Family Business Chapter 6 & 7 Week 5
Family Business Chapter 6 & 7 Week 5
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This 6 page Class Notes was uploaded by Monica Garcia on Sunday October 2, 2016. The Class Notes belongs to at University of North Texas taught by in Fall 2016. Since its upload, it has received 38 views.
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Date Created: 10/02/16
Ch6. Succession Rewards for latter-generation family members o Biggest thing is there’s less risk. o They have lived around the business o Accumulated knowledge transfer: see things that could not be seen from someone outside of the firm. No way to codified some of the knowledge that is tacit (more action based) Outsiders will be exposed to books, but insider family member will know things by experiencing them. o Reputation of the established firm-taking on a firm that’s been around for a while. o Knowledge of the work environment and key management-different structures, how things are set up. o Have better career opportunities than non-family business family members Challenges for Latter Generation Family Members o The shadow of the founder E.g., Walt Disney -> Roy. O Disney: Afraid to make decisions different from founder o Lingering questions about the ability to run the business E.g. Thompson family and 7-eleven-1927, founded in Dallas, Tx. Sold bonds, family was getting involved, yet there were external stakeholders. Became a public firm, 1946 became officially 7/11. Late 60’s became 24/hrs. Late 80’s, threat of hostile takeover corporately. John Thompson completed 5.2 billion dollar bailout. Tried to build twin towers in Dallas, but stock crisis led to them pulling back on the second one. Had a lot to do with the evolution of North Texas specifically Dallas area. In the crisis, (1987), needed to make a crucial change, so they transferred 70% to Japanese partner Ito-Yokado, left them with 5%. Recently sold the last bit of that so no longer family company. o Need to prove merit vs. nepotism-ideal situation o Endowment effect: greater value placed on what has been attained rather than future opportunity: Prefers actual data rather than projection ex: track records. Value of what was already accomplished o Resistance to change especially under conditions of great success in previous generations.-Previous leaders’ success can act as a hurdle as to change. Hard thing to overcome. Ingredients for Responsible Leadership o 2x2 Matix Fig 6.2 (Refer to slides) TESTABLE: KNOW WHAT EACH OF THE FOUR SQUARES CONTAINS; may not be clear cut so just know what each one stands for different situations. Warm Hearts /Deep Pockets (I) o High emotional and financial capital Pained Hearts Deep Pockets (II) Warm Hearts/Empty Pockets (III) *Most common scenario Pained Hearts/Empty Pockets (IV) Desirable Next-Gen Attributes Vision- o Next-generation leader provides a vision that rejuvenates the business and makes it competitively fit in the succeeding generation. Want it to still makes sense 5 years from now. Very vague that sets a firm down a certain path. Is ever possible to know if a firm accomplishes their vision? No, because it’s so vague. Take what we want to happen and make it OVERLY vague. Unmeasurable. Set a vision first, than your mission that is consistent with vision. Detailed vision for internal purposes Operationalize for strategic targets Brief vision excerpt for the public Should drive the firm for the next five years. Nature of Next-Gen Commitment o Affective-“want to” The most ideal; not blindly following the parents. Wants to contribute and pursue a coree Problem-getting the passion and actually pursuit it o Normative-“Out to” Obligated, pressure, might not stay in it very long. o Calculative “have to” Value of ownership, money driven perhaps. o Dependent=need to Joining the firm as a safe career haven No other options for employment besides the family firm. Next-Generation Development o 3+3+3+1=10 Rule o Money earned by Next-Gen member o $3 consumes, $3 for training, $3 for the future, and $1 for charity. Implies that you spend 10% on charity, 30% on spending, 30% for training, 30% for future endeavors (savings/invest). More on the individual level than on business level. o Display managerial worthiness o Build and maintain good family o Shouldn’t have problems with succession Training the Next Generation o Heir parent- designated successor for the firm. o Very important of stewardship and responsibility. o Training suggestions: Allow young family members to work for a salary and develop a work ethic. Allow them to experience different areas of the entire businesses to develop a passion and understanding of the company. Provide them with an expense account to teach …. FIND REST ON PWRPINT Sibling and Cousin Teams o Functions like a top management team o Cases in which a team of sibling or cousins assumes power, through an :office Interdependence of Team Members Managing Interdependence (KNOW UNDERLINE WORDS ON SLIDE) o Establish common goals o Hierarchy o Develop procedures