Week 6 Notes
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Date Created: 10/02/16
Changing Leadership Tasks Inertiawhen things don't change. What once was an advantage at one point is now a disadvantage. Goals of each generation: Founding Generation: build company, Second Generation: rejuvenate and change Following Generations: adapt the firm to changes in the environment Setting Direction Vision Statement: vague, usually stays the same Mission Statement: specific, make small changes to Corporate Values: don't change these Principals: subject to change Continuity and Change No matter what generation, it’s still more or less the same firm. Biggest element is culture; firms that have a stronger culture tend to be more successful o ex: Chic Fil A o beliefs, values, ground rules Changing Organizational Culture Culture can be a barrier to necessary change changing the culture requires leadership that: o challenges the status quo o has an external (customer/competition perspective) o has the capacity to forge a new direction o can generate a sense of urgency Examples: 1990 NYC Police Commission Bill Bratton o Required "top brass" including self to ride subway day and night. Made employees see the business through the eyes of the customers. o subway thought of as the "electric sewer" Facebook and Instagram o bought in 2012 for $1 bil o Instagram kept separate o Instagram continues to grow o kept Instagram the same FailureDaimler and Chrysler o 1990 Daimler acquired Chrysler as merger of equals o differences= level of formality, philosophy on pay and expenses, operating styles o German culture became dominant they tried to wipe one culture completely out; not successful FailureNestle and Hershey o nestle offers $11.5 bil for Hershey o bid ($82/share) higher than Hershey’s o why did it fail HeritageHershey is 108 yrs old controlled 77% by charitable trust widely expected nestle would shut down American plants o widespread protests in PA o PA attorney asked state court judge to block sale. o Nestle backed out due to fearful perception of the culture being eradicated. o When you do change: Don’t do major change and asses what the effects could be and try to asses them. Influence others in the organization o Selfawareness and selfmanagementbest way to do that Common Traps for New Leader 1. Assuming title is enough for people to accept change have to be more influential by actions not just words 2.Becoming isolated from important others in the family and in the firm 3. being distracted by others ex: key managers or other people trying to push their own agenda 4. Feeling like you have to have all the answers to every problem, and afraid to ask others to help you answer that problem. 5. Keeping the existing management team too long you're not really making change by replacing only the top leader 6. attempting too much too soon or too little too slowly helps to have a timeline, and hold people accountable. 7. being overly cautious or overly rebellious, depending on the new leader's historical relationship with the previous CEOparent. The Change Formula C=D*V*FS>>RC C=change D=dissatisfaction with the status quo V= vision of desired future FS= First steps in getting from "here to there" RC= Natural resistance to change Sell change so that the first steps are manageable The Future State define the future state before beginning the process of change. Give people some sense of hope. sell people on it. scenario should be precisely defined. Write one scenario for the business and another for the family. Both sides are going to be looking for different things. Scenario should be concrete and honest. Change agents will help implement the change The Present State assessing the current situation is the key task when facilitating an evolution can include surveys, educational sessions, "open ear" meetings assessment must include an evaluation of readiness for the particular change that is being contemplated The Transition Where you implement change Action plans take a big lofty goal and break down into smaller parts. leader must decide where to begin the change process ex: top management, family, ownership... Helps hold people accountable, if something doesn't happen you still have a chance to do it on your own. Blending Culture cultural differences: high levels of integration require greater cultural blending combine elements of both cultures OR completely replace one culture with another <this one almost NEVER works integration may be very costly ability to handle change can give you are HUGE advantage over competitors. Ensuring Continuity Plan transfer with agility: you can still make adjustments when you need to make them. Your future almost never looks like the way you say it’s going to look. Assume appropriate leadership roles. all about delegation build on the core competencies of the firm: something the company does well. Take advantage of something you already do well. Don't build on something you don't have any experience or are not successful in. Develop the leadership capability of the next gen and encourage a vision of innovation. You're trying to ready the next gen to eventually replace you. Nonfamily managers: you have to hire nonfamily managers. They are only going to hire nonfamily managers when the environment leaves them no choice. The right thing to do is to hire them especially goes through change. Can easily replace them and they should be ideally more trained and capable. welcome the outside review of board members: should have independent board members. Promote communication: Commitment Planning delegating and