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MGT 4550 - Family Business Management

MGT 4550 - Family Business Management. Succession - Leader Development & Implementation Chapters 6 & 7 Family Business Management, Concepts and Practice By A. Bakr Ibrahim & Willard H. Ellis. Instructor: Dr. Irene Duhaime. Class Schedule - Week 7.

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MGT 4550 - Family Business Management

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  1. MGT 4550 - Family Business Management Succession - Leader Development & Implementation Chapters 6 & 7 Family Business Management, Concepts and Practice By A. Bakr Ibrahim & Willard H. Ellis Instructor: Dr. Irene Duhaime

  2. Class Schedule - Week 7 • Succession - Leader Development & Implementation • Reading: Chapter 6 & 7 FBM • Questions • 10-18, 20, 22, 23, 25, 36, 37 FBAB MGT4550 - Dr. Irene M. Duhaime

  3. Chapters 6Family Business Management, Concepts and PracticeBy A. Bakr Ibrahim & Willard H. Ellis Planning For Succession

  4. Contents • Corporate Euthanasia • Characteristics of Succession in Family Business • Planning for Succession • Effective Succession Process Continued …. MGT4550 - Dr. Irene M. Duhaime

  5. Contents …. Continued • Critical Issues in Succession • Selecting the Successor • Hostile Takeover • People Involved in Succession Process MGT4550 - Dr. Irene M. Duhaime

  6. Corporate Euthanasia • Death of family firms due to lack of succession plan • Not many family firms survive beyond first or second generations • Survival of Family Firms depend on effective Succession Planning MGT4550 - Dr. Irene M. Duhaime

  7. Characteristics of Succession in Family Business • Dual Relationship • Family Systems • Business Systems • Conflict among family members over succession ….continued MGT4550 - Dr. Irene M. Duhaime

  8. Characteristics of Succession in Family Business ….continued • Biological Necessity • Passing on a legacy • Founder/CEO resist letting go. • Nonmarket-based Transfer of Power • Not an arm’s length market-driven process • Heir inherits the family business MGT4550 - Dr. Irene M. Duhaime

  9. Planning for Succession • Proper planning is critical • Contributions from family and non-family member • Currently a small percentage of family firms plan adequately MGT4550 - Dr. Irene M. Duhaime

  10. Planning for Succession - Guidelines • Include offspring early in the family firm • Include offspring in the formulation of corporate mission, vision and strategy • Plan the gradual transfer of power • Develop an inheritance plan and discuss it with family members ….continued MGT4550 - Dr. Irene M. Duhaime

  11. Planning for Succession - Guidelines …continued • Hire professional managers in some key positions • Provide a zone of comfort for siblings during transition to avoid conflict. • Adjust the job to fit the successor’s skills, competence, capacity to lead and function effectively MGT4550 - Dr. Irene M. Duhaime

  12. Planning for Succession - Guidelines …continued • Encourage family and non-family members to participate in succession plan. • Consider the next generation family members’ career, seniority, life stage and needs. • Establish and communicate clear guidelines concerning career development MGT4550 - Dr. Irene M. Duhaime

  13. Effective Succession Process MGT4550 - Dr. Irene M. Duhaime

  14. Effective Succession Process • Preparing the Offspring • Pre-entry Acculturation (Prepare offspring for leadership role at an early age, before joining the family business • Integrate offspring into the family business to promote interest and nourish commitment • Offspring work outside family firm to gain experience and be seen as earning the position. …..continued MGT4550 - Dr. Irene M. Duhaime

  15. Effective Succession Process ….continued. • Preparing the Offspring • Summer jobs allow offspring to become familiar with different areas of the business • Shop-Floor Level entry allow the offspring to “learn the ropes of the trade”; establish relationships with employees at all levels; gain acceptance more easily. MGT4550 - Dr. Irene M. Duhaime

  16. Effective Succession Process • Role Adjustment • Process of disengagement or mutual adjustment W.C Handler. MGT4550 - Dr. Irene M. Duhaime

  17. Effective Succession Process • De-Coupling of the Two-Systems • Separate social functions (family) from the business function • Role of Family Members • Understand and respect each other’s needs, motivation and skills • Provide emotional support for departing CEO and administrative support for successor. MGT4550 - Dr. Irene M. Duhaime

  18. Effective Succession Process • The Strength of Relationships • Strong relationship between Founder and offspring; and among siblings • The Successor’s Ability • To work independently and provide leadership • To understand and respect needs, motives, career stages and skills of family and non-family employees MGT4550 - Dr. Irene M. Duhaime

  19. Critical Issues in Succession • Elder son often given the leadership role regardless of capabilities • Daughters are “the invisible successors” despite their skills and competence MGT4550 - Dr. Irene M. Duhaime

  20. Critical Issues in Succession • Founder as Advisor • Presence or technical competence may be critical to the firm’s survival • Interference may undermine the new successor • Founder as Consultant • has specific task(s) • reports to new CEO MGT4550 - Dr. Irene M. Duhaime

  21. Selecting the Successor • THREE COMMON MODELS • Eldest Son becomes successor uncontested • Division of assets among male descendents; each son managing his own part • Consensus-type approach: decisions made by family council. MGT4550 - Dr. Irene M. Duhaime

  22. Effective Succession Process MGT4550 - Dr. Irene M. Duhaime

  23. The Troika of Succession in Family Business • Family Business Management • assessment of skills required to manage effectively • capacity to provide leadership • ability to work independently • ability to manage conflict MGT4550 - Dr. Irene M. Duhaime

