Family Business - Anderson Property Plc - Case Study Example

Family Business Consultant Report Grade (May 6, Table of Contents Family Business Consultant Report Executive summary Family business poses several challenges that may not be experienced in other forms of business, due to the increased participation of family on every aspect of the business. In this respect, if the affairs overlapping and the family and its business are not managed well, there are high chances that a family business may not survive to pass on to the next generations. The discussion below analyzes the Anderson Property Plc (APC); a family company business that was established in 1986, and has proven successful in its property and real-estate business over the last three decades. While the organizational structure and the organizational strategy of the company are well formulated and have acted as the basis of the company success in the past, there is a major weakness both in the shareholding structure and the succession planning of the business. The APC family company shareholding is not specified in terms of the percentage shareholding for each of the family members, while most of the top management level positions are reserved for the family, yet not clarified on how succession should occur. Therefore, it is recommended that the Anderson Property Plc (APC) builds its shareholding and succession planning upon the equitable family value and principle, which will distribute the benefits associated with the business positions and wealth equitably among the family members. This will be crucial to alleviate the unhealthy competition for top management positions, which is increasingly building tension and resentment in the family. Introduction Family business is different from the other types of business, owing to the fact that the family plays a pivotal role in both the management and the succession planning of the business (Poza, 2013). The majority of family businesses owners have a prospective of running the business successfully and then passing the business over to the next generations. However, it is estimated that “70% of family business will not make it to the second generation, while 90% will not pass on to the third generation” (Walsh, 2011:2). This report seeks to undertake an analysis of the a Property and real-estate family business, with a view to establishing what is working for the business now, what needs to be changed and what needs to be done to make the future prospective of the business a success. Anderson Property Plc (APC) is a property and real estate bossiness dealing in the purchase and sale of real-estates, houses and homes, as well as construction and leasing of both commercial and residential houses. Established in 1986 by Lenny Anderson, the APC business has been run as a family business over the past three decades, and continues to pass its management over, along the family line. The business currently has six branches in different locations, and it has been successfully growing both in its size and profitability for the last two decades, mostly due to the involvement of professional hands of non-family members in the business management. Despite the fact that the business has employed other employees who are not members of the family, the bulk of the top management and the directorship of the company is held by close Anderson family members. Lenny Anderson started as the proprietor, managing director and CEO of the company, running it since 1986 to 2005, after which the CEO position was bequeathed to his first son, Mark Anderson who run the business successfully until 2011, and then passed on the CEO position to Levy Anderson, his first son, who currently doubles as the managing director and CEO of APC. The key criteria of family business According to the Three-Circle Model of the Family Business System, there are different roles, expectations, motivations and fears that drive the three different entitie/circles involved in a family business system (Tagiuri & Davis, 1996). The Three-Circle Model provides that the three entities/circles that define the family business system are interdependent and overlapping, and they constitute the business, the family and the ownership of the business (Tagiuri & Davis, 1996). The overlap of the three different entities/circles constituting the family business produces seven interest groups in the business, whose interests, motivations, expectations and fears are very different (Institute for Family Business, 2010). Each of the three circles constituting a family business has its own governance structure and a plan, but more often the circles are intertwined such that they produce poor communication, resentment and lack of commitment to the future (Kachaner, Stalk & Bloch, 2012). The family council governs and plans for all the essential family affairs, and thus constitutes the managing organ of the family circle. On the other hand, the management team manages, plans and strategically leads the business towards the realization of its set objectives, while at the same time preparing both the business and the succession plan for the family business (Tagiuri & Davis, 1996). Lastly, the board of directors manages the ownership circle of the business, and is responsible for the strategic, contingency, continuity and also succession plan (Carlock & Ward, 2001). Thus, according to the Three-Circle Model, poor communication, resentment and lack of commitment to the future are the same three things that spell doom for a family business, if they are not managed effectively (Louise, 2007). Organizational strategy Organizational strategy entails the creation, evaluation and implementation of the decisions of an organization, for the sake of realizing the ultimate objective set by the organization (Poza, 2013). The APC organizational strategy comprises of group cooperation of the top management of the company, where both the top management family members and the top management outsiders are involved in defining the organizational objectives and their mode of implementation, with an input from the board of directors on the strategic direction of the business. In this respect, the internal goal formulation strategy of the family business is vested purely in the hands of professional management of the business. On the other hand, the definition of the strategic direction and focus of the businesses is defined by the Anderson family through the board of directors, since the family has the majority members of the board of directors, which defines the strategic direction and focus of the company. Organisational Structure Organizational structure provides for how the leadership and management of a business are organized from the top to the bottom level, as the basis of a business realizing its target objectives (Walsh, 2011). The organizational structure of the APC business has the managing director and CEO at the top of the management of the business. Under the CEO is the Company secretary, the group executive director, the chief financial Officer and the chief operations officer in that order. Under the chief operations officer are the different branch managers of the business branches in the six different locations, followed by the operational managers in each branch, supervisors, professional employees in different fields and then the subordinate staff at the bottom of the organizational structure. The shareholding of the APC business is 90% family-owned shareholding, and only 10% outsider shareholding, with the only outsider shareholders allowed in the business being the top level management team members. The outsider shareholders also qualify for selection as members of the board of directors of the company. The board of directors of the company is constituted by nine