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