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

Chapter 3Copyright © 2010 by Nelson Education Ltd. Looking 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

Chapter 3Copyright © 2010 by Nelson Education Ltd. 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 Hardware Est WelcomeWelcome 3-3

Chapter 3Copyright © 2010 by Nelson Education Ltd. 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 Overlap

Chapter 3Copyright © 2010 by Nelson Education Ltd. Advantages of a Family Business 3-5 Exhibit 3-1

Chapter 3Copyright © 2010 by Nelson Education Ltd. The 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 3-6

Chapter 3Copyright © 2010 by Nelson Education Ltd. Founder’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 3-7

Chapter 3Copyright © 2010 by Nelson Education Ltd. The 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.

Chapter 3Copyright © 2010 by Nelson Education Ltd. Adjusting 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 3-9

Chapter 3Copyright © 2010 by Nelson Education Ltd. Family Roles and Relationships Parental concerns Husband-wife issues Sibling cooperation and rivalry In-laws The entrepreneur’s spouse 3-10

Chapter 3Copyright © 2010 by Nelson Education Ltd. Best 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 3-11

Chapter 3Copyright © 2010 by Nelson Education Ltd. Nonfamily Employees in a Family 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. 3-12

Chapter 3Copyright © 2010 by Nelson Education Ltd. Family 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 3-13

Chapter 3Copyright © 2010 by Nelson Education Ltd. Family 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 3-14

Chapter 3Copyright © 2010 by Nelson Education Ltd. CAFECAFE 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 3-15

Chapter 3Copyright © 2010 by Nelson Education Ltd. Family 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 3-16

Chapter 3Copyright © 2010 by Nelson Education Ltd. The 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. 3-17

Chapter 3Copyright © 2010 by Nelson Education Ltd. Succession Stages 3-18 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

Chapter 3Copyright © 2010 by Nelson Education Ltd. Conditions Favouring Successful Leadership 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