MGT 4550 - Family Business Management

MANAGING STRATEGIC CHANGE IN THE FAMILY BUSINESS

ChapterChapter 11 11

Family Business Management, Concepts and Practice

By A. Bakr Ibrahim & Willard H. Ellis

Instructor: Dr. Irene Duhaime

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Questions and Cases Questions and Cases

Questions 87-89, 95-97, 100, 101 FBAB

Case: Monticello Pottery, Inc., p. 481 FBM

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Class Schedule - Week 9 Class Schedule - Week 9 (03/22)(03/22)

MANAGING STRATEGIC CHANGE IN THE FAMILY BUSINESS Reading: Chapter 11 FBM Questions

87-89, 95-97, 100, 101 FBAB Case:

Monticello Pottery, Inc., p. 481 FBM

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Contents

Strategic Change

Resistance to Change

The Changing Agent

The Clientele

Organizational Change Techniques

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Strategic Change

Objective To move the existing system to a more

efficient state Possible Reasons

Succession Going public Introduce professional management Restructuring

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Planning & strategic changes in the family firm

Ownership dimension

ownership transfer, wealth transfer

going public

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Planning & strategic changes in the family firm

Family dimension

succession

leadership development

assessment of family’s management skills

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Planning & strategic changes in the family firm

Business dimension corporate and business strategy growth diversification retrenchment, turnaround introducing professional management

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Effective Change Management

Step 1 Identify areas of behaviorto be changed.

Step 2 Provide time to learndesirable behavior

Step 3 Give positivereinforcement

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Resistance to Change

Uncertainty about future under new leadership

Fear of personal loss Status, money, level of authority

Perception that change might not be in the best interest of the firm May weaken the firm’s competitive

position

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Techniques to Reduce Resistance to Change

Communication Education through Communication Explain the need Adequate accurate information

Participation Getting employees involved from thebeginning

Leads to support and endorsement

Facilitation Helping employees through the changeprocess e.g. training, or support

Negotiation,Manipulationand Co-optation

Provide something of value in return forsupport.

Use of false or partial information togenerate support

Coercion Use of threats

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Question 95

What is the purpose of the family business family retreat?

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Ten Reasons To Hold Family Meetings

1. Build a stronger family.

2. Build a stronger business.

3. Plan for the future ownership of the business.

4. Plan family participation in the business.

5. Help children manage inherited wealth.

6. Open up the succession process.

7. Preserve family values, traditions and history.

8. Professionals the business.

9. Manage family-board relations.

10. Recognize and resolve conflict.

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

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Who should be invited?

Make a list of attendees in-laws? Younger children? Outsiders only to help the family

achieve the meeting’s goals, hold more productive discussions facilitator professionals or employees to provide

information needed for topic

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When Is the Right Time

Informal family meetings are often held while children are still considerably young

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,

Marietta, GA 1992.

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The Importance of the Meeting

To teach the importance of listening, understanding each others’ logic and values, and following up on results

To teach conflict-resolution skills

To reinforce a child’s self-esteem by showing that he or she is important to the process, and that his or her opinions are valued

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,

Marietta, GA 1992.

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The Meeting’s Progression As children grow older more time is spent talking

about the business

Teenagers are exposed to the burdens and rewards

of business ownership, as well as opportunities

that the business may offer

As children reach their 20s and beyond, the

meetings tend to become more formal. Policies

for family participation in the business and

leadership succession are introduced.Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,

Marietta, GA 1992.

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Who Should Run the Meeting?

The meeting leader should be someone who commands the family’s attention and respect.

It does not have to be the owner-manager of the business.

The family’s leadership base can be broadened by rotating the chairperson’s role among capable family members.

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,

Marietta, GA 1992.

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Family Meeting Location

Offices have benefit but more drawbacks

Meeting rooms in hotel or club

Arrangements should convey

importance of meeting

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Family Meeting Agendas

Helps keep discussion on track

Conveys importance of the meeting

Print and distribute in advance

Items of mutual concern to family

members (facilitator can help early on)

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Question 96

Where do you find a good facilitator to run the retreat?

What criteria do you use to judge a facilitator and what kind of

experience should that facilitator have?

