Chapter 3Copyright © 2010 by Nelson Education Ltd. Family Enterprise 3 PowerPoint Presentation by Ian Anderson, Algonquin College

Chapter 3 Copyright © 2010 by Nelson Education Ltd.

Family EnterpriseFamily EnterpriseFamily EnterpriseFamily Enterprise

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PowerPoint Presentation by PowerPoint Presentation by

Ian Anderson, Algonquin CollegeIan Anderson, Algonquin College


Looking AheadLooking AheadLooking AheadLooking Ahead

After studying this chapter, you should be able to:

1. Discuss the factors that make a family business unique.

2. Explain the forces that can keep a family business moving forward.

3. Outline the complex family roles and relationships involved in a family business.

4. Identify management practices that enable a family business to function effectively.

5. Describe the process of managerial succession in a family firm.

3-2


What Is a Family Business?What Is a Family Business?What Is a Family Business?What Is a Family Business?

• Family Business–A company in whose ownership and/or operation two or

more members of the same family are directly involved.

–A firm whose ownership passes from one generation of a family to another

Logan Family HardwareLogan Family HardwareEst. 1935Est. 1935

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• Family Concerns–Care and nurturing of

family members

–Employment and advancement in the firm

–Loyalty to the family

• Business Concerns–Production and distribution

of goods and/or services–Need for professional

management–Effective and efficient

operation of the firm

Family and Business OverlapFamily and Business OverlapFamily and Business OverlapFamily and Business Overlap


Advantages of a Family BusinessAdvantages of a Family BusinessAdvantages of a Family BusinessAdvantages of a Family Business

3-5

Exhibit 3-1


The Culture of a Family BusinessThe Culture of a Family BusinessThe Culture of a Family BusinessThe Culture of a Family Business

• Organizational Culture– Patterns of behaviours and beliefs that

characterize a particular firm

• Cultural Configuration– The total culture of a family firm,

consisting of the firm’s business, family, and governance patterns

The culture of a family business can be a strategic resource that promotes learning, risk taking and innovation

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Founder’s Imprint on CultureFounder’s Imprint on CultureFounder’s Imprint on CultureFounder’s Imprint on Culture

• The distinctive values that motivate and guide an entrepreneur in the founding of a firm may help to create a competitive advantage for the new firm.– For example, the founder could have a special way of

delivering customer service.

– The founder’s core values and business ethics will likely permeate the growing organization.

– There is also the risk of a negative imprint on culture• For example, narcissism, self-importance, fixation with

success

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The Commitment of Family MembersThe Commitment of Family MembersThe Commitment of Family MembersThe Commitment of Family Members

3-8

Exhibit 3-3

Source: Based on Pramodita Sharma and P. Gregory Irving, “Four Bases of Family Business Successor Commitment: Antecedents and Consequences,” Entrepreneurship Theory and Practice, vol. 29, no. 1 (January 2005), pp. 13–33.


Adjusting to ChangeAdjusting to ChangeAdjusting to ChangeAdjusting to Change

• A change in leadership may bring about a break with traditional methods of operation

• A successor may act as a change agent– Replacing outdated managerial practices– Introducing cutting-edge technology

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Family Roles and RelationshipsFamily Roles and RelationshipsFamily Roles and RelationshipsFamily Roles and Relationships

• Parental concerns

• Husband-wife issues

• Sibling cooperation and rivalry

• In-laws

• The entrepreneur’s spouse

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Best Practices for Family EnterprisesBest Practices for Family EnterprisesBest Practices for Family EnterprisesBest Practices for Family Enterprises

• Promote a learning culture

• Solicit input from relevant outsiders

• Establish constructive communication channels

• Build a continuous change culture

• Promote family members according to skill levels

• Attract and retain excellent nonfamily managers

• Ensure fair compensation

• Establish a leadership succession plan

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Nonfamily Employees in a Nonfamily Employees in a Family FirmFamily Firm

Nonfamily Employees in a Nonfamily Employees in a Family FirmFamily Firm

The potential for promotion for an outsider could be limited, and they may experience a sense of unfairness and frustration.– Hazards:

• Competition with family members for advancement

• Getting caught in the crossfire and politics of family competition within the firm

– Solution:

• Identify family-only reserved positions in advance.

• Treat both family and nonfamily employees fairly in matters of reward and promotion.

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Family RetreatsFamily RetreatsFamily RetreatsFamily Retreats

• Similar to business retreats (team-building), a family retreat is designed to open lines of communication and bring about agreement on issues

• Guidelines:– Advanced planning and preparation– Give everyone a chance to participate– Keep it professional

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Family CouncilsFamily CouncilsFamily CouncilsFamily Councils

• An organized group of family members who gather periodically to discuss family-related business issues

• Function as the organization and strategic planning arm of a family

• Family members discuss values and policies and directions for the future

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CAFE CAFE CAFE CAFE

• Canadian Association of Family Enterprise (CAFE) is a national not-for-profit association dedicated to research, education, and assistance for family businesses.

• CAFE has local chapters in most Canadian cities

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Family Business ConstitutionsFamily Business ConstitutionsFamily Business ConstitutionsFamily Business Constitutions

• A statement of principles intended to guide a family firm through times of crisis and change– Reduces conflict concerning ownership,

performance and compensation– Living, breathing document that can be

amended as needed

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The Process of Leadership SuccessionThe Process of Leadership SuccessionThe Process of Leadership SuccessionThe Process of Leadership Succession

• Available Family Talent–Mentoring

• Guiding and supporting the work and development of a new or less-experienced organization member.

–Allowing only qualified competent family members to assume leadership roles in the firm increases the value of the firm for all who have an ownership interest in it.

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Succession StagesSuccession StagesSuccession StagesSuccession Stages

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Source: Adapted from Johan Lambrecht, “Multigenerational Transition in Family Businesses: A New Explanatory Model,” Family Business Review, vol. 18, no. 4 (2005), pp. 267–282.

Exhibit 3-4


Conditions Favouring SuccessfulConditions Favouring SuccessfulLeadership Succession in a Family FirmLeadership Succession in a Family Firm

Conditions Favouring SuccessfulConditions Favouring SuccessfulLeadership Succession in a Family FirmLeadership Succession in a Family Firm

• A sound, profitable business

• Stable, healthy family relationships

• Advance planning for leadership succession

• Positive family leadership and a team-oriented management structure

• Presentation of career opportunities without pressure

• Open communication on family business issues

Documents

Chapter 3Copyright © 2010 by Nelson Education Ltd. Family Enterprise 3 PowerPoint Presentation by Ian Anderson, Algonquin College