  24. The Troika of Succession in Family Business • Offspring Suitability • Experience, skill and training • Seniority • Career plans and willingness to accept leadership role. MGT4550 - Dr. Irene M. Duhaime

  25. The Troika of Succession in Family Business • Perception of Family and Non-Family Employees • ability to provide leadership and guidance • management style • fairness • overall suitability MGT4550 - Dr. Irene M. Duhaime

  26. Hostile Takeover • Usually results from unfair or hasty succession • Scenarios: • Elder son is ignored • Successor takes over against the founder’s will • Founder too sick to manage the business • Founder suddenly dies MGT4550 - Dr. Irene M. Duhaime

  27. People Involved in Succession Process • Family Members • Wives, sons, daughters, brothers, sisters • Non-family members • Friends, senior employees, professionals (accountant, lawyer, banker) (Consulted at different levels to provide neutral and more objective point of view.) MGT4550 - Dr. Irene M. Duhaime

  28. Chapter 7Family Business Management, Concepts and PracticeBy A. Bakr Ibrahim & Willard H. Ellis Managing The Transition

  29. Contents • Next Generation • Problems During the Transition • Romancing the Past • Successful Transition • Restructuring MGT4550 - Dr. Irene M. Duhaime

  30. Next Generation • Transition to the next generation is often confrontational • Survival rate beyond first generation is 30% and beyond second generations is 13% • Difference in values • Drive to equal or outdo predecessor MGT4550 - Dr. Irene M. Duhaime

  31. Problems During the Transition • Decision-making which does not include the senior family and non-family executives • Family infighting resulting from • lack of a proper succession plan and/or • restructuring which results in loss of power and/or status for family members ….continued MGT4550 - Dr. Irene M. Duhaime

  32. Problems During the Transition …continued • Non-family executives abandon the ship, out of frustration with the succession process and outcome. • Disruptive behavior from non-family members who feel betrayed or insufficiently rewarded for their loyalty. MGT4550 - Dr. Irene M. Duhaime

  33. Romancing the Past • Strong attachment to the past • Block out negative or bad memories • Family and non-family employees idealize former leader’s virtues. • New leader expected to live up to those ideals. MGT4550 - Dr. Irene M. Duhaime

  34. Successful Transition MGT4550 - Dr. Irene M. Duhaime

  35. Successful Transition • Time to readjust • Implementation of new socio-political systems and new management styles should be gradual and should evolve over time. • Effective Change Management • Changes include new technologies, new culture, and new management techniques • Effective communication of the change process and the rationale • Participation of others in the change process MGT4550 - Dr. Irene M. Duhaime

  36. Successful Transition • Accommodation • Recognize tensions, polarities and paradoxes. • Use consensual decision-making approaches • Use conflict-bargaining procedures • Power Orientation • Social Power - need to help others • Personal Power - need to control others MGT4550 - Dr. Irene M. Duhaime

  37. Successful Transition • Successor’s Management Skills • Gain experience outside family business • Maintain an open door policy with family and non-family employees • Avoid the trappings of the older generation • Earn respect and legitimacy from within the business • Plan a strategy to deal with older generation MGT4550 - Dr. Irene M. Duhaime

  38. Successful Transition • Interpersonal Relationship of Key Family Members • Intergenerational relationships (between current and next generations • Intragenerational relationships (between siblings and other relatives) MGT4550 - Dr. Irene M. Duhaime

  39. Restructuring • Step-by-step restructuring to get feedback, reduce conflict and tension • Involve family and non-family in the restructuring process. • Communicate purpose and methods of restructuring. • Involve neutral party like management consultant. MGT4550 - Dr. Irene M. Duhaime

  40. Questions and Cases • Questions • 10-18, 20, 22, 23, 25, 36, 37 FBAB MGT4550 - Dr. Irene M. Duhaime

  41. Question 10 How does a successor prove that she/he is capable and got the job based on ability rather than genes ? MGT4550 - Dr. Irene M. Duhaime

  42. Question 11 Should a successor or in-law joining a family business have an employment contract ? MGT4550 - Dr. Irene M. Duhaime

  43. Question 12 Where should a successor start in the family business and how much should she/he be paid? How should responsibilities be determined? MGT4550 - Dr. Irene M. Duhaime

  44. Question 13 When and how is it appropriate for a successor to make a suggestions for change in the business? MGT4550 - Dr. Irene M. Duhaime

  45. Question 14 How should a successor address his father, mother, uncle or other relatives while in the office? Does it make a difference? MGT4550 - Dr. Irene M. Duhaime

  46. Question 15 How can a successor be judge as a fellow employee and not just as a son or daughter of the founder or head? MGT4550 - Dr. Irene M. Duhaime

  47. Question 16 Should a non-family member who has been with the company for a long time mentor and critique the successor(s)? MGT4550 - Dr. Irene M. Duhaime

  48. Question 17 How does a successor maintain a sense of privacy while working in a family business? MGT4550 - Dr. Irene M. Duhaime

  49. Question 18 How does a successor deal with employees who use him to influence the boss and owner, who may be a parent? MGT4550 - Dr. Irene M. Duhaime

  50. Question 20 Is there room in family business for a successor to grow personally and professionally? MGT4550 - Dr. Irene M. Duhaime

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