Management Issues for the Family-Run Business - Case Study Example

Management Issues for the Family-Run Business A family-run business is characteristically the business that more than 50% of the shares are owned by members of the same family, or one that inherited to the generations of the same family. Organizing, leading and working in a family business can fetch precious benefits when comparing to other businesses, that is, from better faith among personnel to improved flexibility. Efficient management is foremost otherwise there can be problems such as poor communication to conflict regarding compensations (businesslink.gov.uk, N.D.). A study conducted by the Institute for Family Business (IFB), shows that up to 65% of all businesses in the UK are family-owned and amounts to 42% of private sector employment. Family businesses provide work for more than half of the private sector labor force. There are clear and attractive compensations, since any venture will profit from the relations of faith and dedication among family members. Nevertheless, a family business yet requires be running and managing with an objective and specialized manner. The family businesses form a vital role running the financial system of the country. They are mostly common in the micro business segment - firms with less than ten workers. But they are as well widespread in the small and medium enterprise (SME) segment.1 Further, few of the very leading private and well-known UK businesses are family firms, for example JC Bamford (usually branded as JCB), Clarks Shoes and Associated British Foods. The family enterprises vary considerably in size and as well vary in the level of family participation in the business. A number of families may participate daily in the management of the business, at the same time as others may take a more liberal approach with the participation of specialized non-family administrators. Exact explanations of a family business differ, however the enterprises ought to meet a few conditions concerning their ownership or management. A generally accepted explanation, set up by the Finnish Ministry of Trade and Industry in 2004 2, is that: The Family Entrepreneurship Working Group should have the majority of votes held by the person who established or purchased the firm or their spouses, parents, child or child’s direct heirs. And also minimum one member of the family is involved in the management of the firm. In the case of a scheduled business, the individual who established or purchased the firm or their families enjoy 25% of the right to vote through their share investment and there is minimum one family member on the board of the company directors. Additionally, and mainly for smaller firms, subjective norm require to be engaged in order to differentiate family firms from entrepreneurs in owner-managed firms more commonly (ifb, 2008). Ownership and Control In the majority of financial systems family businesses are the most widespread form of business organization. This is factual amongst privately-held businesses; in addition, the families are controlling owners of numerous businesses listed on stock exchanges around the globe. Family businesses are of diverse size and age and they can be seen in various industries. As in any other business, family business administrators are anticipated to meet the expectations of a wide range of stakeholders, for example customers, financiers, suppliers, partners, employees, and owners - with the vital difference that the latter two groups in addition to the management team may be represented by family members. In the sense, one can anticipate that family ethics, interests and hope persuade the, management, control and growth of the business. At a broad level this is what makes family business a special type of business for social scientists in diverse disciplines. The family business writing has since several years highlighted the troubles connected to family administration, ownership and control. Family controlled businesses have for instance been explained as it necessitate of specialization, since frequently defaulting to poignant rather than balanced decision making, and as being inner leaning and paying attention on their background rather than dedicated to rejuvenation, growth and enhanced performance. However, latest relative studies, expose that family controlled businesses often do better than other firms. Researches have revealed that family control have significant and hopeful consequences for business firms’ tactical progress and long-term endurance. There are numerous recognized hypothetical outlooks that can suitably be applied to family businesses so as to augment the intellectual knowledge of this leading form of business institutions (CeFEO, 2007). Governance The governance of a family business is complex than for non-family owned businesses for the reason that of the vital role of the family that owns and characteristically guides the business. In a family based business, the business, the family, and the ownership faction all require governance. In businesses whose ownership is controlled by a lone family and other kinds of family enterprises together with family foundations and family investment finances, the lack of efficient governance is a main reason of managerial troubles. It has been obvious that each business capable to enhance governance gathered long-lasting