giant Panda. The company is headquartered in Dallas, Texas. It is a division of The Panda...


Tew's Incorporated

External links


New Book: Understanding the Family Business by Keanon Alderson May 2011
http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dstripbooks&field-keywords=keanon+alderson&x=4&y=13

Alderson, K. Women Playing a Larger Role in Family Owned Businesses. Focus Magazine, National Association of Women Business Owners (NAWBO. http://nawbo.org/content_12864.cfm?print=1
The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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