Family Business Exam 1
Joint Optimization Alternative
*Family employment policy guides the employment of family members: -Some family members are employees, some are responsible shareholders -family members encouraged to work outside the business to get experience -family has commitment to continuity
Family-First Businesses
-Employment is a birthright -Members of the same generation are paid the same -perks -continuity depends on agendas of individual members -stereotype of nepotism -Financial systems obtuse by design -discourages outsiders to work in family-first BENO NP
Management-First Businesses
-Family discouraged from working in the business -Equal (family & non-family employees) -Compensation=responsibility & performance -Qualifications FECQ
Ownership-First Business
-Investment time horizons & perceived risk are biggest issues -Have shorter time frames within financial results are evaluated -*Shareholders come 1st
Characteristics of Family 1st
-No outsiders -Information closed -Need based salary -Employment=Entitled -Salaries>Normal
Characteristics of Business 1st
-Outsiders=common -Normal Salary -Employment earned -Merit -Open info
Stock concentration is positively correlated with
-Related diversification -R&D expenses per employee -training expenses per employee -overall corporate productivity
Rebellious succession approach def
-clean slate approach -traditions & legacies discarded
Disadvantages of family business
-drama -unclear lines -closed systems -Compensation kills investment-paying someone too much money -entitlement -group think DUCCE G
A family business is a synthesis of....
-ownership control by 2 or more members of a family -strategic influence by family members on the management of the firm -concern for family relations -the dream of continuity across generations
Advantages of family business
-patient capitol-doesn't need a fast turnaround -unity -greater wealth generation -succession pool -decision making speed -quality/service -trust -people focus P-U-G-S-D-Q-T-P
Benefits of family meetings
-provide a forum for delivering info about the state of the business -offers a safe haven in which to teach family members
Unhealthy family culture characterized by
-secrecy -lack of info -low levels of emotional intelligence -little knowledge of the business
Wavering succession approach def
-the next gen is paralyzed by indecisiveness, unable to adapt, fails to assume leadership properly
What makes a family business different?
-the presence of the family -the dream to keep business in the family -the overlap of family, ownership & management -The competitive advantage derived from the interaction of family, management, & ownership
Cost of capital is nearly ______% when the business owner controls stock
0%
Zero-Sum Dynamics def
1 party's perceived gain is the other party's perceived loss
Outsiders def
1-3 1.Family Members 2.Owners 3.Employee
What turned the study of family business into a field (2)
1. The publication of Organizational Dynamics in 1979 2. The launching of Family Business Review in 1986 FBR OD FBROD
3 major groups within the Venn
1. family 2.owners 3.business
3 patterns of ineffective succession
1.Conservative 2.Rebellious 3.Wavering
3 stakeholder classes
1.Outsiders 2.Insiders 3.Hubs
______ (fraction) of all fortune 500 companies are family controlled
1/3, 37%
_____ Billion dollar family firms in U.S
138
# of family owned businesses in U.S
17 Million
Primogeniture def
1st born gets the family business, 100%
divorce symbol-geno
2 lines through marriage lines
Among those that survive, only _____% are successfully transferred to the 2nd generation owners
30%
The best position to move inward to hub is....
6.) Family-Employee
_____% of publicly traded firms remain under family influence
60
Family firms account for ____% of the GDP in U.S
64
Family owned & family controlled firms account for approximately ______% of all incorporated businesses in the U.S
70%
Family Businesses= ______% of GDP in other countries
75%
Family businesses employ ______% of the US workforce
80%
_____% of all businesses in the world's free economies
80-98%
In the 1st 5 yrs of operation, ______% of entrepreneurial & family-owned companies disappear
85%
____% of businesses in the U.S are family businesses
90%
Agency Theory: Traditional
:The natural alignment of owners and managers decreases the AGENCY COSTS of ownership in family firms/
Insiders def
AKA Bridgers Consists of the 3 categories where any 2 overlap 4.Family-Owners 5.Employee-Owners 6.Family-Employees
Who thought of family systems theory?
