1. MGT 4550 - Family Business Management MANAGING STRATEGIC CHANGE IN THE FAMILY BUSINESS Chapter 11 Family Business Management, Concepts and Practice By A. Bakr Ibrahim & Willard H. Ellis Instructor: Dr. Irene Duhaime

2. 2 Questions and Cases 4 Questions l 87-89, 95-97, 100, 101 FBAB 4 Case: l Monticello Pottery, Inc., p. 481 FBM

3. 3 Class Schedule - Week 9 (03/22) 4 MANAGING STRATEGIC CHANGE IN THE FAMILY BUSINESS l Reading: Chapter 11 FBM l Questions n 87-89, 95-97, 100, 101 FBAB l Case: n Monticello Pottery, Inc., p. 481 FBM

4. 4 Contents 4 Strategic Change 4 Resistance to Change 4 The Changing Agent 4 The Clientele 4 Organizational Change Techniques

5. 5 Strategic Change 4 Objective l To move the existing system to a more efficient state 4 Possible Reasons l Succession l Going public l Introduce professional management l Restructuring

6. 6 Planning & strategic changes in the family firm 4 Ownership dimension l ownership transfer, wealth transfer l going public

7. 7 Planning & strategic changes in the family firm 4 Family dimension l succession l leadership development l assessment of family’s management skills

8. 8 Planning & strategic changes in the family firm 4 Business dimension l corporate and business strategy l growth l diversification l retrenchment, turnaround l introducing professional management

9. 9 Effective Change Management

10. 10 Resistance to Change 4 Uncertainty about future under new leadership 4 Fear of personal loss l Status, money, level of authority 4 Perception that change might not be in the best interest of the firm l May weaken the firm’s competitive position

11. 11 Techniques to Reduce Resistance to Change

12. 12 Question 95 What is the purpose of the family business family retreat?

13. 13 Ten Reasons To Hold Family Meetings 1.Build a stronger family. 2.Build a stronger business. 3.Plan for the future ownership of the business. 4.Plan family participation in the business. 5.Help children manage inherited wealth. 6.Open up the succession process. 7.Preserve family values, traditions and history. 8.Professionals the business. 9.Manage family-board relations. 10.Recognize and resolve conflict. Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

14. 14 Who should be invited? 4 Make a list of attendees 4 in-laws? Younger children? 4 Outsiders only to help the family achieve the meeting’s goals, hold more productive discussions l facilitator l professionals or employees to provide information needed for topic

15. 15 When Is the Right Time 4 Informal family meetings are often held while children are still considerably young Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

16. 16 The Importance of the Meeting 4 To teach the importance of listening, understanding each others’ logic and values, and following up on results 4 To teach conflict-resolution skills 4 To reinforce a child’s self-esteem by showing that he or she is important to the process, and that his or her opinions are valued Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

17. 17 The Meeting’s Progression 4 As children grow older more time is spent talking about the business 4 Teenagers are exposed to the burdens and rewards of business ownership, as well as opportunities that the business may offer 4 As children reach their 20s and beyond, the meetings tend to become more formal. Policies for family participation in the business and leadership succession are introduced. Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

18. 18 Who Should Run the Meeting? 4 The meeting leader should be someone who commands the family’s attention and respect. 4 It does not have to be the owner-manager of the business. 4 The family’s leadership base can be broadened by rotating the chairperson’s role among capable family members. Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

19. 19 Family Meeting Location 4 Offices have benefit but more drawbacks 4 Meeting rooms in hotel or club 4 Arrangements should convey importance of meeting

20. 20 Family Meeting Agendas 4 Helps keep discussion on track 4 Conveys importance of the meeting 4 Print and distribute in advance 4 Items of mutual concern to family members (facilitator can help early on)

21. 21 Question 96 Where do you find a good facilitator to run the retreat? What criteria do you use to judge a facilitator and what kind of experience should that facilitator have?

22. 22 Opening a Family Meeting 4 Reassurance l conflict and disagreement are part of family life l compliment family for dealing with them in a constructive way 4 Family is special 4 Be clear and explicit that proceedings are confidential, if want them to be

23. 23 Critical Issues for a Family’s Future Succession 4 How do we assure our parents lifelong financial security? 4 What nonbusiness interests will keep the parents fulfilled during retirement? 4 How do we choose the next president? 4 When does the presidential transition take place? 4 How do we decide that? 4 How do we evaluate the next president’s performance and consider his or her replacement? Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

24. 24 Critical Issues for a Family’s Future Participation 4 How do we decide which family members can join the family business? 4 What preparation, if any, is required? 4 How do we determine titles and authority? 4 What if a family member employee doesn’t work out? 4 What if a family member chooses to leave the business? 4 Do we permit spouses or other nonblood relatives to work full or part time in the business? 4 Do we allow the next generation’s children to enter the business? 4 Under what circumstances? Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

25. 25 Critical Issues for a Family’s Future Compensation and Ownership 4 How do we evaluate and pay family members? 4 Who participates how much in the financial growth or future of the business? 4 Who can own stock in the business? 4 What returns and rewards do shareholders get? Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

26. 26 Critical Issues for a Family’s Future Harmony 4 How do we deal with conflicts between generations? 4 How do we deal with sibling conflict? 4 How do we teach in-laws the business and our family traditions? 4 Who will lead the family activities and customs into the next generation? 4 How do we make future family decisions? Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

27. 27 Critical Issues for a Family’s Future Responsibility 4 How do we help family members in financial and/or career need? 4 What responsibilities does one family member have to the other? 4 What if there is a divorce? 4 What if a family member breaks the law or acts in a seriously irresponsible way? 4 How much financial information do we share with whom? 4 How do we protect the contributions of good, nonfamily employees? 4 How do we support family members’ new business venture ideas? 4 How do we cope with public visibility and the public’s expectations of successful families? 4 What responsibility do we have to the community? Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

28. 28 How Family Meetings Change As The Business Evolves Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

29. 29 Closing the Family Meeting 4 Ask family members for suggested topics for subsequent meeting 4 set a date 4 delegate roles to family members l fosters spirit of involvement and participation

30. 30 The Changing Agent 4 Management Consultant 4 Accountant 4 Lawyer 4 Banker 4 Neutral relative or friend

31. 31 The Changing Agent - Qualities 4 Prestige l Well respected, trusted 4 Power 4 Experience l Organizational change techniques and methods to reduce resistance to change ….. continued

32. 32 The Changing Agent - Qualities …continued 4 Interpersonal Skills l Negotiation skills, l Mediation skills, l Counseling skills l Influential, patient and accommodating

33. 33 The Clientele 4 The Change Agent l Must focus on the needs of the firm regardless of who hired him/her l Focus on the problem not personnel

34. 34 Organizational Change Techniques Action Research Model

35. 35 Organizational Change Techniques The Change Process

36. 36 Organizational Change Techniques 4 Team Building l Improve communication, l Clarify roles, l Diagnose problems, l Find solutions for improvement

37. 37 Organizational Change Techniques 4 Survey Feedback l Collect data from employees, l Hold discussion sessions, l Hold feedback sessions

38. 38 Organizational Change Techniques 4 Sensitivity Training l Forum for free and open discussion l Unstructured group integration

39. 39 Class Schedule - Following week (03/29) 4 STRATEGIC MANAGEMENT OF THE FAMILY BUSINESS l Reading: Chapter 10 FBM l Questions n 1, 2, 38-41, 69, 71, 72 FBAB l Cases: n Tender Touch Car Wash Ltd., p. 465 FBM