o Establish forums o Transfer ownership. “Each generation has the responsibility o Ch. 7 Succession Process and the Transfer of Power Ingredients for Responsible Leadership (touched on this again on this day) o Must be able to reproduce on test o Positive Warm-strong family: Warm Hearts/deep pockets o Negative/Positve- pained hearts deep pockets o Positive/negative o Negative/negative Porter’s Generic Model of Competition slide 3: Correction to slide two. o CANDY HAVEN NEEDS TO MOVE DON ONE BOX DOWN ON THE DIAGRAM o Low Cost/Low Quality- BOTH COST AND QUALITY IS LOW o Goal of low cost strategy is keep costs low but maintain the same level of price. Cost and price are two different things: cost is what the company pays; price is what the customer pays. The difference has to be something the customers actually care about. Family business CEOs have the responsibility of keeping the company competitive and profitable o they can do choose either strategy of Differentiation/quality or low cost. CEOs as Architects of Transition o A big decision they make is are we going to be be differentiated or low cost? o The new BLB was designed an architect CEOS as Architects of Governance o They need to set up a clear hierarchy o There should be accountability and have clear expectations of tasks and then delegate them o Have a system so you can tell early on if there is problems. o Blurred system boundaries present the strongest case for the need to build institutions to.. Govern the relationships among the family o Still be familiar of the Systems Theory Model The transfer of Power o Transfer of power can be problematic when: CEO’s don’t wanna leave the company Don’t prepare or train the next generation; doesn’t train the next person to lead. One of the MAIN reasons. Succession and Continuity o Requires the CEO to be committed to the company rather than to their own agenda o Must enlist the “right people” and then execute the right strategies to ensure both sustainability and continuity “Right people” in the top management team and among the governors of the shareholders. Its important to have unbiased people involved Internal hires versus external hires: 3 types of succession o Followers (internal, promoted following retirement) o Contenders (internal, predecessor was fired)- could be a worst case scenario-tend to fire all other staff from different levels. o Outsiders- CEO was pushed out and the next person was from the external environment. Could be a worst case scenario-tend to fire all other staff from different levels. Contenders/outsiders are correlated with high executive turnovers. CEO Succession o Scenario shareholders like to see is whether you bring someone from the outsiders or followers succession types. They like a heir apparent (when they know the present leader is getting ready to retire or leave, so they prepare to find successor). Heir apparent is the next person designated to take over. Should be announced or publicized, because it can reduce the chaos. Like outsiders because they could see some new changes with new perspective. o What they don’t like is a contender; no hair apparent involved. Implies there was no plan to begin with. Shareholders want to see preparation and planning in their CEO’s. Don’t like that successors are also terminated. Or when there is a temporary CEO, shows unpreparedness and also next CEO is most likely gonna get fired. SC Johnson Case o Death forced the succession issue o Gave each sibling a division to run, clear delegation, people from the outside consulted the family. CEO Exit Styles o The Monarch Doesn’t leave until forced out Imagines no one could ever replace him/her Ex: the FOX NEWS CEO: asked driver to keep driving around to avoid dropping him off o The general Leaved the office reluctantly and plots a return Hopes the next-generation leader proves inadequate Can’t let it go, try to get back in. o The Ambassador Retires but hold some ceremonial role Allows others to learn the business first-hand and then eventually manage it Potentially a good thing, keep them as a figurehead role o The governor Leads for a limited term, then moves on Ensures their successor will be trained and ready o The Inventor Returns to development activities Takes a key position in another enterprise o The transition Czar Provides active leadership during the succession process. Leadership Power Transfer o CEO and CEO spouses (Moms or Dads Informal but very critical Business Partner Chief Trust Officer (informal) o Sit in family council, personal issues conciliator Advisor/keeper of values o Generating interest in the family for the children The free agent o Often aware of both family and business matters, but chooses to grow and develop a separate identity o Usually available for consultation and advice during challenging times in the life of the family/business Jealous spouse (personal) o Resent business due to impact on relationships. Interim CEO o Successor is too young or not ready Implications o Monarchs and generals are the WORST enemies of succession.