2. MODULE 4
• Meaning of Family Business
• Importance of Family Business
• Types of Family Business
• History of Family Business
• Responsibilities And Rights of Shareholders of Family Business
• Succession in Family Business
• Pitfalls of Family Business
• Strategies for Improving the Capability of Family Business
• Improving Family Business Performance
3. FAMILY BUSINESS
• A family business is a commercial organisation in which decision-making is
influenced by the multiple generations of a family related by blood or
marriage who are closely identified with the firm through leadership or
• Family business have been crucial features of business sector for centuries
and remain important today
• Family business firms can be small, medium or large and usually have
appeared in all sectors and in all periods
• Family business often grow and sustain as the next generation of the
families keep on continuing the business
4. IMPORTANCE OF FAMILY BUSINESS
1. Contributing to economic development
2. Spirit of Entrepreneurship
3. Philanthropy (welfare on general public)
4. Trust lowers transaction cost
5. Quick to react and take decisions
6. Information as a source of advantage
5. TYPES OF FAMILY BUSINESS
1. Family Owned Business
2. Family Owned and Managed Business (active participation by one family
member in top management)
3. Family Owned and Led Business (active participation by one family
member in top management and has major influence on business
6. TYPES OF FAMILY BUSINESS OWNERS
1. Operating Owner
2. Governing Owner
3. Interested Owner
4. The Steward (want business to grow to next generations)
5. Obedient Owner (obey to parents and joins business)
6. The Investor (only interested in ROI)
7. Heritage Owner (business is memorial to the founder)
8. Trustee/ Owner
9. Hostage Owner (Feels burden of ownership and wish to sell the business if
they are allowed)
10. The Captive Partner (siblings or cousins who would never picked on
another as business partners but have been made so by an elder’s estate
11. Entitled Owner (has high expectations from others towards them)
12. The Social Entrepreneur (do good to the society and public)
7. 1. Setting Family Policy
2. Family vision and mission
3. Family organisation
4. Family ownership policy
5. Family education and information
6. Family civic, political and philanthropic roles.
RESPONSIBILITY AND RIGHTS OF FAMILY
8. Expectations of family shareholders from managers of business
• Timely information on company strategy, important organizational
changes and company’s basic financial status before information
being released to general public.
• Openness by company board and management to shareholders on
the above mentioned information.
• Ability to participate in the election of board members.
• Fair policies that protect shareholders interest but also requires
their cooperation and risk taking.
• Acceptance economic performance by the company, including
reasonable dividends and capital gains.
9. FAMILY BUSINESS SUCCESSION
• Family business succession is the process of transitioning the management
and the ownership of business to the next generation of the family
• The transition may also include family assets as a part of the process
• Family members typically play a controlling role in both the management
succession as well as the ownership succession
KEY POINTS TO BE CONSIDERED BEFORE SUCCESSION PLAN
Quick decision on business plan process will provide more alternatives to
A child than having right to inherit business should have ability to manage
family business. Children's must be encouraged to out of family business so
that they have better insight about competition persisting in market and
accordingly develop strategies for development of own business.
Establishing an outsider as advisor for family business may prove to be
risky for which experts in succession planning should be chosen from
management team with in the family business.
10. WAYS TO EASE TRANSITION PROCESS
Hire most competent advisors (attorneys, accountants, financial
planners, and business consultants for succession planning.
Succession planning is complicated process and requires advice of
expertise on the same.
Business valuation : when business transition takes place it leads to
change in controlling hands and accordingly even present situation
may change in business. Depending on the purpose of the
valuation, cost vary accordingly. Usually business owners value
family business for purpose of strategic planning of their business.
Funding to be considered as part of succession plan : it is
important to understand that business may need to grow
significantly in order to pay the transition cost which includes which
includes tax , insurance, professional advisors. Funds available for
expansion should be retained in the process for transition.
11. FAMILY BUSINESS SUCCESSION PLANNING
EDUCATION AND PERSONAL
PROOF OF COMPETENCE
FORMAT START IN THE
12. PITFALLS/ DEMERITS /PROBLEMS OF FAMILY BUSINESS
lack of focus and strategy : family business initially perform in effective
manner but at later point of time when aspect of transition comes into
picture family business tends to lose its track from its actual vision .
Lack of professionalism : data maintenance practice in family business
usually will not be in par with that of private companies which proves to be
major hurdle during decision making process.
Difference in educational levels of family members which drives some
people to follow obsolete method while others may focus on implementing
latest technology and practices in business.
Rivalries between sibling in company which may end up in separation of
Difference of attitude towards employees in company
Inability to separate family interest from the interest of business
Short term approach towards business , leading to an absence of
investment in employees and product development.
Insensitivity towards customers due to uncompetitive market resulting in
weaker market skills.
13. Coping approach : which involves negotiation among family members try
and resolve conflict and agree on common terms.
Arbitrary approach : in this approach the elder person of the family will
be allotted with the power to frame rules and control business activity.
But this approach has not proven to be successful as most of the time
elder person in family may not prove to be effective manager for
Managed approach : this approach states that person who has ability to
maintain better relationship with key individuals of business and have
ability to understand business and manage the same should be
appointed as lead person for the business.
APPROACHES TO AVOID CONFLICTS IN FAMILY
14. 1. Understanding the Realities
2. Research and Development
3. Raising capital base
4. Consolidation of business
5. Managing the pace of change
6. Appointment of professional managers
7. Mergers and Acquisitions
8. Succession planning
9. Replenishing entrepreneurship
10. Active board of directors
STRATEGIES FOR IMPROVING CAPABILITY OF FAMILY
15. 1. Non Participative family members
2. Authority must be clearly defined
3. Attitude of accepting change
4. Giving priority to non-family professionals
5. Family emotions must be kept outside the business activities
6. Effective succession planning
7. Balancing family goals
8. Engage in diversification opportunities
9. Enhancing family image
10. Structured corporate planning
IMPROVING PERFORMANCE OF FAMILY
16. RULES TO SAVE FAMILY BUSINESS
Formulate policy framework and rules : succession plan is one of the
important aspect for formulating policy framework and rules. Succession
plan should outline exactly how the transfer of leadership will occur and
should establish the criteria that hires must meet before moving to role of
Families must serve the business : members of the family should give their
best performance as per the expectation of the company. Members of the
family business should perform as effectively as non family members of the
Future outlook : business firms should have proper core values which prove
to be yardstick for performance of business. Family members should believe
that present strategy prove to be obsolete in long run for the same
company should be flexible in nature in terms of adjusting to changes taking
place in business environment.
17. Accountability : should be one of the major criteria for transition
process in family business. Family members should be made clear about
what is expected from them by family business and they are required to
prove their efficiency through effective performance. They should be
responsible for decision taken by them during time of their leadership.
Addressing the issue : family business who focus on improving their
overall company performance should take structured approach through
addressing the issue by careful examination of its core values. Members
of the family are required to evaluate their core value and understand
their relevance in relation to success of business.
Creating shared vision : it refers to communicating vision , objective of
the company to family and non family members of business.
Communication of information takes place through various sessions of
meeting in company. All the family members should have common and
shared vision towards goal attainment in company.