Darwin D.

Clemente (ID# 10581693) Starting A New Business Venture

August 26, 2008 Prof. Alexander C. Trajano

A Case Analysis on
“The Martin Company”

Introduction

The case typifies one of the most common problems in the family, which is sibling rivalry.
Something that when left unchecked, can negatively affect the relationships within the family
just like what happened with David and Jess of AFCO.

The problem started when AFCO lost their founder, John Martin, from an airplane crash,
leaving a void in the company’s leadership. Because of this, the company faced a difficult
decision of choosing the right successor for John, which is a toss between brothers Jess and
David. Eventually, David was chosen by the board to become the President with Jess
becoming the Vice-President for sales.

Over time, conflicts started between the two which reached its peak when David, with
the concurrence of the board, decided to terminate Jess. Later on, David bought Jess’s share in
the company at a price that Jess determined at $1.75 per share. However, Jess learned that his
brother later sold the company at $20 per share that further aggravated the rift between the two.

Statement of the Problem

The problem between David and Jess is a classic example of sibling rivalry that
develops when family members occupy key positions in the company. As competition
heightens, the negative perceptions and feelings towards each other start to develop. In this
regard, the problem statement for this case shall be:

How can conflicts between family members who are working in the family business, be
managed?

As pointed out by Prof. Elfren Cruz (2005) in his book Setting Frameworks: Family
Business and Strategic Management, managing conflicts in a family business does not mean
eliminating conflicts, rather it means accepting the inevitability of conflict and establishing a
mechanism or system for controlling conflicts and ensuring that they cause the least amount of
distress and damage.

Contributing Factors

1. Untimely death of John Martin, leaving a void in the organization’s leadership.

2. The family/management’s inability to come up with a good succession plan.

3. Misunderstanding between David and Jess that resulted in the termination of Jess from
the company.

4. David’s decision to sell the company at a lucrative offer which infuriated Jess, thinking
that he was deceived.
Objectives:

1. To come up with recommendations on how the situation could have been handled more
appropriately.

2. To come up with measures that would prevent such conflict from happening again.

Alternative Courses of Action

1. Set up a formal governance structure that will manage the internal affairs of the family
such as a Family Council.

2. Come up with a formal succession plan for the family business.

3. Leave the management of the family business to non-family members.

Evaluation of alternatives:

Alternative Advantages Disadvantages

Set up a formal governance  When implemented
structure that will manage the successfully, this can
internal affairs of the family contribute in ensuring the
such as a Family Council. survival of the company
from one generation to the
nexti.
 Helps facilitate free and
open communication
between family members
in a formal and organized
manner.
 Prevents petty grievances
from escalating.
Come up with a formal  Helps ensure a well-
succession plan for the family planned transfer of
business. leadership authority.
 Training and development
efforts can be better
directed to individuals
being groomed for a
specific position in the
family business.
 Can well address
concerns over birth order,
nepotism, favoritism, etc.
Leave the management of the  Minimizes possible
family business to non-family conflicts among family
members. members that may arise
from business interests.
 Opens lucrative career
 Will require significant time
to organize.
 May not be feasible for
small family businesses.
 Requires certain level of
professionalism among
members in order to
function effectively.
 May not work well when
there is a lack of available
talent/ability from within
the family.
 Can address the issue on
who will occupy certain
positions but not
relationship issues among
family members.
 The business may be
deprived of the work
dedication that is usually
exerted by family
members working in the
 path for aspirants from business.
within and outside the  Professional managers
company. are prone to make more
 More technical expertise conservative decisions
can be brought into the that may be detrimental to
organization by the company’s growth
professional managers. potential.

    ACA 1 ACA 2 ACA 3

Raw Weighted Raw Weighted Raw Weighted
Criteria Weight
Score Score Score Score Score Score
Cost 25% 4 1 3 0.75 5 1.25
Strategic Value 50% 5 2.5 4 2 3 1.5
Ease of
Implementation 25% 4 1 5 1.25 3 0.75
Total 100% 4.5 4 3.5
Note: Scale of 1 to 5 with 5 being the highest

Conclusion and Recommendation

Considering the above discussion, alternative #1 would be the most appropriate course
of action that AFCO should take, or other family businesses in general. Establishing a family
council or family business council as others may call it, not only provides a venue for settling
conflicts, rather these councils provides strategic value for the organization as well since:

 It provides a venue for articulating family values for the guidance of the board, top
management and the family’s philanthropic activities.

 Developing a challenging vision of the future of the family and the company that all
members can share.

 Establishing policies to regulate conflicts of interest among different business activities of

family members.

One important consideration in organizing a family council is that membership to the

council should be open to all family members who have already reached the agreed upon
minimum ageii.

References:

Cruz, E. (2005) Setting Frameworks: Family Business and Strategic Management. Anvil
Publishing. Pasig City, Philippines.
i
Ibid p. 16
ii
Ibid p. 18