Family Business

Overview :• Family business definition.• Family business charactersitics.• Strengths & Weaknessses in family business.• Issues in Family business.• The planning process of Family business.• Global examples of Family business.• Conclusion.

Family Business Definition:• A family business refers to a company where the

voting majority is in the hands of the controlling family; including the founder(s) who intend to pass the business on to their descendants.

• The terms “family business”, “family firm”, “family company”, “family-owned business”, “family-owned company”, and “family-controlled company” are used to refer to a family business.

Strengths of FB :

Strenghts

Commitment

Knowledge countinuity

Reliability & pride

• Commitment: The family –as the business owner– shows the highest dedication in seeing its business grow, prosper, and get passed on to the next generations.

• As a result, many family members identify with the company and are usually willing to work harder and reinvest part of their profits into the business to allow it to grow in the long term.

• Knowledge Continuity: Families in business make it a priority to pass their accumulated knowledge, experience, and skills to the next generations.

• Many family members get immersed into their family business from a very young age. This increases their level of commitment and provides them with the necessary tools to run their family business.

• Reliability and Pride: Because family businesses have their name and reputation associated with their products and/or services, they strive to increase the quality of their output and to maintain a good relationship with their partners (customers, suppliers, employees, community, etc.).

Weaknesses in FB:• Complexity: Family businesses are usually more

complex in terms of governance than their counterparts due to the addition of a new variable: the family.

• Adding the family emotions and issues to the business increases the complexity of issues that these businesses have to deal with.

• Unlike in other types of businesses, family members play different roles within their business, which can sometimes lead to a non-alignment of incentives among all family members.

• Informality: Because most families run their businesses themselves (at least during the first and second generations), there is usually very little interest in setting clearly articulated business practices and procedures.

• As the family and its business grow larger, this situation can lead to many inefficiencies and internal conflicts that could threaten the continuity of the business.

• Lack of Discipline: Many family businesses do not pay sufficient attention to key strategic areas such as: CEO and other key management positions’ succession planning, family member employment in the company, and attracting and retaining skilled outside managers.

• Delaying or ignoring such important strategic decisions could lead to business failure in any family business.

Issues in Family Business:

• Family versus Non-family Employees:• There are a number of common issues that most

family businesses face at one time or another.• Attracting and retaining non-family employees

can be problematic because such employees may find it difficult to deal with family conflicts on the job, limited opportunities for advancement, and the special treatment sometimes accorded family members. 

• Employment Qualifications• Many family businesses also have trouble

determining guidelines and qualifications for family members hoping to participate in the business.

• Some companies try to limit the participation of people with certain relationships to the family, such as in-laws, in order to minimize the potential for conflicts.

• Family businesses often face pressure to hire relatives or close friends who may lack the talent or skill to make a useful contribution to the business.

• Salaries and Compensation• Another challenge frequently encountered by

family businesses involves paying salaries to and dividing the profits among the family members who participate in the firm.

• In order to grow, a small business must be able to use a relatively large percentage of profits for expansion.

• But some family members, especially those who are owners but not employees of the company, may not see the value of expenditures that reduce the amount of current dividends they receive.

• Succession• Another important issue relating to family

businesses is succession—determining who will take over leadership and/or ownership of the company when the current generation retires or dies.

• The key to avoiding conflicts about who will take over a business is having a well-defined plan in place.

Tob largest family business in the world

• Hyundai Motor• Family: Chung• Country: South Korea • Sector: Automotive• Revenue (2013): US$ 79.76 billion

• BMW Group• Family: Quandt• Country: Germany • Sector: Automotive• Revenue (2013): US$ 100.97 billion

• Fiat S.p.A.• Family: Agnelli • Country: Italy

• Ford• Family: Ford • Country: USA

• Mars• Year Founded: 1911 • Founder: Frank C. Mars

• Samsung Electronics• Family: Lee • Country: South Korea

• Reliance Industries  

•

Founded by Dhirubhai Ambani in 1966 as Reliance Commercial Corporation, Reliance industries is the largest private sector conglomerate company in India. The company was divided between the founder's two sons, Mukesh Ambani and Anil Ambani in 2006.

• TATA Motors :

• Top IT exporter Tata Consultancy Services (TCS) comes second in the list and the company belongs to the most powerful and well-known family in India- the Tatas.

• The Tata Group, founded by Jamsetji Tata, is one of the largest private family business in India.

Conclusion :

• FB is any business in which two or more family members are involved and the majority of ownership or control lies within a family.

• Family-owned businesses may be the oldest form of business organization.