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Week 6 Notes

by: Monica Garcia

Week 6 Notes

Monica Garcia
GPA 3.2

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These notes cover what's going to be on the next exam
Family Business 3810
Class Notes
family, business, Management
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This 10 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 6 views.


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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


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