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MGT 4550 - Family Business Management
PROFESSIONAL, NON-FAMILY
MANAGERS
ChapterChapter 8 8
Family Business Management, Concepts and Practice
By A. Bakr Ibrahim & Willard H. Ellis
Instructor: Dr. Irene Duhaime
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Dr. Irene M. Duhaime 2
Class Schedule - Week 8 Class Schedule - Week 8 (03/15)(03/15)
PROFESSIONAL, NON-FAMILY MANAGERS
Reading: Chapter 8 FBM
Questions : 16, 60-66, 82 FBAB
Cases: Baker, Inc., p. 287 FBM
Stewart Machinery Company Limited (A), p. 341 FBM
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Dr. Irene M. Duhaime 3
Contents Contents
The Family Business Culture
Reason for Introducing Professional
Management
Attracting and Retaining Professional
Management Outside Directors in the Family Business Composition of the Board
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Dr. Irene M. Duhaime 4
The Family Business Culture
Informal entrepreneurial style
Decision-making process centralized
Employees are likely to resist formal planning, result-oriented and professional-style culture
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The Family Business Culture
Reasons for resistance Fear that formalization could lead to loss
of competitive edge Employees may lack the skill and
competence to deal with decentralized decision-making
Employees fear loss of status, money and authority
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Reasons for Introducing Professional Management
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Reasons for Introducing Professional Management
Lack of a Qualified Successor Within
the Family. Offspring may be: ill-prepared
lack capacity to provide leadership and
work independently
working elsewhere
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Reasons for Introducing Professional Management
Family Infighting Family feuds and disagreements about
who get what
Introduce neutral professional
management to ensure business functions
effectively
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Reasons for Introducing Professional Management
The Desire to Formalize the Decision-Making Process Change from the informal and
emotionally based, less objective methods Introduce objective, result-oriented
methods, using professional management to minimize problems in the change process.
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Reasons for Introducing Professional Management
The Desire to Complement Family Members’ Skills. Well-rounded management team, variety
of skills and competencies Increase competitive edge with more
talented team of executives Enrich the Family Business Culture
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Reasons for Introducing Professional Management
To introduce an aggressive growth strategy like : Acquisition
Diversification
Expansion
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Reasons for Introducing Professional Management
Supervising Relatives, to reduce tension and conflict in: Assigning tasks
Criticizing and/or evaluating
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Attracting and Retaining Professional Management
Figure 8.2 Critical Issues in Attracting and Retaining Professional M anagementFam ily Business m anagem ent, Ibrahim & E llis
Attracting ProfessionalManagement
NepotismCareer development
CompensationFamily Infighting
Distribution of Pow er
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Attracting and Retaining Professional Management
Nepotism Eliminate advancement of family
members on the basis of connections rather than qualifications
Develop and implement a clear policy on career development
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Attracting and Retaining Professional Management
Family infighting Be aware of non-family members
being enlisted to be allies with quarreling family members
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Attracting and Retaining Professional Management
Compensation Offer compensation packages that are
Competitive in the area Equal to those of family members Include ownership (phantom stock)
Base compensation on objective measurable criteria
Individual performance Industry trends
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Attracting and Retaining Professional Management
Career development Clear guidelines according to industry standards
Include training and promotion
Communicate to all employees
Distribution of power Acceptance of non-family members as equals
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Outside Directors in the Family Business
Outside directors can be critical to the survival of the firm especially during the succession process. They can: Objectively resolve family conflict Assist in the planning and setting of criteria in
succession planning Help in formulating policy and in developing a
strategic plan …. continued
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Outside Directors in the Family Business
…continued
Improve decision-making through their talents
and with more objective, less emotional inputs.
Assist the firm in performing to industry
standards
Provide network of contacts
Act as a sounding board.
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Composition of the Board
Include wide range of talent and
experience for most effective board
Lawyer
Accountant
Banker
Other Founders
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Questions and Cases Questions and Cases
Questions :
16, 60-66, 82 FBAB
Cases: Baker, Inc., p. 287 FBM
Stewart Machinery Company Limited (A), p. 341 FBM
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Question 16
Should a non-family employee who has been with the company a long time
mentor and critique the successor(s)?
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Question 60
How does the founder deal with a long-time non-family employee when a
family member comes into the business and, later, becomes the successor
CEO?
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Question 61
How does the family business leader attract (and keep) good
professional non-family managers and employees who most likely will never “run” or “own” the
business?
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Question 62
How do you attract young people today to middle management positions
when so many want to work on their own for the freedom?
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Question 63
Should a non-family employee have a contract?
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Question 64
Should non-family employees expect equity?
What are other options?
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Question 65
Should non-family employees avoid socializing with family members
outside the company?
How can employees avoid taking sides in family squabbles?
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Question 66
How can non-family employees help a successor grow professionally?
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Question 82
How should family members’ compensation be set so it doesn’t
initiate conflict?
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Class Schedule - Class Schedule - Following week (03/22)Following week (03/22)
FINANCIAL ISSUES FOR THE BUSINESS AND THE FAMILY Reading: Chapter 9 FBM Questions
3, 4, 6, 42-51, 53-55, 67, 79, 97-100 FBAB Cases:
Walsh Petroleum, p. 77 FBM
Francis Hankin & Co., Limited (A), p. 397 FBM
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Class Schedule - Class Schedule - Following week (03/22)Following week (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