Family Business and Succession Planning
Business versus Family Conflict
Family - inward looking decisions based on emotions Business - outward looking decisions based on analysis Conflict - family preserving harmony and minimising change business needing to change to survive and develop
Family businesses in Australia
Family businesses account for around 70% of all businesses »» Average turnover is $12 million per annum »» Average number of employees is 37
Key factors in succession
1. Examine pressures and interests inside and outside of the business 2. Examine forcing events 3. Examine the sources of succession
Succession planning process
1. Selecting and training a successor 2. Developing a vision or strategic plan for the company after succession 3. defining the role of the departing incumbent 4. communicating the decision to key stakeholders
Five key aspects for effective succession
1. Time 2. Type of venture 3.Capabilities of managers 4. Entrepreneur's vision 5. Environmental factors
Three philosophical orientations
Family first Business first Balanced approach
Family capital
Family social capital Family human capital Family financial capital
Harvest plan
Determines how and when the owners and investors will realise a cash return on investment.
Managerial successor
Efficiency, internal control and effective use of resources. Stability and day-to-day management.
Family business advantages
Greater independence of action, family culture as source of pride, stability, strong identification, commitment, motivation, less bureaucratic and impersonal, greater flexibility, quicker decision making, knowing the business, provide initial capital, room, encouragement, longer term orientation, culture as a source of pride
Roles of children in transition
Helpful or faithful apprentice: Learning from bottom up expected to perform all kinds of tasks Stepping Stone: Stepping Stone get experience using family firm on a career path. It fulfills the sense of personal obligation that members of the younger generation are likely to feel toward the family business Socialised Successor: Socialised Successor socialized with the strong likelihood of becoming the next generation president Difficult in establishing boundaries, establishing credibilities
Entrepreneurial successor
High in ingenuity, creativity and drive. Critical ideas for new products or ventures.
Limitations of succession planning
Incumbent will not give up position Family politics No one wants to take over
Challenges
Lack financial capability Less management expertise Have their psychological trials and tribulations
Family business disadvantages
Less access to capital, confusing organisation, nepotism, tolerance of inept family members as managers, inequitable reward systems, spoiled kid syndrome, internecine strife, family disputes secrecy, financial strais, have less management expertise, dampen incentives discourage risk taking, paternalistic/autocratic rule
Barriers to succession planning
Owner/Founder Family Death anxiety Death as taboo Company as symbol Discussion is hostile act Loss of identity Fear of loss Concern about legacy Fear of sibling rivalry Dilemma of choice Change of spouse spot Fiction of equality Generational envy Loss of power
Common cultural patterns in family businesses
Patriarchal or Matriarchal family: Characterised by a dominant authority figure, and family life revolves around the needs and wishes of that person, all decisions made by this person, and all family members expected to follow obediently Collaborative family: Shares the power, the head of the family often takes the spouse and children into his or her confidence and relies on them for information. Shares goals and values and it places high priority on maintaining family solidarity. Difficult situation such as death, retirement, choosing a successor are discussed and debated Conflicted family: Distrustful, constantly defending themselves against the designs of others, Family members rarely communicate with one another, avoid each other, or rely on lawsuits
