Determinants of a Successfully Owned Family Business - Coursework Example

DETERMINANTS OF A SUCCESSFULLY OWNED FAMILY BUSINESS Student’s Name Code + Course Name Professor’s Name University Name City, State Date Table of Contents I. Introduction 3 Family governance 6 Business performance 6 Corporate Social Responsibility (CSR) 7 Family business and philanthropy 8 Justification of success criteria relative to my family business 8 John D Rockefeller 8 Warren buffet 9 Siam gas and Petrochemicals 10 Summary 10 References 12 I. Introduction It is conclusive that a family business refers to a business type involving relatives with vested interest in the corporation (Morris & William 1996, p.76). Family businesses now for a number of years have progressively dominated the economy forming part of the oldest businesses in existence. The impact of the family business have received appreciation and recognition from the government brought its efforts in job creation, raising the living standards of the people, and thereby positively impacting the economy. Family businesses have remained to be the backbone of world’s economies and contribute to about 60% of companies found in Europe and United States of America. For a period of time, family business has been overridden by the glamorous performance of businesses publicly owned. Return on investments and capital turnover have been considerably low. Business enterprises such as Armani and Walmart initially started as family businesses and now have an outstanding figure. However, family businesses continue to face various challenges including challenges in the market and challenges as a result of involving family members in running of the business only to mention but a few (Davis, P. and Stern, D., 1988 p.74). The academic use various approaches in determining the success of a particular family business some of them including corporate governance, performance of the business, philanthropy, governance of the family and social responsibility to only name but a few. Therefore, this paper aims at explaining this concepts further and even go to a further extent of explaining how other sectors such as Forbes magazine, society, shareholders of the business, and various industry sector awards have to say about the success of the business. This paper also ends by relating the various issue handling in Tuke building and critically analyzing its successes and failures in relation to the concepts discussed (Davis, P. and Stern, D., 1988 p.74). Corporate governance Corporate governance can be defined as the guidelines, procedures, and the law that oversee the management of an organization or company (La Porta et al., 2000, p.16). With the framework of governance, the person whom the company serves is clearly stipulated and the manner in which the activities are scheduled in line with priority rules. This policies and guidelines stipulate the functionality of an organization and power sharing by the stakeholders. The idea of corporate governance is vital for particular two reasons. In the first scenario, it is important to separate how an organization is owned and managed making it specific for family businesses since other firms are hierarchy based. Secondly, the organizations should be more open and accountable for all range of people involved in the business that is managers, stakeholders, owners of the business, as well as the local community (Davis, P. and Stern, D., 1988 p.74). Corporate governance also implies the manner in which the board of management manage activities of the organization as well as the level of accountability of board members to the company’s stakeholders. Corporate governance’s main objective is to promote openness, fairness, accountability, as well as being answerable. These values are crucial in determining the success of any particular business. It has been proved that companies that have outstanding corporate governance in most cases do have an outstanding performance as compared to those with weak corporate governance. Being accountable is key in ensuring easy access to money from the banks that favors costings in financing and lowers credit ratings of the companies. The result is that, the confidence of investors is greatly boosted. With a continuous rise in businesses that are family owned, and its influence on globalization, the idea of corporate governance is therefore a matter to be highly considered. This is because it has a hand in growth management, with daily expansion in family businesses, how the family members who happen to be the owners, the managers as well as the employees’ relationship tend to be sophisticated. Therefore, corporate governance collectively unites them and reduces the chances of arising conflicts. It does so by controlling the policies put in place and soften the complexities of issues arising. The company therefore is in a position of establishing a clear line of duties of each employee and shareholder, communication channels, and allocation of responsibilities. Nevertheless, corporate governance clearly demarcates the boundary between ownership and governance and creates a distinction in policies implementations. Succession of leadership greatly borrows form the ideas of corporate governance so as to ensure the transition from one leadership regime to the other does not negatively impact on the growth process of the company. For the success