Bunch of Glitches in Family Business - Case Study Example

Introduction

Many people perceive family businesses as small or medium sized businesses that are characterized by a bunch of glitches such as disputes on succession. In addition, there is also a notion that these family businesses focus on local markets. This account is true for most of the mom-and pop firms, but does not indicate the great contribution of these businesses in the global economy. Experts argue that the unique ownership structure of family business provides them with a long-term alignment that the public firms lack. However, there is a shallow understanding on the performance of the family business over the long-term compared to other businesses. In order to make clear understanding over the issue, there is need to analyze further research over the issue. Through research, it was found that the management of the different class of the businesses brought the difference in the performance (Murdoch, 2012). This research shows that at stable economies, the family business do not gain much money as the public or government companies do. However, during the slumping period of the economy the family businesses outperform the other businesses with diverse ownership structures.

The average consideration of the general performance for family business was found to be higher than for other businesses in most of the countries. This is because they concentrate on pliability ass compared to performance, hence they waive on the excess earnings generated during the business boom in order to increase their chances of survival in the recession periods. Executives for family business capitalize their business for long periods than can be up to 20 years with an aim of benefiting the future generation. Furthermore, they manage their poor performance more than their prosperity times, which is contrary to the nonfamily businesses. If properly run family businesses are role models to other businesses. In this paper, the analysis of the performance of Walmart and Samsung Companies is done through the aspects of investment, succession, governance, financial performance, and conflict resolutions. Furthermore, the generational transitions, principles, and overall characters of the firms are also discussed. The flexibility of such family businesses is attained by being frugal in both boom and recession periods.

Samsung

The chairperson of Samsung corporations and the elder of the family Lee Kun-hee preside over the family owned business. This organization is known as the Chaebol in South Korea. It involves a network of different companies in which the family members have ownership in all the companies. This makes succession complex, for example, Samsung being an affiliate of Cheil, Cheil announced the purchase of Samsung in order to make succession easier. The success of family owned companies include their acquirement of fewer and small companies that are located close to their main offices (Persky & Merriman, 2012). Furthermore, the family businesses opt for organic growth, and partnerships as well as joint ventures instead of full acquisitions. However, Samsung has extended its reach to other continents away from its main offices in Seol. The company started its expansion under the leadership of Lee Byung-chul, in the year 1963, through the acquisition of Dongbang Life Insurance Company that controls Samsung Electronics stocks. Due to the scandal of the second son of Lee Byung-chul, who smuggled more than 40 tons of saccharin, Byung-chul stepped down paving way to his oldest son, Lee Maeng-hee, took over in 1967.

His father’s associates detested Lee Maeng-hee governance, and his father was annoyed commenting that Maeng-hee had made Samsung to be chaotic, within half a year. Within that period, Lee Chang-hee, the second son accused his father for grafts, making his father to take him for exile into the US. Byung-chul had some suspect on the involvement of his eldest son on the allegations that, he had extracted the company’s income. Thus their father, due to the scandals, denied the two sons succession. Hence, the third son Lee Kun-hee was selected as the successor of Byung-chul in 1987.

The financial performance of the company is high which is characterized by its invention for new technologies. These include the Samsung Galaxies that are the most selling of all phones in the market. Furthermore, the company was the greatest seller of the smartphones in US, in the 2008. However, despite the prowess for making money through its adorned phones and other electronics, the company is experiencing several grafts all centered to Lee Kun-hee, its chairman. In 1966 the chairman was convicted of bribery to the former president Chun Doo-Hwan, though he was pardoned by the president of that time Kim Young. Moreover, the same scandal recurred ten years later, as his lawyer informed the government officials on how he bribed the prosecutors and other politicians. The lawyer claimed that the company protected any members including the chairman for unethical behaviors through bribery (Patrick, 2014). Kun-hee was convicted for tax evasion for $45 million and was fined double the amount resulting in a loss that is carried into the company. The scandal made the chairman to resign and apologized in public. This is because it was concluded that he could be jailed for three years and wait for more than five years before resuming into his work. However, he was acquitted for the second time, before returned to the company in a weaker state due to loss of his reputation.

Furthermore, the family ownership state is also dangerous to the performance of company because of the succession issue. This is because, due to the death of Lee Chang-hee in 1991, the siblings of the former chairman come back and in 2012, and claimed 4.1 trillion through a court case. They claimed that their father, Byung-chul, left some property worth the amount for their inheritance. However, by lack Lee Kun-lee was again favored. Nevertheless, Lee Kun-lee started preparing his own children on for his succession. This is evident because, they were taken for studies in US. However, it is perceived automatic that Lee Jae-yong is the heir for the company’s chairman. This is because he is the eldest of the siblings and the only son of the current chairman. In addition, he studied for management in the US and in Japan. He is had also been announced as the president of Samsung electronics (Poza, 2013). His management system is also similar to that of his father, with the philosophy of changing everything except the family members. However, due to the spectacular performance of the second born to the chairman, the succession could be left to her. She is the president of the Cheil Industries, one of the Samsung businesses. However, the heart attack for Lee Kun-hee in 2014, paved way for his son there were speculation that the company could split due to the fear for the second-generation demand for power. Furthermore, there is threat for succession by an outsider. This is due to the purchase of 7.1 percent of the stocks of the company by Paul Singer, the CEO of Elliot Management Corporation. Through this purchase, he became the companies third placed largest shareholder.