Bowen
ECI-U
Emotional Competence Inventory-University Edition -feedback on the strengths & weaknesses of individuals of the firm & their relationships with others
Co-Parcenary def
Equally shared
Stewardship Theory (moses)
Family members view the firm as an extension of themselves and therefore view the continuing health of the firm as connected with their own well-being -Owners inherit a responsibility of continuity
The family systems perspective considers the______ to be the building block of emotional life
Gross Domestic Product
RBV- Resouurce Based
Highlights unique capabilities or resources that family firms convert into competitive advantages -Resources=Organizational Competencies
Easiest way to go from 1-->4=
Inheritance
Hubs-System Centers Def
Members of all 3 groups simultaneously Category 7 -Family members who work in the business daily & have an equity stake in the organization -Founder CEO's=1st #7 -7's= most influence
Category def
Mutually exclusive units formed when the 3 group circles are formed into a venn
Human Capital pro & con
Pro: Tenure Con: Nepotism
Board of Directors in Agency Theory=
Protect the Interests of the Shareholders
The most prevalent reason why family-owned companies fail is a failure in....
Succession planning
Systems Theory
The firm is a dynamic system in which integration is achieved by adjustments between family, management, and ownership subsystems -individual perspectives of family & firm may differ, leading to overemphasis on one sub-system -Sub-Systems: 1.Ownership, 2.Family 3.Management
Shareholders get...
Voting rights
Shares vote def
Whoever has the most shares has the most say
Survival def
able to ride out the storm
Almost inevitable for ___ to become ____ & ____ to NOT become ______
almost inevitable for 6 to become 7 & 5 NOT to become 7
conservative succession approach def
although the parent has exited the business, the parent shadow remains & the strategies are locked in the past
in agency theory, is the overlap of ownership & management seen as an asset or a detriment?
an asset
Policy making: involve.....
as many family members are relevant to the particular policy
Agency costs can be controlled or avoided through the use of ________
certain managerial & governance practices
female symbol-genogram
circle
In the systems theory approach, the firm is modeled as
comprising 3 overlapping, interacting, and interdependent subsystems of family, management & ownership
Managers ____ company
control
the focus of family councils should be....
conversations, deliberations, & policy making
Genogram
cousin of family tree, gives more personal info,
distant symbol- geno
dotted line
category 5
employee-owners
category 3
employees
The family systems perspective considers the______ to be the building block of emotional life
family
Patient capitol def
family businesses don't always need a return on an investment right away, able to wait
category 1
family members
category 6
family-employees
category 4
family-owners
Interaction Dyads
formed when 1 member of family business interacts with another
Zero-Sum dynamics def
one party's perceived gain is the other party's perceived loss
Shareholders ______ company
own, DON'T control company
category 2
owners
Compensation kills investment- def-
paying someone too much money
family businesses built to last understand the tension between
preserving the core of what has made the business successful & promoting growth and adaptation
Board of Director's job
protect shareholder's interests -looks over what is going on in management
Family emotional intelligence
refers to the capacity to recognize our own feelings & those of others & the ability to manage our emotions & relationships with others -ability to handle feelings
Social Capital=
relationships
organizational competencies=
resources used as an advantage by family
marriage symbol-genogram
solid line connecting people
male symbol-genogram
square
Culture def
the collection of values, defined by behaviors that get embedded in the enterprise as provided by leaders, past & present
the further away the group is from the center of the venn....
the less influential the player
group def
the major circles within the venn
Participation def
the nature of the involvement of family members in the enterprise
Triangulation def
the predictable emotional pattern among 3 people, with the 3rd, the outsider being triangled ex: 2 parents may triangle a child by fighting with each other
Ownership control def
the rights and responsibilities family members derive from significant ownership of voting shares and governance of the relationship
Strategic preferences def
the risk preferences and strategic direction family members set for the enterprise
Cutoffs def
unresolved emotional attachments to parents that lead members to distance themselves from family