Academic Research in the 21st Century Business School

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The Family Business
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Family BusinessesClass Examples
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Family Businesses

• Retain ownership intention while maintaining
  operational control and strategic direction
• 20.3 million firms represent 92 percent of all
  businesses
• contributing 3.3 trillion (49 percent) of gross
  domestic product
• employing 59 percent of the workforce, and having
  created 78 percent of the new jobs in the United
  States

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Family Business Hires
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Family BusinessesAdvantages Disadvantages
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Family Business

• Advantages
• Long-term orientation
• Family culture as a source of pride
• Greater resilience in hard times
• Less bureaucratic and impersonal
• Financial benefits
• Knowing the business

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Family Business

• Disadvantages
• Less access to capital markers
• Confusing organization
• Nepotism
• Internal strife
• Paternalistic/ autocratic rule
• Succession dramas

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Common Cultural Patterns in Family Firms

• patriarchal or matriarchal dominant authority
  figure
• collaborative family shared power
• conflicted family conflict, distrust arising
  from differences in values and objectives

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Family Philosophical Orientations About Business

• Business first
• Family first philosophy familys happiness and
  cohesiveness should come before all else
• Family enterprise first philosophy seeks a
  balanced approach, situated somewhere between the
  two previous orientations

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Competitive Advantages of Family Firms

• Preserving the humanity of the workplace in many,
  but not all cases
• Ability to focus on the long run
• Emphasizing quality

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Problems in Family Business

• Narrow or outdated viewpoints
• Rewards not matched to contributions
• Unwillingness to focus on the long run
• Brother-in-law needs a job
• My family is the greatest
• High non-family employee turnover

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Problems in Family Business

• Aging entrepreneur
• Inflated Ego problem
• Key Personnel problem
• Absentee Ownership problem
• Role Reversal and Sibling Rivalry

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The Succession Issue

• Failure to Plan for Succession
• Or
• No Exit Strategy

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Barriers to Succession Planning in Family Firms

• Founder
• Death anxiety
• Dilemma of choice
• Generational envy

• Family
• Death as taboo
• Fear of sibling rivalry
• Change of spouses position

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Types of Succession Plans and Their Determinants

• The family in group successors should be
  chosen from within the family
• The family out group family should be
  disconnected from the business
• The family business jugglers group

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Succession Plan Elements

• Identify a successor
• Groom an heir
• Agree on a plan
• Consider outside help

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External Succession Plans

• When to look for outside managers
• Growth of the family business
• Geographical expansion
• Insufficient family
• Unavailable family
• IPO planning

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External Succession Plans

• Outside Managers
• Advantages
• Larger pool to draw from
• Extraordinary experience
• Pitfalls
• Access to information
• Unclear expectations
• Compensation

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Examples of large family owned businesses

• Single family controls the companys ownership.
• The controlling familys members are currently
  active in top management.
• The family has been involved in the company for
  at least two generations, or seems likely to be.

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• Founded 1962
• Revenues 244.5 billion
• Employees 1.4 million
• From single store in Arkansas in 1962, founder
  Sam Walton (d. 1992) and younger brother James L.
  (Bud) built Wal-Mart into worlds largest
  retailer, with about 4,700 stores today (bigger
  than Sears, Kmart and J.C. Penney combined).
  Sams descendants own about 38. Sams son
  Robson, 59, is now chairman.

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• Founded 1903
• Revenues 163.4 billion
• Employees 350,321
• Pioneering auto firm now in fourth generation.
  Henry Ford (1863-1947) introduced mass production
  and dominated early auto market with Model T. His
  grandson Henry II (1917-1987) rebuilt company as
  CEO, 1960-1980, with younger brother William
  (retired 1995) as finance committee chairman.
  Williams son William Jr., chairman since 1999,
  acquired Volvo Cars. Ford family still owns about
  40 of voting stock.

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• Founded 1928
• Revenues 26.679 billion
• Employees 97,000
• Founder Paul Galvin (1895-1959) produced first
  practical radio for automobiles and ran company
  as one-man show until his death. Son Bob, CEO
  1959-90, moved company from TV sets into
  high-tech commercial and industrial electronics.
  His son Christopher, 51, took charge 1997.

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• Founded 1851
• Revenues 3.079 billion
• Employees 12,150
• Tennessean Adolph Ochs (1858-1935) bought Times
  1896, rescued it from New Yorks penny-paper wars
  by making it Americas most respected newspaper.
  Son-in-law Arthur H. Sulzberger, publisher
  1935-1961, made it worlds greatest. Sulzbergers
  at helm ever since chairman today (but not CEO)
  and publisher of Times is founders
  great-grandson Arthur O. Jr., 52. Family owns
  about 18 of stock, elects two-thirds of
  directors.

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• Founded 1985
• Revenues 3.04 billion
• Employees 8,100
• Company pioneered commercialization of multiple
  access technology used in wireless communications
  equipment, especially cell phones. Licenses
  technology and system software to more than 100
  equipment and cell phone makers. Company also
  sells popular Eudora e-mail software. Founder and
  CEO Irwin M. Jacobs, 68, likely to be succeeded
  by son Paul, 40, president of Qualcomms Internet
  and wireless group.