Sam Walton family245 Billion USD
Lee family98.7 billion USD
Agnelli family54.7 billion USD
Bettencourt family12.2 billion USD
Tata family7.9 billion USD
Ambani family29 billion USD
Kamprad family10.4 billion USD
Indian family business A long journey..
•Godrej family•Kirloskar family•Tata family
•Birla family•Ambani family•T.V.Sundaram family
Major contribution• The freedom movement• Spirit of entrepreneurship• Philanthropy
BaniasParseesChettiars
Muslim khojasMemonsMarwaris
Family Businesses . . .
•Constitute 80–98% of businesses in U.S. and other free economies•Generate 49% of GDP in U.S. and more than 75% in most other countries•Employ 59% of private sector U.S. workforce and more than 85% of working population overseas•Created about 80% of all new jobs in the 1980s and 1990s
Other Statistics
•Between 17 and 22 million family-owned businesses in U.S.•Annual revenues exceed $25 million for 35,000 family businesses•Family-controlled companies comprise
37% of all Fortune 500 companies60% of all publicly held companies
The Bad News
•In their first 5 years of operation, 90% of family-owned companies disappear •Of remaining 10%, 67% die or change ownership after first generation
•Only 12% survive under current ownership past the third generation
Family Business: Working Definition
A family business is a synthesis of:
•Ownership control by members of a family or consortium of families
•Strategic influence of a family in the management of the firm
•Concern for family relationships
•The dream (possibility) of continuity across generations
Competitive Advantages of Family Business
•Speed to market•Strategic focus on market niches•Concentrated ownership structure•Lower overall costs•Quality of product/service•Agility and flexibility•Owner-manager and long-term view
What Makes the Difference
•Presence of the family
•Owner’s dream to keep the business in the family
•Overlap of family, ownership, and management
•Competitive advantage derived from interaction of family, management, and ownership
Family1
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3 Circle Model of Family Business
Developed by•Tagiuri •Davis
3 systems•The business system•The family system•The ownership system
3 Circle Model of Family Business
Family1
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4Governance
Governance leads to• Direction• Values to live by• Policies
Fundamental ingredients•Clarity of roles, rights, responsibilities•Discipline to family members/employees•Regulation for owner inclusion in discussion
Governance of the family business
Three components • Periodic assemblies• Family council meeting• A family constitution
Family council duties• Plan assembly meetings• Current business/ownership/family issues• Key business policies/decisions• Guard against family interference• Develop loyal/informed/contributing shareholders• Scout the family for business talent• Education/training to family members• Social gathering for harmonious relationship
FAMILY BUSINESS- History
Company Vision
Changes & Challenges
Contributions to community
Company Heritage
FAMILY BUSINESS- History
Many reasons to create history
•Historical accuracy
•Honouring longtime employees
•Background for uninformed
•Founder’s vision and mission
•Thanking customers & vendors
FAMILY BUSINESS- HistoryPrimary benefits ..
•Written histories ‘set the record straight’
•Acknowledge & honour founders/owners/longtime employees
•Resource for succeeding family members
•Better understanding of company legacy
•Stronger bonding between company and community
•History books/videos – Marketing tool/PR press kit
Family Shareholders – Rights and Responsibilities
Shareholders loyalty depends• Respect• Pride• Adequate reward
Shareholder’s rights
•Vital information-Strategy/organizational change/finance
•Openness- Board members/management team- Constructive veiws
•Participate in board member’s election
•Fair policies to protect shareholders interests
•Acceptable economic performance
Family Shareholders – Rights and Responsibilities
Shareholder’s responsibilities
•Knowledge about company operations
•Knowledge about company finances
•Attend meetings
•Involving and suggesting management
•A positive emissary for the company
•Maintain confidentiality
•Provide additional capital
Succession Plan
•Key goals for succession process•A schedule of the transition stage•Contingency plan
•Growth of successors
•First family succession plan , then business succession plan
•Family-first business or Business-first family
•Succession management – Advisory board
•Business valuation
•Buy/Sell agreement
Succession Plan
Three ways to ease transition
•Hire the most competent advisors you can find and afford
•Business valuation is a critical element of succession planning
•Funding is often a hidden or non-recognized cost of succession planning
Pitfalls of Family Business
Family feuds – A major factor for poor survival rate
Main causes of pitfalls are;
•Lack of focus and strategy
•Nepotism in family
•Lack of professionalism
•Conflict of family and business interests
•Sibling rivalry
Sibling rivalry – Key issues
•Arbitrary approach
•Managed approach
•Defusing tensions
Important tips• Open communication• Clarity of roles• A sense of humor• Time away from the business
The changing environment of family business
Seller’s marketFamily wealthGrowthDiversificationFamily succession planning
Buyers’ marketShareholder valueEconomic value addedCore competencyAttracting managers
Strategies to improve the capabilities of a Family business
•Professionalize family business
•Replenishing entrepreneurship
•Good management
•Ability to change
•Have a strategic plan
•Have an active board of directors
‘It is easy to get rid of an outside manager, buthow do you get rid of a family member?
You must either do what is right for the businessor the family. Either way, you will end up with an unhappy family or a weak company.’
Rahul BajajFounder of Bajaj Auto
How to save family business?
•Formulate policy framework and rules
•Families must serve the business
•There should be future outlook
•Family members should be accountable
•Issues should be addressed
•Create shared vision