MGT 4550 Family Business Management

MANAGING STRATEGIC CHANGE

IN THE FAMILY BUSINESS

Chapter 11
Family Business Management,
Concepts and Practice
By A. Bakr Ibrahim & Willard H. Ellis

Instructor: Dr. Irene Duhaime

Questions and Cases

Questions

87-89, 95-97, 100, 101 FBAB

Case:

Monticello Pottery, Inc., p. 481 FBM

Class Schedule - Week 9

(03/22)
MANAGING

STRATEGIC CHANGE
IN THE FAMILY BUSINESS
Reading: Chapter 11 FBM
Questions

87-89, 95-97, 100, 101 FBAB

Case:
Monticello Pottery, Inc., p. 481 FBM

Contents
Strategic

Change

Resistance

to Change

The

Changing Agent

The

Clientele

Organizational

Change Techniques
4

Strategic Change
Objective

To move the existing system to a more

efficient state

Possible

Reasons

Succession
Going public
Introduce professional management
Restructuring
5

Planning & strategic

changes in the family firm
Ownership

dimension

ownership transfer, wealth transfer

going public

Planning & strategic changes

in the family firm
Family

dimension

succession

leadership development

assessment of familys management skills

7

Planning & strategic changes

in the family firm
Business

dimension

corporate and business strategy

growth
diversification
retrenchment, turnaround
introducing professional management

Effective Change
Management
Step 1

Identify areas of behavior

to be changed.

Step 2

Provide time to learn

desirable behavior

Step 3

Give positive
reinforcement
9

Resistance to Change
Uncertainty

about future under new

leadership
Fear of personal loss

Status, money, level of authority

Perception

that change might not be in

the best interest of the firm

May weaken the firms competitive

position
10

Techniques to Reduce
Resistance
to
Change
Education through Communication

Communication
Participation
Facilitation

Negotiation,
Manipulation
and Co-optation
Coercion

Explain the need

Adequate accurate information
Getting employees involved from the
beginning
Leads to support and endorsement
Helping employees through the change
process e.g. training, or support
Provide something of value in return for
support.
Use of false or partial information to
generate support
Use of threats

11

Question 95
What is the purpose of the family
business family retreat?

12

Ten Reasons To Hold Family

Meetings
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Build a stronger family.

Build a stronger business.
Plan for the future ownership of the business.
Plan family participation in the business.
Help children manage inherited wealth.
Open up the succession process.
Preserve family values, traditions and history.
Professionals the business.
Manage family-board relations.
Recognize and resolve conflict.

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,
Marietta, GA 1992.

13

Who should be invited?

Make

a list of attendees
in-laws? Younger children?
Outsiders only to help the family
achieve the meetings goals, hold more
productive discussions
facilitator
professionals or employees to provide
information needed for topic

14

When Is the Right Time

Informal family meetings are often held while

children are still considerably young

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,
Marietta, GA 1992.

15

The Importance of the Meeting

To teach the importance of listening, understanding

each others logic and values, and following up on
results

To teach conflict-resolution skills

To reinforce a childs self-esteem by showing that

he or she is important to the process, and that his or
her opinions are valued

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,
Marietta, GA 1992.

16

The Meetings Progression

As children grow older more time is spent talking

about the business

Teenagers are exposed to the burdens and rewards

of business ownership, as well as opportunities
that the business may offer

As children reach their 20s and beyond, the

meetings tend to become more formal. Policies
for family participation in the business and
leadership succession are introduced.

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,
Marietta, GA 1992.

17

Who Should Run the

Meeting?
The meeting leader should be someone who
commands the familys attention and respect.

It does not have to be the owner-manager of the

business.

The familys leadership base can be broadened by

rotating the chairpersons role among capable
family members.

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,
Marietta, GA 1992.

18

Family Meeting Location

Offices

have benefit but more

drawbacks

Meeting

rooms in hotel or club

Arrangements

should convey

importance of meeting
19

Family Meeting Agendas

Helps

keep discussion on track

Conveys
Print

importance of the meeting

and distribute in advance

Items

of mutual concern to family

members (facilitator can help early on)

20

Question 96
Where do you find a good facilitator to
run the retreat?
What criteria do you use to judge a
facilitator and what kind of
experience should that facilitator
have?
21

Opening a Family Meeting

Reassurance

conflict and disagreement are part of family

life
compliment family for dealing with them in
a constructive way

Family

is special
Be clear and explicit that proceedings are
confidential, if want them to be
22

Critical Issues for a Familys

Future
Succession
How do we assure our parents lifelong financial
security?
What nonbusiness interests will keep the parents
fulfilled during retirement?
How do we choose the next president?
When does the presidential transition take place?
How do we decide that?
How do we evaluate the next presidents
performance and consider his or her replacement?
Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,
Marietta, GA 1992. Citing Ward, 1987, p.138

23

Critical Issues for a Familys

Future

Participation

How do we decide which family members can join the

family business?
What preparation, if any, is required?
How do we determine titles and authority?
What if a family member employee doesnt work out?
What if a family member chooses to leave the business?
Do we permit spouses or other nonblood relatives to work
full or part time in the business?
Do we allow the next generations children to enter the
business?
Under what circumstances?
Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,
Marietta, GA 1992. Citing Ward, 1987, p.138
24

Critical Issues for a Familys

Future
Compensation and Ownership

How do we evaluate and pay family members?