members. Six of the positions in the board are family positions, while the other three can be held by the outsider members of the board. The gap identifiable in the organizational structure is that the shareholding structure has not been defined in terms of the actual percentage of shares each shareholder can hold, which is becoming a major problem as the Anderson family continues to expand. It is recommended that the actual percentage of shareholding in the business for the family members is well defined, for the sake of avoiding shareholding structure battles among the family members, in the future generations. Shareholding structure The shareholding structure of APC family business provides for 90% shareholding for the family, while the rest 10% can be held by outsider top management team members. The shareholding is not defined in terms of the actual percentage or the maximum number of shares held by each family member in the business. Therefore, the 90% of the APC business shares are held by chairman of the board of directors of the company, in stewardship for the whole family. However, the family leadership is vested in the hands of the eldest family member living. Therefore, the business, ownership and wealth management, and the family leadership are separated, with the different leaders in each of the three categories playing unique leadership role in the different circles of the family business. Succession Planning The organisational strategy of the APC has a family member doubling both as the managing director and the CEO of the company. The position of the chief financial officer (CFO) is also retained within the family circles. The CEO and the CFO are also default members of the board of directors. Further, while the chairmanship of the board of directors is a default position for a family member, its succession plan has not been defined. However, the rest of the top management levels can be held by outsiders who are professionals in different fields, as it would be necessary to run the business successfully. The succession strategy for the position of the CEO and Managing director of APC has traditionally been that the first son takes over after his father, and then bequeaths the position to his first son in that systematic order. However, the position of the second, third and other sons has not been defined, and this is breeding some competition and resentment among the sons of Mark Anderson, most especially as related to the position of the CFO, Group Executive Director and Board Chairman of the company. On the other hand, the professional non-family management team is also dissatisfied with the succession plan that denies even the most experienced, loyal and committed members of the management an opportunity at the helm of the company leadership. Therefore, the current breakdown in communication is affecting the interfamily relationship, as well as the business management and leadership cooperation, due to the increasing resentment arising from the company management tussle. Further, the chairmanship of the board of director is also being contested amongst the sons in the Anderson family, since its succession plan has not been defined traditionally. The identifiable existing gap in this organizational structure is the lack of clear succession plan and strategy related to the top management level of the company, which is in turn breeding tension and resentment in the family and in the business. The recommendation therefore, is that the succession plan for the chairman of the board of directors, as well as the other top management levels has to be defined and clarified, to end the breeding tension and resentment both in the business and the family. Conclusion The Anderson Property Plc (APC) is a property and real-estate family business that was established in 1986, and has been running within the family line for the last three decades. The organizational structure of the company is well defined, while its organizational strategy is also based on a duo-formulation process, with the board of directors defining the strategic direction and focus of the company, while the top business management team defines the internal organizational goals and objectives, and the modes of implementing them. The separation of the family role from that of the professional management is clear, where the family determines the strategic direction and focus of the business through a majority in the board of directors. On the other hand, the professional management consisting of the family and outsider top management team define the internal organizational mode of operation. Thus, the family business has been successful. Nevertheless, the major weakness associated with the APC family business is the succession planning, with only the position of the CEO being clearly defined in the succession plan, while the succession planning for rest of the positions is not clearly defined. The result has been an increasing tension, breakdown in communication and resentment both among the family members and between the family members and the top outside management team. The other major weakness associated with the APC family business is in its shareholding structure, where there is no specific attribution of a certain percentage of the shares of the company to the members of the family. The overall wealth and shareholding of the company is held by the chairman of the board of directors in stewardship for the family. Recommendations The most of the issues facing the CPA family company business are family-based issues, as opposed to business-based issues. While the business has been running successfully for the last three decades, the major challenge that is threatening to change the success course of the business is the succession planning issue, which is breeding tension and resentment in the family business. The recommendation therefore, is that the Anderson family focuses on building family values, principles and competencies, which will see the APC family company run and managed on the basis of clearly defined family values and principles, as opposed to competition among the family members. Building the family values and principles should revolve around defining the mode of sharing the family wealth and benefits derived from the business equitably among the family members, as opposed to sharing the company positions. In this respect, the family wealth can be distributed on basis of the equitable family value, such that the holders of the top and highly-paying positions of the company owns commensurately less shares compared to the holders of the less paying and non-influential positions of the company. This way, the benefit derived from the AP company family business will be equitably distributed, such that there would no longer be a need for competition for the top management positions of the company, since each position is well rewarded either in pay or shares. References Carlock, S. & Ward, J. L. (2001). Strategic Planning for the Family Business: Parallel Planning to Unify the Family and Business. London: Palgrave Macmillan. Institute for Family Business. (2010). Family Business Challenges Understanding Family Business, 1-10. Kachaner, N., Stalk, G. & Bloch, A. (November 2012). What You Can Learn from Family Business. Harvard Business Review. Available at: https://hbr.org/2012/11/what-you-can-learn-from-family-business/ar/1 Louise, S. (2007). Management of PMEs. ERIP, 575-576. Poza, J. E. (2013). Family business. Andover : Cengage Learning. Tagiuri, R. & Davis, J. A. (1996). Bivalent Attributes of the Family Firm. Family Business Review, 9(2), 199–208. Walsh, G. (2011). Family Business Succession Managing the All-Important Family Component. KPMG, 1-76. Appendix The Three-Circle Model of the Family Business System Read More