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Opening a Family Meeting

Reassurance conflict and disagreement are part of

family life compliment family for dealing with them

in a constructive way Family is special Be clear and explicit that proceedings

are confidential, if want them to be

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Critical Issues for a Family’s Future

Succession How do we assure our parents lifelong financial

security? What nonbusiness interests will keep the parents

fulfilled during retirement? How do we choose the next president? When does the presidential transition take place? How do we decide that? How do we evaluate the next president’s

performance and consider his or her replacement?Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

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Critical Issues for a Family’s Future

Participation How do we decide which family members can join the

family business? What preparation, if any, is required? How do we determine titles and authority? What if a family member employee doesn’t work out? What if a family member chooses to leave the business? Do we permit spouses or other nonblood relatives to work

full or part time in the business? Do we allow the next generation’s children to enter the

business? Under what circumstances?

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

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Critical Issues for a Family’s Future

Compensation and Ownership How do we evaluate and pay family members? Who participates how much in the financial growth

or future of the business? Who can own stock in the business? What returns and rewards do shareholders get?

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

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Critical Issues for a Family’s Future

Harmony How do we deal with conflicts between generations? How do we deal with sibling conflict? How do we teach in-laws the business and our family

traditions? Who will lead the family activities and customs into

the next generation? How do we make future family decisions?

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

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Critical Issues for a Family’s Future

Responsibility How do we help family members in financial and/or career need? What responsibilities does one family member have to the other? What if there is a divorce? What if a family member breaks the law or acts in a seriously

irresponsible way? How much financial information do we share with whom? How do we protect the contributions of good, nonfamily employees? How do we support family members’ new business venture ideas? How do we cope with public visibility and the public’s expectations of

successful families? What responsibility do we have to the community?

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

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How Family Meetings Change As The Business Evolves

Business Phase Participants Typical Issues

Founding orentrepreneurial

Nuclear family Family participation, succession,leadership transition, "letting go,"cultivating family skills

Sibling ownership Second generationfamily members andspouses

Teambuilding, establishingcommon goals, stressing mutualinterests, family harmony, familyeducation

Family dynasty Members of third andsubsequentgenerations, includingcousins, in-laws andother relatives, bothactive and inactive inthe business

Shareholder issues such asliquidity and allocation of capital;fostering family commitment tothe business; family tradition andhistory; family projects

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,

Marietta, GA 1992.

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Closing the Family Meeting

Ask family members for suggested topics for subsequent meeting

set a date

delegate roles to family members fosters spirit of involvement and

participation

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The Changing Agent

Management Consultant Accountant Lawyer Banker Neutral relative or friend

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The Changing Agent - Qualities

Prestige Well respected, trusted

Power

Experience Organizational change techniques and

methods to reduce resistance to change ….. continued

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The Changing Agent - Qualities

…continued

Interpersonal Skills Negotiation skills, Mediation skills, Counseling skills Influential, patient and accommodating

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The Clientele

The Change Agent Must focus on the needs of the firm

regardless of who hired him/her Focus on the problem not personnel

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Organizational Change Techniques

Action Research Model

Figure 11.3. Action Research M odel for Organizational Change in the fam ily firmFam ily Business M anagem ent, C oncepts and P ractice, Ibrah im & E llis , 1997

Diagnostics

Information Gathering

Feedback

Action Planning

Client-Founder/CEO

COLLABORATION

Change Agent(Consultant, the w ise man/w omanin the family)

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Organizational Change Techniques

The Change Process

Figure 11.3. Lew in's three-step process of introducing changeFam ily Business M anagem ent, C oncepts and P ractice, Ibrah im & E llis , 1997

Crisistension

Introducingchange

New valuesNew Structure

integration

UNFREEZING REFREEZINGCHANGE

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Organizational Change Techniques

Team Building Improve communication, Clarify roles, Diagnose problems, Find solutions for improvement

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Organizational Change Techniques

Survey Feedback Collect data from employees, Hold discussion sessions, Hold feedback sessions

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Organizational Change Techniques

Sensitivity Training Forum for free and open discussion Unstructured group integration

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Class Schedule - Class Schedule - Following week (03/29)Following week (03/29)

STRATEGIC MANAGEMENT OF THE FAMILY BUSINESS Reading: Chapter 10 FBM Questions

1, 2, 38-41, 69, 71, 72 FBAB Cases:

Tender Touch Car Wash Ltd., p. 465 FBM