3 Unit Final Ppt-final

8/2/2019 3 Unit Final Ppt-final

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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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Cont..

Rahul Bajaj says, It is easy to get free of an

outside manager, but how do you get rid of a family

member? You must either do what is right for the businessor the family. Either way, you will end up with an

unhappy family or a weakcompany


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The termination of the joint family:

A more unique characteristics of Indian business, at least until recently, was that

it was managed as a joint family and derived a competitive advantage from this

fact.

A famous example as stated earlier, is of the Palanpuri Jains of Western India,

who have established commercial colonies in such diamond centres as Tel Aviv,

Antwerp, Mumbai, London and New york and who today account for roughly

50% of all purchase of rough diamonds in world.

Owing to the inherent trust in a joint family, the Jain diamond merchants rely on

interethnic ties to keep this highly scattered, specialised and intrinsically high risk

business together.


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The number of family businesses is increasing day byday. Almost all companies, all over the world, start off

as a family concern. In India, in 2003, the number of

companies registered in the private sector was

5,40,026 and collectively they had an authorized

capital of almost Rs.9,00,000 crore.

Replenishing entrepreneurship:


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Good management: In USA, over 65% of business-

and the more profitable sector of USA Income is

family business. This little fact is not much in the news

because most of these family run businesses areprivately held.

Ability to change: The issue is not family business.

How can Indian management improve? And how can

speed up the pace of improvement?


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If a family business does not have a sense of its future,

it cannot know the knowledge, skills and expertise that

will be required of the next generation of leaders. And

the next generation of leaders must work hard to

acquire their leadership skills,

Have a strategic plan:


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Improving performance of family business

David Sirmon and Michel Hitt examined the strategies behind

successful family. They tied directly to how well a company

manages the five unique resource every family business process

Human Capital

Social capital

Patient financial capital

Survivability capital

Lower cost of governance


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Human CapitalThe first resource is the family or human capital

inner circle when the skills sets of different

family members are coordinated as acomplementary cache of knowledge, with a clear

division of labor, the likelihood of success

improves significantly.


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Social capital

Family members bring valuable social capital to thebusiness in the form of networking and other external

relationships that complement the insiders skill sets.

Patient financial capitalThe family term typically has patient financial capital in

the form of both equity and debt financing from family

members. The family relationship between the investors

and the manager reduces the threat of liquidation.


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Survivability capital

The family company must manage its survivability capital family company must manage its survivability capital family

members willingness to provide free labor or emergency loans so

the venture doesnt fail.

Lower cost of governanceThe family business must manage its ability to hold down the

costs of governance. In nonfamily firms these include costs for

things such as special accounting systems, security systems,

policy manuals, legal documents and other mechanisms to reducetheft and monitor employees work habits.

The family firm can minimize or eliminate these costs because

employees and trust each other.


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Concept ofcore Business Values:The management of every family business requires that

decisions be made about myriad(many) issues. The totality

of these decisions becomes, in effect, the family core

business values of particular importance are the familys

core values regarding the training of the members of the

family entering the business, the future, finance and

accountability of these members.


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3 Unit Final Ppt-final

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