profit. One needs to gain knowledge of the fundamentals of governance and employ the most excellent practices that live in family business governance. Individualities, obsessions, and authority, are at the center of all venture. Effective governance creates a sense of direction, standards to live by or work by, and well-practiced and established strategies those advice organization associates how they ought to perform or what they must do in certain situations. For instance, examples of strategies are hiring strategies, promotion strategies, debt strategies, even fire disaster strategies. This makes the right people collectively at the correct time to converse the important topics. One must gauge the efficiency of the governance system from these results. Successful governance can be carried out in an unceremonious, informal approach. The global family venture creates a blend of business, family and ownership anxieties that can build these organizations psychologically charged atmosphere for scheduling and trouble solving. In these methods persons have to handle issues within and across three overlapping groups: the family, the business, and the ownership group. Headed for efficient management of business, family and ownership apprehensions necessitates communication and decision making within and across the family, the business, and the ownership groups (Davis, 2001). Leadership Leadership in family business is almost certainly the least understood feature of the field. Maybe this is for the reason that it is accepted that it is unique for each leader and their circumstances is diverse. It is considered that there are a number of key subjects in what successful leaders do, even though they carryout them in a very dissimilar manner. The family leadership summary demonstrates the three areas that found to strengthen family business leadership. These three dimensions are linked to unique features of family business leadership, succession, strategy governance, board structure. Leaders of family firms require being intensely concerned in all three dimensions, and being critically conscious of the changing unforeseen events within each of them. For the reason that these areas are interconnected and influence one another the challenge facing family firms is multifaceted. It as well means that the outcomes for one business may differ widely from other businesses. The investigation points to sharp divergences in how firms move toward and understand their position, however, at the same time, how there are commonality in the kind of circumstances they face and the intense consequence these have on leaders (Björnberg and Nicholson, N.D.). Succession The succession of a family business, whether to family associates or to not related third parties or workers, is very important and complex procedure and should take into account several features that together with the ongoing fiscal requirements of the owner and the owner’s spouse, family dynamics, sustained victorious process and administration of the business, and intricate estate scheduling and tax issues. Usually, the succession of a family business can take the form of a sale or a unwarranted transfer. In the case of the first option, the owner will experience a major liquidity event that prompts income tax issues. In the case of the second option the owner will usually be making inheritances or gifts of interests to children or other family members. Both types of business succession present unique issues and scheduling chances. The significance of a family business interest being reassigned has a major impact on the preparation concerned. Furthermore, estimation may be affected by reassign limitations in shareholder or partnership accords, and by concessions for minority interest and lack of marketability. As a result, business succession planning frequently entails leveraging policies intended to transfer wealth from one generation to the future generation at lesser values for federal estate and gift tax intentions using obtainable estimation concessions (Ressler, 2007). Significant Management Issues The significant management issues are mainly: E-commerce, quality, corporate strategy and creativity. Two of the management issues are briefly discussed here. The strategic planning At present the ever more competitive and worldwide corporate marketplace, strategic planning has become a precious instrument for businesses as they struggle to balance the diverse interests of key stakeholders —shareholders, employees, customers and society members. In family-owned businesses, running these potentially challenging interests turns out to be all the more multifaceted owing to poignant affections and individual fiscal interests. For middle class family firms, accepting and executing sound development strategies is significant to accomplish competitive benefit and attaining business sustainability while as well creates shareholder wealth, both in the near term and at a potential liquidity event. As family business owners evaluate growth initiatives, strategic planning can assist them appreciate core business competencies and allot limited capital. A complete strategic plan can as well add to the alternatives for ultimate value recognition in ownership changes. Regardless of its importance, a considerable number of family-owned businesses not have a formal plan or have failed to converse it all