FAMILY BUSINESS MANAGEMENT-AN
INTRODUCTION
High percentage of share capital owned by a family either jointly or
individually
Family members reign utmost decision making process
Expression of Intention to maintain family involvement
A number of generations of the same family involved in
management or ownership
Management or ownership control by direct descendents of the
founders
In a family enterprise, there is a unique source of
competitive advantage derived from the interaction of
the family, management and ownership
Family unity is highly required to succeed as FOB
Family businesses are ubiquitous
70 per cent of USA Inc are family owned and controlled
1/3rd of the Fortune 500 companies are family controlled
About 60 per cent of publically traded firms remain under family
influence
Family businesses are small, but USA FOBs are operating in France,
Germany, Italy, Spain, Canada and Japan
In Asia and Middle East 95 per cent businesses are FOBs
Family business is an enterprise in which two or more members own 15
per cent or more of the shares, family members employed in the business
and the family intends to retain control of the firm in the future
KONGO GUMI is considered to be the oldest
surviving family business in the world
It is in the construction business and is based
out of Osaka in Japan started business in 578
AD
The family migrated from Korea to Japan
more than 1400 years ago
They built Osaka Castle in the 16th century
Advantages of FOBs
There is a long term orientation as the continuity of
the firm is of great concern to the older generation
The family culture is a source of great pride for family
employees alike
In a Family firm Less bureaucracy
Family firm shows greater willingness at bad time by
ploughing back profits
It is structured to impart training to younger
members of the family
Disadvantages of FOBs
Lack of role clarity among the members of the
family leads to confusion
The style of functioning may be autocratic or
patriarchal
The next generation may not be worthy of their
position and role in the organization
There can be very strenuous succession battles
Some family members with vested interest they
drain the funds from the business
Family Business in India
India has a rich and glorious history of family owned enterprises
From ancient times business in India has been concentrated notably the Jains
and Marwadis in the north- Agrawals or Marwadis- Goels, Jindals, Singhal,
Jhunjhunwala, Kedias and Gindodiya
After the advent of the British some other communities ware added Parses,
Chettiyars etc.
Predominance of business communities also led to predominance of business
families
The Indian businessmen lived in interlinked social structures and the primary
entity was extended Joint Family
Most of the business in India were related to trading much of the
manufacturing continued to be done by some craftsmen
Cawasji Davar set up the first cotton mill in Bombay in 1854
followed by Jamshedji Tata
The spread of European thoughts and English education had its
impact on Indian business too
The Marwadi community established Calcutta as a center for
Commerce in the east such as Birlas, Bangurs, Khaitans and
Goenkas did business from Calcutta
Life Cycle of Family Business
• Families, of course, have their own life cycles,
with implications for the family business.
• Founding entrepreneurs tend to take an
authoritarian approach to leadership, but
second-generation siblings won’t work well
together unless consensus building is
emphasized.
• In the third generation, the family has separated into
branches, and divisions can arise between family
members who work in the business and those who
do not.
• In the fourth generation and beyond, the family is
dispersed, and younger members may lack strong
emotional ties to the business.
• Each generation must reinvent family and business
governance to account for changes in family status—
and to prepare for future changes on the horizon.
• Sustaining a family business over multiple generations has never been
easy, and several megatrends are making it even harder. First, there is
the well-documented decline in corporate life expectancy generally.
• A recent study by Fidelity Investments found that in the last 20 years,
the expected life of public companies has declined from 25 years on
average to less than 12 years. Private companies have a much higher
mortality rate. Corporate "death" occurs through business failure, M&A
and other causes.
• The rising cost and the increased complexity of doing business as a
result of globalization, technology and communication advances are
among the reasons for the increasing mortality rate.
Second, there are the demographic trends documented recently by
the National Institutes of Health's National Institute on Aging—a
60-year-old man is now expected to live 23 more years.
In 1960, a 60-year-old man could expect to live nine more years.
Today healthy men and women in their 60s have a good chance of
living to 100 or more.
For a multigenerational family business, this dramatic change in
expected mortality has far-reaching implications.
Not long ago, two generations at most worked together in a family
firm. It is now common to have three generations actively involved
in the business. The fourth generation often has already been born
or is right around the corner.
• Family companies in any country can be
categorized based on the stage of family and
ownership.
• Typical categories and path that a family
company moves along over time. It provides a
way to understand the strengths and
challenges of family companies at each stage
so we can be more prescriptive about how
families can prepare for the future.
• Most family businesses start at the Controlling Owner
stage with one owner (or one owner and his/her spouse)
having ownership control.
• A family business can stay at the Controlling Owner stage for
many generations if ownership remains consolidated in one
person or a married couple.
• At this stage, the family is typically small, and family
relationships can be intense.
• The business is almost always in the center of the family’s life.
The founder is impressive, builds a lot of value and is typically
at the center of activity, often regarded as indispensable.
• Because families tend to pass ownership equally to the next
generation, family businesses typically move next to the Sibling
Partnership stage.
• Now brothers and sisters control the business together through
ownership.
• Families at this stage are larger and more diverse, and businesses
are larger and more complex, typically. The company relies on a
sibling team to work together effectively. Family relationships can
be less connected as siblings create their own nuclear families.
• Sibling tension around power and fairness, balancing dividends
with reinvestment, and building professional systems in the
business are common issues at this stage.
• Next, family companies typically move to the Cousin Consortium
stage as ownership control passes to a group of cousins.
• The family is larger, more diverse, and the business is larger and more
complex.
• Typically few family members are employed in the business at this
stage.
• Non-family members often manage the business while the family
gravitates to board roles. With a large family, maintaining unity and
organization in the family is critical.
• In addition cousin families often face the issues of accepting branch
differences, managing the psychological impact of wealth on families,
maintaining aggressive reinvestment in the business, and redefining
the family mission for a large family.
• https://www.youtube.com/watch?v=Io9aWtu
SEh4
• https://www.youtube.com/watch?v=f4CKTYxB
4ac
• https://www.youtube.com/watch?v=ZC2DyeK
ZGIg
• https://www.youtube.com/watch?v=vZ52w3w
BP1U
• https://www.youtube.com/watch?v=dtSFTvl9e
