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Flashcards in Chapter 5 Packet Notes Deck (29):

A group of people bound by a shared history and a commitment to share a future together, while supporting the development and well-being of individual members.



An organization in which either the individuals who established or acquired the firm, or their descendents, significantly influence the strategic decisions and life course of the firm.

Family Business


  • Family concerns
  • Business concerns

Family and Business Overlap


  • Care and nurturing of family members
  • Employment and advancement in the firm
  • Loyalty to the family

Family Concerns


  • Production and distribution of goods and/or services
  • Need for professional management
  • Effective and efficient operation of the firm

Business Concerns


  • Strength of family relationships during challenging periods of business change
  • Financial sacrifices that family members make for the good of the firm
  • Operation as a family business distinguishes the firm from its competitors
  • Higher levels of concern for its community and non-family employees
  • Capability to plan and prepare for the long haul
  • Emphasis on quality and value

Advantages of a Family Business


  • Conflict among family members about
  • Family business momentum
  • The founder's imprint on the culture
  • Organizational culture

Disadvantages of a Family Business


  • Risk (consequences of failure) to the family in launching a business.
  • Nepotism and the differences in competencies and merit of family members involved in the business.
  • Family traditions versus the business need to innovate and seize opportunities.
  • Unity and cooperation of family versus business need to foster diversity and competition.
  • Family loyalty versus the necessity to provide opportunities for non-family employees

Conflict Among Family Members


The founder's core values become a transmitted part of the culture (for better or worse).

The Founder's Imprint on the Culture


  • Patterns of behaviors and beliefs that characterize a particular firm.

Organizational Culture


  • Mutual respect
  • Integrity
  • Wise use of resources
  • Personal responsibility
  • "Fun"

Family Business Cultural Values


  • Parental concerns in passing the business on
  • Co-preneurs
  • Sons and Daughters
  • Sibling Cooperation, Sibling rivalry
  • In laws in and out of the business
  • The entrepreneur's spouse

Family Roles and Relationships


  • Temperment and ability necessary for business leadership
  • Motivation of the children to take an interest
  • Education and expertise
  • Timetables in employing and promoting
  • Avoiding favortism
  • Sibling rivalry likely problems, avoidable?
  • Preventing the business relationship from damaging or destroying the parent-child relationship.

Parental Concerns in Passing the Business On


  • Opportunity to share more in each other's lives.
  • Business differences interfere with family life.
  • Work doesn't leave time for family life.
  • Sharing family responsibilities eases the load.

Co-Preneurs (Husband-Wife Teams)


  • Personal preferences different from the business
  • Personal qualifications insufficient to assume role in business
  • Desire for personal freedom to choose another career.

Sons and Daughters


  • Best case: Siblings work as a team, each contributing services according to his or her abilities.
  • Worst case: Siblings compete as rivals and disagree about their business roles.

Sibling Cooperation, Sibling Rivalry


Disagreements about how to treat and reward in-laws and family members/children.

  • Assign to different branches or to different business roles.

In-Laws in and Out of the Business


Communication between entrepreneurs and spouse is critical for their performance as an effective team for both the business and the family.

The Entrepreneur's Spouse


  • Best practices (Professional management)
  • Nonfamily employees in a family firm
  • Family retreats
  • Guidelines
  • Family Councils 
  • Family business constitution
  • Family protocol

The Need for Good Management in the Family Firm


  • Promote learning to stimulate thinking and fresh strategic insights.
  • Solicit ample inputs from outsiders to keep things in perspective
  • Establish channels for constructive communication and use them.
  • Build a culture that accepts continuous change
  • Promote family members only according to their skill levels
  • Attract and retain excellent nonfamily managers
  • Ensure fair compensation for all employees, including those outside the family
  • Establish a solid leadership succession plan
  • Exploit the unique advantages of family ownership

Best Practices (Professional Management)


  • Hazards:
    • Competition with family members for advancement.
    • Getting caught in the crossfire and politics of family competition within the firm.
  • Solutions:
    • Identify family-only reserved positions in advance.
    • Treat both family and nonfamily employee's fairly in matters of reward and promotion.

Nonfamily Employees in a Family Firm


  • A gathering of family members, usually at a remote location, to discuss family business matters.
  • Use of an outside facilitator may be necessary.

Family Retreats


  • Set a time and place.
  • Distribute an agenda prior to the meeting.
  • Plan a schedule in advance.
  • Give everyone a change to participate.
  • Keep it professional



  • An organized group of family members who gather periodically to discuss family-related business issues.
    • Represent the family to board of directors
    • Useful in developing the family harmony.
    • Increases understanding of family traditions and interest.

Family Councils


A statement of principals intended to guide a family firm through ties of crisis and change.

Family Business Constitution


An extension of the constitution incorporating additional agreements that includes:

  • Ownership agreements (inheritance and buy-sell compacts).
  • Governance and personal politics
  • Use of business resources by family members
  • Conflicts of interest and noncompetition agreements.
  • Codes of conduct

Family Protocol


  • Avaliable family talent:
    • Mentoring
      • Guiding and supporting the work and development of a new or less-experienced organization member.
    • Competency
      • Allowing only qualified competent family members to assume leadership roles in the firm increases the value of the firm for all who have an ownership interest in it.

Available Family Talent


  • A sound, profitable business
  • Stable, healthy family relationships
  • Advance planning for leadership succession
  • Positive family leadership and team-oriented management structure.
  • Presentation of career opportunities without pressure.
  • Open communication on family business issues
  • Reluctant parents and ambitious children

Conditions Favoring Successful Leadership Succession in a Family Firm


Passing ownership of a family business to the next generation.

  • Who will inherit the family firm? when?
  • Should each heir recieve an equal share?
  • Should ownership be transferred gradually?
  • How are tax considerations to be handled?
  • What to do with other wealth and assets of the founding enterpreneur?

Transfer of Ownership