making sure whoever you put in charge is committed to it. Institutionalizing the Change becomes the identity Lewin's Development Model o First step in making a change: Unfreeze the firm o second: transformmake the change o third: refreeze: becomes the identity or institutionalize make sure that change is going to be there in the future. AKA Punctuated Equilibrium (Institutionalize) more or less the human will stay the same, and then there will be one significant change and then it will refreeze and continue as is. Agility in the Face of Change you can handle new things that are coming and make the necessary adjustments. The Business Rejuvenation Matrix Make sure you can reproduce this 2x2 for TEST!! Best place to be= Enterprising Businesses: Focused on Customers and High Innovation Organic Competencies of a Family Company organizational capabilities: people, skills, systems customersupplier integration: relationships and systems product/service price and performance brand equity: reputation concentrated ownership structure family unity and business opportunity ways family firms can have an advantage over non family firms Chapter Nine: Family Business Governance: Boards of Directors, Family Councils and Family Offices. Family Governance A system of joint decision-making that helps the owner family govern its relationship with the enterprise. Enhanced by contributions mostly from the family You want to maintain the voice of the family. Responsibilities of the Board 3 main roles of the BoD THIS IS TESTABLE o Provide resources-formal role, finance business endeavors, issue bonds, sell stock or find new investors. o Council the CEO-informal role o Control, if necessary-formal role, replace CEO when and if necessary. Who are the BoD? Legal entity Required for public firms Can be liable if something goes wrong Attempt to make it so that the board is only family members Directors v. Advisory Responsibility to monitor- more in the realm of agency theory. If a CEO is not doing their job right they will be replaced. Agency theory assumes the worst out of people; that they’re going to cheat; assumes the worst in people. Small to mid-size firms are more likely to emphasize stewardship theories Selecting Board Members Members are independent outsiders and should have experience. Members of the Advisory Board-more listed on slides but these are the most important. Informal group of people (usually professionals) that helps develop firms. Giving advice to company. Size should be limited to 5-9 members Independent outsiders should constitute the majority They derive no revenues from their relationship with the company except through board service fees. Make no salary, only possibly a fee. No managers Sarbanes-Oxley Implications Does not directly apply to family-owned and privately held companies Family firm is publicly traded it is held to the same standard as described in Sarbanes-Oxley Family Meetings TESTABLE Update family members Opportunity communication Educate family members Problem solving and conflict resolution Pass on family values and traditions Doesn’t have a specific duty. Family Council TESTABLE Governance body that focuses on family matters- has the specific duty that could make decisions that affect the firm. Conflict Management Family meetings and councils can provide a forum for minimizing conflict. Facilitators and Advisors Involve key nonfamily members o Making sure family values don’t just stay with the family o Making sure the legacy continues even after the company is no longer a family firm. Benefits of Family Council Build stronger families Family forum Manage wealth Preserve values/culture Professionalize Resolve problems Allow of planning Family Policies Family Constitution Family Council cautions Testable Don’t bring together relatives who aren’t speaking to each other Don’t have the first meeting during a significant family conflict Start small, with direct descendants, and the grow Consider inviting a facilitator Don’t use the family meeting to rehash old conflicts or blame others for past actions. The Family Constitution NOT A LEGAL DOCUMENT Aka family charter Important asset to family unity especially with SECOND generation firms Why FC? No amount of legal expertise or foresight in the drafting of legal documents is going to equal the goodwill and personal responsibility that family members begin to assume. They are concerned with each other’s socio-emotional wealth (SEW). Family members are going to want to do what’s right because the firm is like a part of the family. More consistent with stewardship theory than agency theory. o Stewardship theory is probably the best theory for family business. Evolution: Family Business and Wealth Stage 1: firm starts to exist; family commits their money to it Stage 2: begin to professionalize the business; start to hire outsiders, or being open to public Stage 3: firm is professionalize, non-business investments and diversify. Starting to transfer some of the assets to the next generation. Also where you set up the philanthropy. State 4: the family office(operating independently of the firm itself) is the family business; the family has more or less left the business. Family Office How are they going to invest or direct their money. The Family Assembly Operates in conjunction with the family council Useful when the size of the family prevents all from sitting on the family council. Annual Shareholders Meeting Legally required Top Management Team There’s no universal definition of who is going to be a part of this team. Always includes CEO/includes nonfamily managers