Family Business

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20 Νοε 2013 (πριν από 3 χρόνια και 4 μήνες)

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Chapter 1

Family Business

What Makes It Unique?

Family Business,
First Edition, by Ernesto J. Poza

Copyright © 2004 South
-
Western/Thomson Learning

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2

Family Business: Working Definition


A family business is a synthesis of:


Ownership control by members of a family or
consortium of families


Strategic influence of a family in the management
of the firm


Concern for family relationships


The dream (possibility) of continuity across
generations

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3

Family Businesses . . .


Constitute 80

98% of businesses in U.S. and
other free economies


Generate 49% of GDP in U.S. and more than
75% in most other countries


Employ 59% of private sector U.S. workforce
and more than 85% of working population
overseas


Created about 80% of all new jobs in the
1980s and 1990s

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4

Other Statistics


Between 17 and 22 million family
-
owned
businesses in U.S.


Annual revenues exceed $25 million for
35,000 family businesses


Family
-
controlled companies comprise


37% of all Fortune 500 companies


60% of all publicly held companies

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5

The Bad News


In their first 5 years of operation, 90% of
family
-
owned companies disappear


Of remaining 10%, 67% die or change
ownership after first generation


Only 12% survive under current ownership
past the third generation

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6

What Makes the Difference


Presence of the family


Owner’s dream to keep the business in the
family


Overlap of family, ownership, and
management


Competitive advantage derived from
interaction of family, management, and
ownership

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7

Systems Theory


Model shows overlapping subsystems of
family, management, and ownership


Firm is dynamic system in which integration
achieved by adjustments to subsystems


Individual perspectives of family and firm may
differ, leading to overemphasis on one sub
-
system at expense of others


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8

Systems Theory Model

Family

Management

Ownership

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9

Blurred Boundaries


Boundaries among family, ownership,
management systems may become blurred


Problems determining if decisions relate to family,
ownership, or management issues


Family rules used in the business


Problem
-
solving ability diminished by blurred
boundaries


Businesses may become family
-
first,
ownership
-
first, or management
-
first

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10

Family
-
First Businesses


Employment in business is membership right


Members of same generation paid equally


Extensive family perks from business


Secrecy often paramount and family
members protect each other


Business becomes part of lifestyle


Commitment to continuity depends on
agendas of individual family members

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11

Business
-
First Firms


Employment on the basis of qualifications

family discouraged from working in business


Performance of employed family members
reviewed as for nonfamily


Compensation based on responsibility and
performance


Conversation between family members is all
business

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12

Business
-
First Firms,
continued


Business growth, market share, profitability,
return on assets, return on equity constitute
the scorecard


Next generation viewed in terms of how they
can manage and grow business


Family events often cancelled/delayed for
business reasons


No automatic commitment to family business
continuity

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13

Joint Optimization Alternative


Family employment policy guides employ
-
ment of family


Some family members are employees; others
responsible shareholders


Performance of employed family members
reviewed as nonfamily

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14

Joint Optimization,
continued


Family members encouraged to work outside
business to get experience


When family members meet, conversation is
both family and business oriented


Commitment to family business continuity

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15

Agency Cost Theory


Traditional theory: Alignment of owners and
managers decreases need for agency costs


Recent research: altruism of owner
-
managers leads to increased agency costs


Agency costs can be controlled by
managerial and governance practices


Board of directors important in monitoring
managerial behavior and controlling costs

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16

Challenges to Continuity


Shortening product life cycles


High transfer tax penalties


High market valuations of ongoing businesses
by historical standards


Family businesses considered outdated


Family structure far from stable


Next generation family business leaders
unable/unwilling to accommodate


CEOs living longer

obstacles to succession

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17

Resource
-
Based Theory


Resource
-
based theory highlights unique
capabilities or resources that family firms
convert into competitive advantage


These resources referred to as organizational
competencies


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18

Competitive Advantages of Family
Business


Speed to market


Strategic focus on market niches


Concentrated ownership structure


Lower overall costs


Quality of product/service


Agility and flexibility


Owner
-
manager and long
-
term view

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19

Concentrated Ownership


Ownership structure impacts corporate
productivity


Stock concentration positively correlated to


Related diversification


R & D expenses per employee


Training per employee


Overall corporate productivity

Source: Hill and Snell, Academy of
Management Journal, 32#1.

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20

Lower Overall Costs


Cost of capital is nearly 0% when owner
controls stock


Financing for other businesses:


25

30% for venture capital


17

20% for mezzanine financing


Prime rate for bank financing


Administrative and control costs also reduced
absent need for principal supervision

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21

Agility and Flexibility


Flexibility of new manufacturing and
distribution technology makes smaller runs
economically attractive


Customization, changing consumer
preferences, shorter product life cycles
reward agility


EDI/Internet
-
based partnerships make agility
possible across value chain

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22

Owner
-
Manager


Focused on customers, family, employees,
profitability, lifestyle


Experiences conflicts between family,
management, and ownership and optimizes
links


Average tenure of 18 years vs. 3 years for
public company CEOs