The company could perform better if it simplifies its structure. The Korean Government is pilling pressure on the company to form a simpler structure that could reduce the problems facing the company due to succession. President Park Geun has also banned the cross holdings that Samsung holds. He has also offered tax breaks in order to allow Chaebol to be restructured into transparent holdings (Gookin, 2011). Kim Joon Gi, a professor suggests that it is foolish for businesses to be inherited in terms of management, from one generation to another. Simplification of the structure could lead to the end of the conglomerate ownership that could lead to transparency and accountability. Jay Lee shall face challenges that his father has had in the management of the company but also has opportunities to rectify them. This could be possible if the company adopts the simple structure.

Walmart

Walmart succession led to the naming of Greg Penner, to the new role of vice chairman that put him in the position of being the successor of the world’s greatest retail. Penner, 44, is the Walton’s son-in-law, who has been in the panel for 2008. The main important, duty of the board of Walmart is making the long-term planning for succession. The company uses most of the times to plan for stability and continuity of the business. The move for selecting Penner arises in the time when the government and the private investors are planning for independent directors. In the leadership of the company, Rob Walton who is 69 years old was the son of the founder of the company Sam Walton. His brother Jim Walton joins in the board of the company. In general the family of Walmart controls 50 percent of total property invested in the company.

Three values make Walmart prosper. This includes its respect for its entire people. These individuals are hardworking and with talented abilities. Therefore, the organization considers everybody as equally important in the company and not for granted. The executive promotes the expression for thoughts and ideas and provides respect to the employees. Nevertheless, the service provided to the customers is excellent due to the quality products that also sold in the cheapest price possible. The company utilizes every opportunity to make the customers happier. The company also strives to be the best always. This is because the company is working hard to ensure that it continues to perform better and that it is not satisfied with its successes.

In the company’s governance, the CEO is responsible for the management, direction and control of the business activities, such as offering directions to the board members and heads all the board meetings. The independent director of the organization performs added duties that the CEO does not perform. The leadership structure that the organization has is the effective for the organization because it helps to solve the daily complex operations that the company faces.

However, Walmart Bribery Case has resulted to the governance issues. This involves the Mexican case; this is due to the conquest by the company leaders. In this case, the company leaders have to find out a way in which they could solve the internal problem of facing the company. Furthermore, the bribery causes the company to develop a culture of silence. This is the effect for most of the scandals facing corporates. Though some of the members of the company are aware of such cases, they keep silent about the issues rather than informing the others and ensuring that the necessary (Sinkers, 2015). Walmart management in the US learnt of the bribery but kept it silence from the board, that makes the company seem to be operating as a criminal. Furthermore, the bribery cases lead to general counsel and the key finance officials to be as partner, rather than being guardians. In this case, the general finance auditor could provide information to the ambitious financial officers such as they can help direct hide for the bribes.

Walmart and the Sam’s Club in the US plans for a transition into cage-free egg supply chain by ten years to come. The company and the club plan to provide cheap, but high quality. In addition, this could lead to transparency of the products (Voith, 2010). The company said that it could require all the egg suppliers to be registered and be obedient to the organization that controls the guidelines. Furthermore, it provided challenge to the egg suppliers to look for ways in which they could provide improved health and quality production of eggs through selective breading of chicken. Walmart operates in different forms globally. These include the three forms, Walmart US, SamA’s Club. The company also operates in supercenters, supermarkets cash and carry stores and the discount stores. The company also offers electronics and other products, such as cameras, shoes, jewelry, and other products.

One the conflicts facing Walmart includes the conflict of interest. The conflict of interest includes involvement of the individual workers into activities that are contrary to the company. The conflict of interest should be avoided in Walmart, because they could interfere with the running of business. This includes the involvement of the workers in the unions in which the company does not support workers to join unions. Besides, there have been class conflicts in China’s Walmart stores that are in the danger of closure due to the economic performance, which has not been effective in expansion as it was planned (Weber & Pete, 2012). The employees in these stores are mainly women and were provided a little compensation package or are relocated to another store several times. This led to demonstrations and the arrest of the several employees.

The operation of Walmart could be improved by also introduction of a simple structure such as there could be no crisscrossing of companies as experienced in Samsung. This is because crisscrossing causes unaccountability and poor management of the organizations. For example, in the case for Walmart above the bribery involved with the company could be prevented by the introduction of the simple structure. Furthermore, the stores re-stoke slowly. There is excess inventory in the company, while the processes of production are not where they should be. In such a case the company is reducing such as reducing the prices of the almost expiring products to prevent losses. Walmart should allow the employees to register in unions so that the company could not exploit them. Furthermore, the government should be involved into the running of the family owned business.

Conclusion

It has been discussed that a bunch of glitches such as disputes on succession characterizes the family businesses. In addition, there is also a notion that these family businesses focus on local markets. Experts argue that the unique ownership structure of family business provides them with a long-term alignment that the public firms lack. However, there is a shallow understanding on the performance of the family business over the long-term compared to other businesses. In order to understand better Samsung Company and Walmart are used as examples of family businesses that are involved in the stock exchange.

The conflict of the companies has been discussed in which Samsung involves the succession in which the second generation of the Samsung is interested in the leadership of the company leading to many lawsuits and separation. On the other hand, Walmart conflicts are between the employees and the company itself, in which the company is oppresses its workers by little pay. This is affected by the companies’ lack of support for the employees to be involved in unions. The financial operation of the companies have also been discussed which include bribery. For Samsung bribery has characterized the Chairman Lee Kun-hee, leadership, which led to a fine that haunted the business. Walmart on the other hand has not engaged in the bribery so much but was caught in the case for Mexico bribery.

The solutions on how to improve the performance of the companies have been discussed. It has found that the government involvement in the running of such businesses could increase accountability of the companies. Walmart could allow the workers to form unions in order to fight for their rights.