n degree of ownership and management by family members e.g. ‘A company in which more than 50 percent of the voting shares are controlled by one family, and/or a single family group effectively controls the firm, and/or a significant proportion of the firm’s senior management is members from the same family’ - Leach et al. (1990) n inter-dependent subsystems e.g. ‘The sub-systems in the family firm system include (i) the business as an entity, (ii) the family as an entity, (iii) the founder as an entity, and (iv) such linking organisations as the board of directors’ - Beckhard and Dyer (1983) What is family business?
n generational transfer e.g. ‘A business that will be passed on for the family’s next generation to manage and control’. - Ward (1987) n multiple conditions (a combination of three former dimensions) e.g. ‘Family ownership of more than 50% of the business in private firms or more than 10% of the stock in public companies; more than one family member works in the business or the owner anticipates passing the business to the next generation of family members or the owner identifies the firm as a family business …’ - Astrachan and Kolenko (1994) What is family business?
Business Survival –Ward (1987) Manufacturers 200 1924-1984 80% failures 33%: 0-29 years 35% 30-59 years 32% 60+ years Survival 20% 5% sold-out 2% flotation 13% familiar 7% -declining 3% - stable 3% - growing
Why failure to transfer to the young generation? Lack of a clear, well-defined succession plan Failure to address the issue of who will run the business Owner-manager unwilling to relinquish Reluctance of offspring to take over Non-family managers unwilling to assist successors ……………………
Succession Options Sell part of the business Sell the entire business Do nothing Liquidate the business Appoint a family member
Family Business Strategy – the likely routes To pass on to the next generation within the family 51.5% To partially exit, realise wealth and become less active 44.9% To sell the business (trade sale)44.1% To float the business and realise wealth15.3% To liquidate the business3.8% SandAire 2001 Survey - MBS
Succession Planning Business plan Family plan Tax plan Financial plan ……………….
Picking the Successor The rules –The oldest son principle –The best candidate principle Sifting process –Leadership traits –Start-up venturing –Organise assignments –Offer platforms Interim leadership Declaration ASAP
Mentoring the Successor Mentor –Senior manager –Offer offspring principles of management –Offer offspring different working opportunities Offspring –New ventures boosting multi-managerial talent –Playing leading not shadowing roles –Leadership and entrepreneurial spirit development –A project per sibling to avoid rivalry
Succession viewed as a process Predecessor Sole Operator Monarch Overseer/Delegator Consultant No Role Helper Manager Leader/Chief Decision Maker Next-Generation Family Member The Succession Process: Mutual Role Adjustment between Predecessor and Next Generation Family Member(s)
Departure style of founders or CEOs in family businesses Monarchs: - do not leave until they are forced out or die. Generals: - leave passively while planning a comeback to rescue the company from an incapable successor. Governors: - rule for a term and then pursue other organisations. Ambassadors: - leave willingly and serve as advisors. -Sonnenfeld and Spence (1989)
Tips for Succession Planning Commence to plan at an early stage Offer opportunities for capability development Seek professional advice Build consensus within the family and the business Clarify the transition process -International Finance Corporation