of a family business, corporate governance has to be embroiled in its cultural foundation to ensure policies overseeing selection of the rightful owner of the family business’ throne is done for passage of succession from one generation to the other. It is common for families to experience conflicts when dealing with family owned businesses. Policies and recruitment structures of both family and non-family members and fair promotions based on autocracy is therefore key in ensuing the prosperity of the business. As a matter of fact, many family owned businesses are now borrowing the idea of corporate governance so as to safeguard their future success. Various firms are now formalizing organizational guidelines and structures so as to facilitate effective governance. It is likely that families that tend to ignore corporate governance suffer a setback in the future. Family governance Family governance has to do with all issues pertaining the relationship of the business and the family. Family governance seeks to propagate the growth curve of the family wealth. Family governance also focusses on power sharing and distribution among the leadership of the organization/firm. It is a wholesome techniques that seeks to ensure the history of the family, family values, and wealth generated does not only end with the two generations but go beyond the third and even the fourth generations. According to Harvard School of Business, family governance entails three components namely; annual meetings of the family council meetings and finally the family constitution. The constitution entails the policies of the family together with values and goals that govern the relationship between the members and the business (Davis, P. and Stern, D., 1988 p.74). Family governance therefore, makes it clear on individual member roles together with their responsibilities and fundamentally agreed upon rights. Following the three concepts of family governance, family members, owners and the employees are bound to respect and be responsible with regards to the business and other family members. The family and ownership balance is therefore dictated by family governance. Business performance One more way of analysis the success of a family business is by analysis how the business performs. Once the business has been established and is fully running, it calls for future planning and setting of goals. After a given duration, the progress of the business is established to match the performance of the business and establish its efficiency, the position it holds in the market and thus plan ahead. Key performance indicators utilized by various firms to establish how they perform and rank in the market helps the firms to assess their performance, know their strengths, and areas that could be improved. Business performance by virtue of key performance indicators evaluates the business in the perspective of the customers and the suppliers. This renders the business stronger than the competition. Key performance indicators give a measure of the output rather than the input. The results of financial analysis are used to indicate the success of a business for instance, business turnover, gearing ratios, and the business margins. This results are crucial in success evaluation since they are always available, easy to understand, and easily comprehended. The acceptability of the customer is measured in terms of number of existing customers, new customers earned by the business, satisfaction of the customers, and customer feedback. Corporate Social Responsibility (CSR) Corporate social responsibility is concerned with the firm fulfills its minimum roles to the stakeholders which is stipulated in the regulations and corporate governance of the firm. CSR also stipulates conflict resolution among different stake holders. CSR policies act in favor of consumers and the pressure groups not covered within the law brackets as compared to the suppliers and employees. Corporate social responsibility is crucial in helping the organization in cost cutting, improve sales, boosting the reputation of the firm, building a strong customer loyalty, and motivating employees. Motivation of employees is linked to reduced absenteeism and staff turnover, while loyalty of the customers encourages repeated purchasing. Family business and philanthropy Most family owned business face challenges in striking a balance between the relationships that exist between individual family members and efficiently running the business. As the family business continue to grow, not all the member’s talents and skills march with this progress, therefore, most family businesses turn to philanthropy so as to accommodate these individuals in this charitable works. These charitable actions are as crucial to the family as they are to the business culture. To give power and impact, charitable giving have to be accompanied with well-meant intentions. Philanthropic actions have positive impact on the lives of the people and the wellbeing of the environment. Justification of success criteria relative to my family business John D Rockefeller In the case of philanthropy and family business, two families are under scrutiny to well illustrate this idea. First is the Rockefeller foundation that was founded in 1913.this foundation was established by the Rockefeller family with the pioneers being John D. Rockefeller and his son John