through the family ownership faction or management team. Family relations frequently take part in an important responsibility in deciding which business strategies are considered and finally executed (Harvey, N.D.). Creativity Success takes creativity, expertise and firmness. However accomplishment as well necessitates support. The Family Business Network encourages family business standards by sowing the seeds of free enterprise, and creating young, creative leaders who are developing their businesses. Offering award distinguishes the best young Family business entrepreneurs who, in the course of financial support and access to business services, can assist their businesses prosper. The system of awards helps to develop family business values, foster the courage of enterprise, identify and support youthful thinkers and encourage entrepreneurship amongst the next generation international society (FBN, 2005). Reliance group (India) The Reliance Group, established by Dhirubhai H. Ambani (1932-2002), is Indias major private sector family business enterprise, with businesses in the energy and resources value chain. The reliance group annual revenues are in surplus of US$ 34 billion. Reliance Industries Limited, is a Fortune Global 500 company and is the biggest private sector corporation in India. Beginning with textiles in the late seventies, Reliance followed a policy of backward vertical integration - in polyester, fiber intermediates, plastics, petrochemicals, petroleum refining and oil and gas exploration and production. The Groups activities span discovery and production of oil and gas, petroleum refinement and marketing, petrochemicals textiles, retail and extraordinary financial sector. Reliance benefit from international leadership in its businesses, being the largest polyester yarn and fiber manufacturer in the world and amongst the top five to ten manufacturers in the world in main petrochemical goods (Reliance Industries Limited, 2009). The reliance organizational structure comprises, members, board of Governors, chairman, standing committees which comprises the management committee, academic council, examination and certification committee, and research and publications committee. Appropriately supported by his wife and two sons Dhirubhai expanded his interests to petrochemicals, telecommunications and information technology, energy, power, finance, capital markets and logistics. Reliance provided innovative dimensions to India’s equity traditions. With inventive tools like convertible debentures Reliance became a hot chosen in the Stock Market. The Federation of Indian Chambers of Commerce and Industry called Dhirubhai Ambani of Reliance the Indian Entrepreneur of the 20th century. The study conducted by The Times of India which he was highly praised to be the greatest creator of wealth in the 20th century. The first stroke had paralyzed Dhirubhai however the second stroke caused his death. He died in 2nd July 2002 leaving behind at the controls of Reliance to his two sons Mukesh and Anil, wife and two daughters (Reliance, 2009). An outstanding family may have started Reliance; however it is no longer the possessions of a family. Clearer rules must oversee how the group’s capital is invested in fresh businesses, mainly those in which the promoters have a stake. There is inconsistency of interest. The investment companies that efficiently manage Reliance remain masked in profound mystery. As the layer of mediator companies thickens, it becomes difficult for the shareholders of the scheduled company to trace the ownership pattern. Dhirubhai Ambani used to take reasonable delight in having established the equity cult in India, and Reliance has, in the earlier period, won awards for corporate governance. The gloomy facts that have emerged in the past may encourage some observers of precisely what the group vigorously tried to deny: that, in the end, Reliance is simply another Asian family business (Tripathi, 2005). References Björnberg, A. and Nicholson, N. (N.D) Highlights From The Family Business Leadership Inquiry, [Online] London Business School, Available from [Accessed on 7 May 2009]. businesslink.gov.uk (N.D.) Family-run businesses [Online] Available from [Accessed on 8 May 2009]. CeFEO, (2007) Central Perspectives and Themes in Family Business Research [Online] Available from [Accessed on 8 May 2009]. Davis, J.A. (2001) Governing the Family-Run Business [Online] Available from [Accessed on 8 May 2009]. FBN, (2005) Family Business Young Entrepreneurs Honors by FBN, [Online] Available from [Accessed on 7 May 2009]. Harvey, R.A. (N.D.) Strategic planning is the key to growth and sustainability [Online] Available from [Accessed on 8 May 2009]. ifb (2008) The UK Family Business Sector- An Institute for Family Business report by Capital Economics, [Online] Available from [Accessed on 8 May 2009]. Reliance Industries Limited, (2009) Reliance at a Glance, [Online] Available from [Accessed on 8 May 2009]. Reliance, (2009) The Origin of Reliance [Online] Available from [Accessed on 6 May 2009]. Ressler, R.J. (2007) Family Business Succession, Business Advisor, June 2007, [Online] Stradley Ronon Stevens & Young, LLP. Available from [Accessed on 8 May 2009]. Tripathi, S. (2005) Business: Just Another Family Business: The Far Eastern Economic Review: January 22, 2005. [Online] Available from [Accessed on 7 May 2009]. Read More