FAMILY BUSINESS AND SUCCESSION PLANNING

PROFESSOR TERESA MWUESE NMADUPower Point Presentation by

Professor Gbemi Oke

• OBJECTIVE OF THE MODULE

• To help students understand the concept of family business and the transition from family businesses to the mega firms we see today in the corporate world.

Learning Outcomes

• Upon completion of this module, students would have been able to:

• Discuss the concept of family business and the factors that make it unique

• Explore the cultural context of the family business

• Appraise the complex roles and relationships involved in a family business

Learning Outcomes

• Identify entrepreneurial practices that enable a family business to function effectively • Examine the process of managerial

succession in a family firm.• Analyze the major issues involved in the

transfer of ownership to a succeeding generation

Content

3 Main Topics• The Concept of Family Business• The Cultural Contexts of Family Business–Roles and Relationship in Family Business

• Ownership Transfer and Succession in Family Business.

Topic 1• Introduction• Definition/ Conceptual Framework• Family in African/Nigerian setting• Assumptions about Family Business• Family Influenced Start-ups• Family Corporate Venturing• Family Corporate Renewal• Provision of Family Private Cash• Family Investment Funds

Challenges of Family-Owned Businesses

• • Assuming that past success will guarantee their future success;

• • The legacy value attributed to the business does not translate into a market value or advantage;

• Leaders try to balance the risk profile of their shareholders with the risk and investment demands of the marketplace;

• Risk profiles differ between senior and successor generations;

Challenges• Hard to pass the responsibility of managing the firm into the

hands of younger generations which they deem less capable;• • Families build the first-generation business on the

founder’s intuition, but then business never establishes more intentional entrepreneurial processes or confirmed strategy for the future to keep the entrepreneurial contributions alive;

• • Families rarely make use of the same financial strategies as those used by fellow entrepreneurs to grow the business;

• • Families do not get rid of unproductive assets and underperforming businesses to reallocate resources to more productive places;

Challenges• • Successor generation family members feel

entitled to get a business rather than seek next-generation entrepreneurial opportunity;

• •Senior leaser communicate to the next generation that business planning and entrepreneurial analysis is a waste of time;

• • The family member is given part of the business to run as part of their legacy, and this is deemed to be entrepreneurship in the family.

Further Challenges• • Lack of an exit strategy;• • Succession planning;• • High turnover of non-family members;• • Lack of training of new family members

who join the business;• • Lack of outside opinions and diversity on

how to operate the business.

Topic 2

• Cultural Context• Value of Community Life• Value of Family oneness• Value of the Sacred and Religion• Value of old age and authority• Value of Acceptance and Hospitality

• Roles and Relationships in Family Businesses• Advantages and Disadvantages

of Family business• The need for good mix in the

family firm

Topic 3

• STRATEGIES FOR COPING WITH ROLES/RELATIONSHIP ISSUES IN FAMILY OWNED BUSINESSES–Family retreats–Family Council–Family Business Constitution

Succession Planning• Succession, in organizations, refers to the

process of transferring managerial control from one leader or one generation of leaders to the next.

• It includes the dynamics preceding the actual transition as well as the after- math of the transition (Shepherd and Zacharakis, 2000).

Succession Planning

• In the context of family business, Sharma et al (2001) define succession as the actions and events that lead to the transition of leadership from one family member to another

• Entrepreneurial succession is the process by which ownership and control of the production or commercial infrastructure accumulated by one generation of a nuclear or extended family is transferred to the next.• It entails the transfer of a commercial

investment of any type from the owner-founder to his prospective survivors.

Beneficiaries of Family Businesses

• These could be members of a nuclear family in a monogamous household or members of a compound family in a polygynous household,• Survivors could also be members of

the extended family such as uncles, aunts, nephews, nieces, cousins

Stages of the Succession Process in a Family Business

Test Questions• For family members in Nigeria, how easy

would it be for one to assume the role of employee in a family founded business? What are the basic preparations if any that are needed?

• How frequently should family owned businesses hold board meetings? What steps should be taken to make such boards be effective?

Test Questions• Describe five tell-tale signs that a business has

or does not have a succession plan in place.• In Nigeria, are educational qualifications of

potential successors of any significant effect on succession in business? Why or why not?

• Name five current family owned businesses that you are sure will get to their third/fourth generation. Support your assertions with credible examples.

•Thank You