Family Business and Business Management - Essay Example

Family Business In today’s business environment, family business is obtaining wider popularity, because members of the same family tend to hold similar business interests and goals which may further contribute to the long term sustainability of the business. A family business can be simply defined as a business corporation where one or more members of a single family have a notable ownership interest in the business and have some level of control over strategic decisions. In a family business, usually one of the family members may be the controlling shareholder, that is, a person with the greatest percentage of voting rights in the company affairs. Many of the world’s leading publicly listed corporations are operating under the category of family business. For instance, the corporate giants like Walmart, Samsung Group, Tata Group, and Foxconn are some of the well known family businesses in the globe. This paper will discuss what defines a healthy family business from the perspective of scholars and practitioners. From the view point of the family business consultant Schneider, there are eight major elements including purpose, structure, organizational culture and relationships rewards to shareholders, potential mechanisms in the organization, leadership, strategic and operational performance outcomes, and financial performance outcomes influencing the development of a healthy family business (para 4). Purpose is the factor determining the existence and long term sustainability of a family business. The major reason for the failure of many family businesses is that there exists ambiguity and lack of agreement on the vision, priorities, and goals of the business. Hence, a healthy family business will be characterized with clearly stated business goals and priorities. In addition, it is commonly seen that many family business ventures do not survive beyond the generation of the founders due to lack of foresightedness. In contrast to this, a strong family business will have a well defined family philosophy that facilitates the continuation of the business beyond generations and sets a framework for the future operations of the company. According to Schneider, “structure is the architecture of grouping people in the family business” (para 5). The author continues that the structure of the family business has to necessarily fit the purpose and the current environment of the business. At the start up stage of the business, the firm maintains a simple operational structure by which all the employees report to the owner. However, as the business grows, this basic structure has to be properly amended in a way different functions are clearly defined and distributed among the staff. As Schneider points out, successful family business maintain structures like family council and outside board of directors in order to manage the family relationship with the family business (para 5). Effectiveness of the organizational culture and relationship is an important factor in managing family business conflicts successfully. Clear boundaries must be established between the family and the business in order to avoid the interference of family member relationships in the business affairs of the organization. Instead of leaving the problems unresolved, a healthy family business will timely find solutions to different issues existing in the supply chain. In addition, a potential family business is one which enhances information sharing, employee participation, and conflict management. In a strong family business environment, rewards to shareholders can be tangible; and psychological incentives and the effectiveness of those rewards is determined on the extent to which they impact on the business’ planned needs and family relationships (Schneider 9). Before providing any type of tangible or psychological incentives, the management identifies the critical tasks to be accomplished and creates a list of employees who are to be incentivized for the achievement of the identified tasks. In order to be a healthy business, the family compensation plan should be designed giving particular focus to market rates, position, and performance but not entitlement. Usually, the leading family business houses make provisions for providing highly talented non-family members with special incentives so as to persuade them to join and stay with the business. In the words of Schneider, helpful mechanisms of a healthy family business can be resources like technology, infrastructure, and strategic management policies that would assist it to accomplish its crucial tasks (para 9). Generally, a competitive family business develops a distinctive planning process for the formation of intermediate, short term, and strategic policies. A well designed performance feedback system that would not discriminate between family members and non-family members. Such a system would assist all company people to identify their areas of improvement and thereby to increase the overall productivity of the organization. Evidently, all successful family businesses have developed improved communication systems like formal management meetings and additional communication support systems for the well integration and coordination of the organizational elements (“Addressing the Challenges…”). Like any other organization, a healthy family business will have a strong leadership. The nature of the leadership will be capable of ‘matching the family business needs with the level of diversity the organization is experiencing’ (Schneider, para 10) . An effective leadership is necessary to develop a proactive management team and to identify efficient successor candidates timely. As Eckrich and McClure state, the history of successful family businesses shows that those firms have framed potential career development programs for the career growth of prospective family leaders and non-family leaders (52). In short, the leadership should be able to predict the future needs of the organization and hence to develop a set of specific operational policies for the future generations. A family business’ strategic positioning in the marketplace and its ability to develop and market products/services that would meet the changing market needs can have a direct influence on the firm’s strategic and operational performance outcomes. In order to achieve better strategic and operational outcomes, the business has to possess a set of competitive product lines or services. In addition, a healthy family business will strive to maintain uniqueness in its business operations and to differentiate its product lines or services in order to be easily recognized by the customers. Similarly, a potential family business will be profitable enough to generate strong financial performance outcomes and therefore to guarantee wealth maximization for key stakeholders and to promote long term sustainability of the business. In order to promote sustainable growth, well understanding and mutual agreement among family members are necessary in matters concerning current remuneration to employees, short term and long term incentives to active business personnel, and dividends to active and inactive shareholders. In the view of Schneider, a healthy family business would follow a well planned redemption policy that may not hurt the long term business goals of the organization (Para 11). According to Duguid, the director of the Center for Family Business and Entrepreneurs, PwC for a family business to be competitive, “it may also start to take into consideration issues such as its social commitment, its role or impact in the community” when the firm reaches a certain size (qtd in “A Healthy Family Business”). Duguid points to aspects like environmental sustainability and other social welfare programs. Since modern people are increasingly concerned about their health and environment, they would not support any form of business which does not take such factors into account. Therefore, a healthy family business will reflect its social commitment by developing programs those eliminating greenhouse gas emissions, fighting climate change, and giving education to underdeveloped sectors of the society. Many of the world’s leading family businesses like Walmart and Tata group have set aside a fixed percent of their revenues to promote corporate sustainability programs. Thoughtful division of roles and responsibilities among family members is particularly important to avoid emotional conflicts when two or more of them are eligible to be placed in same positions (Becker & Company). A most commonly observed pitfall of family business is that people focus more on ‘family’ but pay less attention to ‘business’. Every healthy family business organization seems to be willing to treat it as a business but not as a family affair. A good family business would never promote worksite discrimination between family members and non-family members. Possibly, discrimination results in the formation of employee groups and never benefits the growth of the business. A bad practice a health family business will never foster is providing sympathy jobs to family members because such unfair business practices would negatively affect the overall productivity of the firm if the recruited candidates are not adequately qualified for the post. Seeking advice and creative ideas from outside experts is always a potential strategy a good family business tends to promote, because the scope of creative thinking may be limited in a closed web of family. In total, it is clear that a healthy family business will always separate ‘business’ from ‘family’. In addition, it will have a clear vision, goals, and priorities concerning its future course of actions. In order to be healthy in its operations, a family business has to maintain a set of well defined policies to divide roles and responsibilities among family members and non-family members and to distribute incentives among the key company staff. Works Cited A Healthy Family Business. PWC. Web 12 Dec 2012 http://www.pwc.com/ca/en/private-company/lets-talk/healthy-family-business.jhtml “Addressing the Challenges Facing Family Businesses”. Family business success. Web 12 Dec 2012 http://www.familybusinesssuccess.com/FBS_Brochure.pdf Becker & Company Lawyers. The Family Business Advisory Program. Web 12 Dec 2012 http://www.beckerlawyers.ca/wp/wp-content/uploads/2010/04/Becker-Company-Family-Succession-Program-Overview.pdf Eckrich, Christopher J and McClure, Stephen L. Working for a Family Business: A Non-family Employees Guide to Success. Family Enterprise Publisher, 2004. Print. Schneider, Frank, S. “The elements of a healthy family business”. Denver Business Journal, (1998. March 15). Web 12 Dec 2012 http://www.bizjournals.com/denver/stories/1998/03/16/smallb6.html?page=all Read More