Business and Financial Watch

Posts Tagged ‘Family’

Although its role in private sector business activity is very large but most family businesses do not last long because it failed in leadership succession and not able to handle internal conflicts as well.

In a conference on family businesses in Jakarta, Thursday, Director of the Jakarta Consulting Group AB Susanto of Indonesia explained that family businesses can survive until the third generation and only 24 percent until the fourth generation which is only five percent.

Recent survey by the Jakarta Consulting Group also showed that only three percent of the family company that was built in 1932-1943 who survived until now.

While the family business that was built in 1944-1955 and only two percent of family business that began in 1956-1967 only 10 percent survive.

Family company that was built in 1968-1979 and in 1980-1991 who survived until now each one as much as 24 percent.

Susanto explains the main problems faced by family businesses in maintaining business continuity is a conflict between family members, succession of leadership failures and problems in locating family members in business.

All three, he said, is a recurrent problem in the family business in addition to problems of management structure, distribution of compensation, competence, and the misalignment between the interests of families and businesses.

There appear to be two main factors affecting the development of family business and succession process: the size of the family, in relative terms the volume of business, and suitability to lead the organization, in terms of managerial ability, technical and commitment (Arieu, 2010). Arieu proposed a model in order to classify family firms into four scenarios: political, openness, foreign management and natural succession One of the largest trends in family business is the amount of women who are taking over their family firms. In the past, succession was reserved for the first born son, then it moved on to any male heir. Now, women account for approx. 11-12% of all family firm leaders, an increase of close to 40% since 1996. Daughters are now considered to be one of the most underutilized resources in family businesses. To encourage the next generation of women to be valuable members of the business, potential female successors should be nurtured by assimilation into the family firm, mentoring, sharing of important tacit knowledge and having positive role models within the business

Successfully balancing the differing interests of family members and/or the interests of one or more family members on the one hand and the interests of the business on the other hand require the people involved to have the competencies, character and commitment to do this work.

Family-owned companies present special challenges to those who run them. The reason? They can be quirky, developing unique cultures and procedures as they grow and mature. That’s fine, as long as they continue to be managed by people who are steeped in the traditions, or at least able to adapt to them.

Often family members can benefit from involving more than one professional advisor, each having the particular skill set needed by the family. Some of the skill sets that might be needed include communication, conflict resolution, family systems, finance, legal, accounting, insurance, investing, leadership development, management development, and strategic planning.

Ownership in a family business will also show maturity of the business. If all the shares rest with one individual, a family business is still in its infant stage, even if the revenue is strong

There is perception in the public that the family owned company will unfairly treat the non members of family in the company. This perception is supported by a survey conducted in Surabaya, Indonesia. The respondents of the survey are young job seeker and the goal of the survey is to get their opinion about family business. The survey came with the result that 80% of the respondents believe that there is an unfair treatment between family members and non family members in the company owned and managed by family.

Is that really happened?

That survey only indicated about the perception of the job seekers, and another survey conducted by the Jakarta Consulting Group which the target respondents are the family owned companies and to know how the organization manage their career path of the employee especially the family members. The result showed that 36.8% of the respondents (the family owned companies), the family members directly got the strategic position in the company, 20.7% family members got the special treatment, 16.1% the family members have to follow the regular career management, but with the special policy with the shorter period to follow. And only 26.4% of the respondents have no special treatments to family members regarding the career management.

This survey gave the indication that there is an unequal treatment in the family owned company (family business) between family and non family members and also became a proof of the perception in public about unfair treatment in the family business. This is an important issue for the family owned companies, because the unfair or unequal treatment between family and non family members has showed that the organization have tendency to operated and managed not in professional way.

There are some theories and literatures say that the most crucial and important issues in family business is succession. Succession is one of important issues in business organization, especially for the family owned companies, but it may not be the most crucial and important issue in the family owned companies.

Succession will become issue when the founder of the company have plan to retired or pass the company to his/her successors or the next generation. Usually this will happen after the company has stabled, and the next generation will only need to maintain the growth of the company and some development. Before came to that level, the business organization itself as the family owned organization, has some challenges because of the family culture in the organization.

These challenges have to be faced by the management of the company, sometimes the family culture can become the disadvantage for the company. Some issues regarding the family culture in the business organization are: the unequal and unfair treatment between family member and non family member in the business organization, internal communication within organization among the family members, etc

Succession is an issue that came after several others issues in family owned organization/company, because the succession problems will only exist after the plan of retirement of the founder.

In a family business, one or more members within the management team are drawn from the owning family. Family businesses can have owners who are not family members. Family businesses may also be managed by individuals who are not members of the family. However, family members are often involved in the operations of their family business in some capacity and, in smaller companies, usually one or more family members are the senior officers and managers. Many businesses that are now public companies were family businesses.

Family participation as managers and/or owners of a business can strengthen the company because family members are often loyal and dedicated to the family enterprise. However, family participation as managers and/or owners of a business can present unique problems because the dynamics of the family system and the dynamics of the business systems are often not in balance.
The interests of a family member may not be aligned with the interest of the business. For example, if a family member wants to be president but is not as competent as a non-family member, the personal interest of the family member and the well being of the business may be in conflict.

Or, the interests of the entire family may not be balanced with the interests of their business. For example, if a family needs its business to distribute funds for living expenses and retirement but the business requires those to stay competitive, the interests of the entire family and the business are not aligned.

Finally, the interest of one family member may not be aligned with another family member. For example, a family member who is an owner may want to sell the business to maximize their return, but a family member who is an owner and also a manager may want to keep the company because it represents their career and they want their children to have the opportunity to work in the business.

According to the Family Business Institute estimated that in Spain there are more than two million family businesses accounting for 75% of private employment, and for 59% of exports and its turnover is 70% of GDP.

With the aim of raising awareness, support and guidance to family businesses in overcoming obstacles to a swift and smooth generational change, the Madrid Chamber of Commerce, together with the Council of Chambers of Commerce and the European Social Fund, has decided to organize interactive workshops 8-hour launch aimed at those responsible for small family businesses in methodologies, instruments and tools that contribute to improving and facilitating family-business relations, the succession process and its management and leadership.

The camera itself looks for companies preferably with a number of workers at or below 50 and of any sector, discharged from the IAE (section 1) and the current payment against the Treasury and Social Security, where the family is involved in the political control and economic development of the company or where a family member involved in the administration bodies and has a clear vocation for continuity within the family.

A prerequisite to be eligible for these courses is that the company is attached to the Community of Madrid and the person attending the workshop is the founder, owner or manager involved in the management of the company.