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FAMILY BUSINESS

M-5

Introduction
A family business is a business in which one or more

members of one or more families have a significant ownership, interest and significant commitments toward the business overall well-being. Family Business is one which owned and controlled by the members of a single family. Majority ownership by a single family and direct involvement by at least two members in its operations. Members of one family owns enough voting right to control the strategic policy and tactical implementation

Importance
Trust lowers transaction cost
Small, nimble and quick to react Information as a source of advantage

Types of Family Business


A family owned business

It is a for-profit enterprises in which a controlling

number of voting share , typically but not necessarily


a majority of the shares, are owned by the members of a single family, or are owned by one family member but significantly influenced by other members of the family

A family owned and managed business

The authority conferred by this controlling interest permits the family to determine objectives, methods and policies to achieve them.

It requires an active participation by at least one family member in the top management of the company so that one or more family members have ultimate management control

A family owned and led company

It requires an active participation of one family member in the board of directors of the company so that one or more family member have at least a high level of influence over the companys direction ,

culture, and strategies

3 circle model of family business


Developed by Tagiuri and Davis incorporate family,

business and ownership system in to the definition of the family business system. Each of these system interacts with others and influence their membership, goal and dynamics. 3 circle model has become the established system model for the family business field. It consist of three systems: Family i) The business system ownership ii) The family system Business iii) The ownership system

History of family business


Founders vision and mission Historical accuracy

Honoring longtime employees


Thanking customers and vendors Background for uniformed

Responsibilities of Shareholders of a Family business


Be knowledgeable about company operations. Knowledge about basic company finance and be able

to read and ask questions about the income statements and balance sheet of their company. Attend shareholders meeting Understand board member qualification and participate in the screening board members

Constructively question management and offer

suggestions to management Be a positive emissary for the company Publicly support management decision Keep appropriate management information in strict confidence Generates business leads Provides additional investment capital

Rights of Shareholders of a Family business


Timely information on company strategy, important

organizational changes and the companys basic financial status The ability to participate in the election of board members Fair policies that protect shareholder's interest but also require their interest and risk taking Acceptable economic performance by the company, including reasonable dividend and capital gains

Family business System Governance


Periodic assemblies of the family Develop clarity on roles, rights and responsibilities Encourage the family members to act responsibly

towards the business Family council meeting Discuss the current issues, ownership, family issues and directions and keep the family informed about these Help the family reach decision and speak with one voice about its goal A family constitution Corner stone of the familys leadership efforts. It articulates familys vision for itself and business, the familys core values and policies and guidelines that regulate how the family will relate to the business

Succession in Family Business


How best to pass the business to the next generation is the great challenge . There is a need to make the right decision for the family and business. The succession plan should include the following
Key goals for the succession process A schedule of the transition stage

Contingency plan

Points to be considered while developing a succession plan


First family succession pal, then business succession

plan Family-first Business or Business-first family Succession management Business valuation

Succession Three ways to ease transition


Hire the most competent advisors you can find and

afford Business valuation is a critical elements of succession planning Funding is often a hidden or non- recognised cost of succession planning

Pitfalls of the family business


Lack of focus and strategy Nepotism in family

Lack of professionalism
Inability to separate the familys interest from the

interest of the business Sibling rivalry in the family business

Strategies for improving the capability of a family business


Family firm must be able to professionalize
The demise of the joint family Replenishing entrepreneurship

Good management
Ability to change Have a strategic plan Have an active board of directors

Improving family Business Performance


Concept of core business Values

Training

How to save the family business


Formulate policy framework and rules
Families must serve the business Future outlook

Accountability
Addressing the issues Creating shared vision

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