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    Presentation on Family business

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    Presented by group 2

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    Succession in family business.

    Pitfalls of the family business.

    Strategies for improving the capability of

    family business.

    Improving performance of family business

    Contents

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    Family Business

    A family business is a business in which one or more members

    of one or more families have a significant ownership

    interest and significant commitments toward the business

    overall well-being.

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    Succession In Family Business

    How best to pass on your business to the next generation will

    be one of the biggest challenges you face. There is need to make

    the right decision for the family and business.

    The succession plan should include:

    Key goals for the succession process

    A timetable of the transition stages, from identifying a

    successor to the staged and then full transfer of responsibilities

    Contingency plans in case the unforeseen happens

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    First Succession Plan, Then Business

    Succession Plan

    The family succession plan must recognized and accommodate

    (hold) the needs, goals and objectives of each member of the

    family. The family s goals and objectives then become the

    basic building blocks for the development of the business

    succession plan .

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    Family-first Business or Business-first Family

    Another important issue that the needs to be determined prior to

    beginning the family succession plan is a family-first business

    or a business-first family, it will significantly affect the

    succession planning process.

    Consider the multitude of personal sacrifices the business

    founder made in order to create a successful business. Sacrifice

    that included in 70-80 hour work weeks, noweekends,misssedgames, school and social functionsa business-first family.

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    Succession Management

    Family business which uses the advisory board as part of their

    succession management process tend to be businesses that are

    still growing in size, and profitability.

    As a part of the succession management process, the advisoryboard acts as a safety net for both the family and the business.

    To be effective, the advisory board needs some infrastructure in

    place including a formal business plan, a written succession

    plan, buy/sell agreements.

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    Business Valuation

    Business valuation is a process that does not always result in a

    formal written report.

    The reasons for valuing a business are as follows.

    Buying or selling shares to employees.

    Retiring and selling to other family members.

    Planning gifts to heirs(successor).

    Proving adequate man key insurance coverage. etc

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    Buy/Sell Agreement

    One of the more popular device used to transfer share

    ownership is the buy-sell agreement.

    Over valuation or under valuation can lead to substantial tax

    penalties. Proper documentation of facts and reasons is critical

    to sustainability.

    It is prepared for the sole purpose of estimating what an

    informal buyer would pay an informed seller.

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    Example For Succession Of Family Business Tata

    Groups

    The group was founded by Jamsetji Tata in the mid-nineteenth

    century

    Total 28 companies are publicly traded, the largest of which are

    Tata Steel, Tata Consultancy Serives, Tata Motors and Tata Tea

    Jamsetji Tata was succeeded by his sons Sir Dorab Tata and Sir

    Ratan Tata, who were responsible for the creation of the Dorabji

    Tata Trust and the Sir Ratan Tata Trust.

    Realizing that succession would be a crucial issue in the life of

    the Tata Group .

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    Contd.

    Tata Sons also formed a governance council to search for asuccessor to its present head Ratan Tata once he retires.

    Tata Sons has a majority shareholding in most of the

    companies under the Tata Group umbrella. The Chairman ofTata Sons acts as the chairman of the Tata Group.

    The sons of the Tata family act first as administrators of the

    trust, to secure wealth for the trust, which has the majorityholding in the group.

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    Structure of the Tata group of companies

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    Seven Pillars or Pitfalls of Family Business

    When only 30% of family businesses survive to the

    second generation and 10% to the third.

    It begs the question: Why do family businesses die so

    quickly? Since 92% of businesses are family-owned, they

    employ a vast majority of the country's workers. The

    success of family-owned business affects everyone.

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    Reasons for Pitfalls

    A difference in age & experience as is typical between father and son.

    Differences in educational levels.

    Sibling rivalries between cousins which usually end in a separation.

    Difference of attitude towards employees.

    Difference in way each would like to define the business or

    restructure it.

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    Cont

    Difference in value system, which may affect ethical practices orcorporate governance.

    Difficulty in keeping a professional distance among family members.

    Different promoters are not equally gifted in all aspects of business.

    A lack of focus and business strategy.

    An inability to separate the familys interest from the interest of

    business.

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    Seven Pillars or Pitfalls of Family Business

    1. Respect: Can family members treat each other with respect? Do

    people value different perspectives? How are differences handled?

    Are there established ground rules?

    2. Roles: The roles clear, and are authority and responsibility

    compensated with the roles? Is there confusion about who does

    what? Are there job descriptions?

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    Cont...

    3. Rules: What assumptions do people make about the rules? Are there

    written agreements about equity, compensation, time off?

    4.Responsibility:

    Is there a sense of responsibility, duty, commitment, or a sense of

    entitlement? What are the values and culture that are carry out about

    obligations, loyalty, and excellence in the firm? Is there a sense of

    servant leader?

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    Cont

    5.Relationship/Management:

    How are relationships managed? Are conflict and communication

    addressed? Are there standards of behavior that are reinforced or

    discarded?

    6. Results:

    Is there accountability around performance, follow through, focus,

    action plans?

    Is this a commitment to provide training to increase results?

    Are there consequences when results are not met? Are targets met?

    Is there a board of directors? How is incompetence managed?

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    Cont

    7. Regeneration:

    What is the company doing to create growth?Is there a strategic plan?

    Is there a succession plan?

    The vision, values, and mission of the company revised and

    reviewed at transitions?

    Is there evidence throughout the company what those are, or is there

    alignment among corporate, department, and individual goals?

    Is the company committed to growing the talent pool to contribute

    to company regeneration?

    How is innovation cultivated?

    Has the business model or lines of business chance?

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    Simple Tips to Avoid Conflicts in Family Business

    Make time to understand the points of view of others-

    the payoff can be huge.

    Understand we make a difference.One conversation at

    a time-dont try to out shout everyone else.

    Seek more information and insights from those with

    whom you disagree-ask for strengthening and

    examples that will enable you to better understand

    other points of view.

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    Cont

    Establish time limits on discussions and debates- when that time

    limit is reached but closure is not attained, table the topic for

    further research and put it on the agenda for discussion at a future

    meeting.

    St t i f i i th bilit f

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    Strategies for improving the capability of

    Family Business:

    Family firms must be able to professionalize:

    To professionalize means that the family must

    make the mental leap and separate ownership and

    management, and distinguish between the familys interest.

    Most Indian companies are in transition today. They are

    painfully coping with the problem of incompetent family

    members at the top of many businesses.

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