Who participates how much in the financial growth

or future of the business?

Who can own stock in the business?

What returns and rewards do shareholders get?

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,
Marietta, GA 1992. Citing Ward, 1987, p.138

25

Critical Issues for a Familys

Future
Harmony

How do we deal with conflicts between generations?

How do we deal with sibling conflict?
How do we teach in-laws the business and our family
traditions?
Who will lead the family activities and customs into
the next generation?
How do we make future family decisions?

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,
Marietta, GA 1992. Citing Ward, 1987, p.138

26

Critical Issues for a Familys

Future
Responsibility

How do we help family members in financial and/or career need?

What responsibilities does one family member have to the other?

What if there is a divorce?

What if a family member breaks the law or acts in a seriously

irresponsible way?

How much financial information do we share with whom?

How do we protect the contributions of good, nonfamily employees?

How do we support family members new business venture ideas?

How do we cope with public visibility and the publics expectations of

successful families?

What responsibility do we have to the community?

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,
Marietta, GA 1992. Citing Ward, 1987, p.138

27

How Family Meetings Change

As The Business Evolves
Business Phase

Participants

Typical I ssues

Founding or
entrepreneurial

Nuclear family

Family participation, succession,

leadership transition, "letting go,"
cultivating family skills

Sibling ownership

Second generation
family members and
spouses

Teambuilding, establishing
common goals, stressing mutual
interests, family harmony, family
education

Family dynasty

Members of third and

subsequent
generations, including
cousins, in-laws and
other relatives, both
active and inactive in
the business

Shareholder issues such as

liquidity and allocation of capital;
fostering family commitment to
the business; family tradition and
history; family projects

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources,
Marietta, GA 1992.

28

Closing the Family Meeting

Ask

family members for suggested

topics for subsequent meeting

set

a date

delegate

roles to family members

fosters spirit of involvement and

participation
29

The Changing Agent

Management

Consultant

Accountant
Lawyer
Banker
Neutral

relative or friend

30

The Changing Agent Qualities

Prestige

Well respected, trusted

Power
Experience

Organizational change techniques and

methods to reduce resistance to change
.. continued

31

The Changing Agent Qualities

continued

Interpersonal

Skills

Negotiation skills,
Mediation skills,
Counseling skills
Influential, patient and accommodating

32

The Clientele
The

Change Agent

Must focus on the needs of the firm

regardless of who hired him/her
Focus on the problem not personnel

33

Organizational Change
Techniques
Action Research Model
C lie n t-F o u n d e r /C E O

D ia g n o s tic s
In fo r m a tio n G a th e r in g

C O L L A B O R A T IO N
Feedback
Change Agent
(C o n s u lta n t, th e w is e m a n /w o m a n
in th e fa m ily )

A c tio n P la n n in g

F ig u r e 1 1 .3 . A c tio n R e s e a r c h M o d e l f o r O r g a n iz a tio n a l C h a n g e in th e fa m ily f ir m

F a m ily B u s in e s s M a n a g e m e n t , C o n c e p t s a n d P r a c t ic e , I b r a h im & E llis , 1 9 9 7

34

Organizational Change
Techniques
The Change Process

U N F R E E Z IN G

C r is is
te n s io n

CHANG E

In tr o d u c in g
change

R E F R E E Z IN G

N e w v a lu e s
N e w S tru c tu re
in te g r a tio n

F ig u r e 1 1 .3 . L e w in 's t h r e e - s t e p p r o c e s s o f in t r o d u c in g c h a n g e
F a m ily B u s in e s s M a n a g e m e n t , C o n c e p t s a n d P r a c t ic e , I b r a h im & E llis , 1 9 9 7

35

Organizational Change
Techniques
Team

Building

Improve communication,
Clarify roles,
Diagnose problems,
Find solutions for improvement

36

Organizational Change
Techniques
Survey

Feedback

Collect data from employees,

Hold discussion sessions,
Hold feedback sessions

37

Organizational Change
Techniques
Sensitivity

Training

Forum for free and open discussion

Unstructured group integration

38

Class Schedule Following week (03/29)

STRATEGIC

MANAGEMENT OF THE
FAMILY BUSINESS

Reading: Chapter 10 FBM

Questions

1, 2, 38-41, 69, 71, 72 FBAB

Cases:

Tender Touch Car Wash Ltd., p. 465 FBM

39