D. Rockefeller junior. The philanthropist advisor by then was Fredric Taylor Gates. This foundation aimed at improving the lives and the wellbeing of the people across the planet. The foundation greatly borrowed from the wealth generated from the Oil of Ohio. John D. Rockefeller initially involved himself with the oil business before shifting attention to the railroad industry. He was in control of nearly 90% of the refining industry and became among the twenty richest people in the United States of America. With succession of John D Rockefeller junior from his father, two things were clear; first, the massive wealth accumulated from the oil and railroad industry should be channeled to the upbringing of the lives of the people who were less fortunate and improve the environment as well. Secondly, it was evident that the family virtues and believes of the Rockefellers supported sharing. The successor of the business who was the son of Rockefeller senior continued with the family believes so as to reconstruct the image of the family and that of his father and generations to come. It is to this spirit of giving that the coming generations of Rockefeller have grown up with. Each of the generation have tried to come up with different philanthropic activities which are continuously exercised through the Rockefeller Foundation and the Rockefeller Brothers Fund. The family has gown further to share the various philanthropic strategies with other philanthropists. In 2008, they based ExxonMobil to check on its stand on climatic change and corporate governance. Warren buffet Warren buffet demonstrated highest level of philanthropy when he willed to donate 85% of the Berkshire Hathaway shares in his position back in 2006. This was an equivalent to $31 billion given to charity. The foundation that benefited most from this donations was the Bill and Melinda Gates foundation. His giving significantly impacted on the lives of the less fortunate in a positive manner. It is a lesson to learn that giving to the society as demonstrated by Buffet and Rockefeller has both family external and internal benefits. The values of the family are wholesomely shared by family members on the grounds of defining both personal and family values, the image of the family is greatly boosted and there is creation of generation profiles to be followed by forthcoming generations, while at the same time boosting the lives of the communities within. Siam gas and Petrochemicals Also another family business to look at in terms of success in family business is Siam gas and Petrochemicals, a company based in Thailand. SGP focusses to conduct its business in line with corporate governance taking into account the communities within, the environment as well as the company’s stakeholders. The company generally deals with the supply of petroleum gas in liquid form as well as other petrochemical products. The company has formulated laws that requires it to adhere to laws, and regulations regarding supply and petroleum and liquefied gases. The ideas of social responsibility is well embodied in the company’s mission. Summary For the success of any family business it is therefore evident that various factors must be in play. Firstly, corporate governance which can be defined as the guidelines, procedures, and the law that oversee the management of an organization or company directly affects how the company is run. Succession of the leadership of the firm is also a factor to consider. Another factor at play is Corporate social responsibility is concerned with the firm fulfills its minimum roles to the stakeholders which is stipulated in the regulations and corporate governance of the firm. CSR also stipulates conflict resolution among different stake holders. CSR policies act in favor of consumers and the pressure groups not covered within the law brackets as compared to the suppliers and employees. Philanthropy and family business also go hand in hand in determining the success of the business at large. Philanthropic acts are well demonstrated by two family businesses that is the John D Rockefeller Oil and railroad business which started the Rockefeller Foundations and the Warren Buffet family business whose large percentage of their contributions were towards the Bill Gates Foundation. Both the acts of philanthropy positively impacted on the family businesses as well as boosted the lives of the community members. The Siam gas and Petrochemicals is a family enterprise that well demonstrates corporate governance. References Morris, M.H., Williams, R.W. and Nel, D., 1996. Factors influencing family business succession. International Journal of Entrepreneurial Behavior & Research, 2(3), pp.68-81. Davis, P. and Stern, D., 1988. Adaptation, survival, and growth of the family business: An integrated systems perspective. Family Business Review, 1(1), pp.69-84. Morris, M.H., Williams, R.O., Allen, J.A. and Avila, R.A., 1997. Correlates of success in family business transitions. Journal of business venturing, 12(5), pp.385-401. Venter, E., Boshoff, C. and Maas, G., 2005. The influence of successor‐related factors on the succession process in small and medium‐sized family businesses. Family Business Review18(4), pp.283-303. La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R., 2000. Investor protection and corporate governance. Journal of financial economics, 58(1), pp.3-27. Read More