1. PowerPoint Presentations for Small Business Management: Launching and Growing New Ventures, Fifth Canadian Edition Adapted by Cheryl Dowell Algonquin College

2. CHAPTER 3 Family Enterprise 3-2

3. 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.Describe the complex 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. Copyright © 2013 by Nelson Education Limited 3-3

4. THE FAMILY BUSINESS: A UNIQUE INSTITUTION 3-4 Ownership and/or operation by two or more members of the same family are directly involved Ownership passes from one generation of a family to another Copyright © 2013 by Nelson Education Limited LO 1

5. FAMILY AND BUSINESS OVERLAP 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 or services Need for professional management Effective and efficient operation of the firm 3-5 Copyright © 2013 by Nelson Education Limited LO 1

6. ADVANTAGES OF A FAMILY BUSINESS Copyright © 2013 by Nelson Education Limited 3-6 LO 1

7. FAMILY BUSINESS DISADVANTAGES 3-7 A business must deal with differences in competence and merit Family seeks to perpetuate traditions, while the business must innovate to prosper A family is characterized by unity and cooperation, but a business grows through diversity and competition Families tend to be stable, while businesses, especially those competing in the global economy, often face instability For families, loyalty usually trumps opportunity, but businesses are regularly challenged by opportunities that arise for both the company and its employees Copyright © 2013 by Nelson Education Limited LO 1

8. THE CULTURE OF A FAMILY BUSINESS Copyright © 2013 by Nelson Education Limited 3-8 Organizational Culture: – patterns of behaviours and beliefs that characterize a particular firm Cultural Configuration: – total culture of a family firm, consisting of the firm’s business, family, and governance patterns Culture of a family business can be a strategic resource that promotes learning, risk taking and innovation LO 2

9. FOUNDER’S IMPRINT ON CULTURE Distinctive values that motivate and guide Help to create a competitive advantage – a special way of delivering customer service – core values and business ethics permeate the growth There is also the risk of a negative imprint on culture – For example, narcissism, self-importance, fixation with success Copyright © 2013 by Nelson Education Limited 3-9 LO 2

10. COMMITMENT TO THE FAMILY BUSINESS Copyright © 2013 by Nelson Education Limited 3-10 LO 2

11. FAMILY ROLES AND RELATIONSHIPS Copyright © 2013 by Nelson Education Limited 3-11 Mom or dad, the founder Co-preneurs (husband-wife teams) Sons and daughters (cooperation and rivalry) In-laws Entrepreneur’s spouse LO 3

12. THE NEED FOR GOOD MANAGEMENT IN THE FAMILY FIRM 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 Copyright © 2013 by Nelson Education Limited3-12 LO 4

13. NONFAMILY EMPLOYEES IN A FAMILY FIRM Copyright © 2013 by Nelson Education Limited 3-13 Potential for promotion could be limited, and may experience unfairness and frustration Hazards: – Competition with family members for advancement – Getting caught in crossfire and politics of family competition Solution: – Identify family-only reserved positions in advance – Treat both family and nonfamily employees fairly in matters of reward and promotion LO 4

14. FAMILY RETREATS Copyright © 2013 by Nelson Education Limited 3-14 Similar to business retreats/team building – 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 LO 4

15. 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 Copyright © 2013 by Nelson Education Limited 3-15 LO 4

16. CAFE Canadian Association of Family Enterprise (CAFE) National not-for-profit association dedicated to research, education, and assistance for family businesses Helps members through its Personal Advisory Groups (PAGs) Local chapters in most Canadian cities www.cafecanda.ca Copyright © 2013 by Nelson Education Limited 3-16 LO 4

17. FAMILY BUSINESS CONSTITUTIONS Copyright © 2013 by Nelson Education Limited 3-17 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 LO 4

18. THE PROCESS OF LEADERSHIP SUCCESSION Copyright © 2013 by Nelson Education Limited 3-18 60% do not have succession plans in their family business 70 % of family-owned businesses fail to make the transition from founder to second generation 90 % don’t reach the 3rd generation LO 5

19. THE PROCESS OF LEADERSHIP SUCCESSION Copyright © 2013 by Nelson Education Limited 3-19 Mentoring: – guiding and supporting work and development of a new or less-experienced organization member Allowing only qualified competent family members to assume leadership roles in firm increases value of the firm for all who have an ownership interest in it LO 5

20. SUCESSION STAGES Copyright © 2013 by Nelson Education Limited 3-20 LO 5

21. TRANSFER OF OWNERSHIP Copyright © 2013 by Nelson Education Limited 3-21 Passing ownership of a family business to the next generation always has complexities: – Several children – equal shares – Voting or nonvoting shares? Leadership successor Tax considerations LO 5