Family business
A family business is a commercial organization in which decision-making is influenced by multiple generations of a family, related by blood, marriage or adoption, who has both the ability to influence the vision of the business and the willingness to use this ability to pursue distinctive goals.
Throughout most of the 20th century, academics and economists were intrigued by a newer, “improved” model: large publicly traded companies run in an apparently rational, bureaucratic manner by well trained “organization men.” Entrepreneurial and family firms, with their specific management models and complicated psychological processes, often fell short by comparison.
A firm is said to be family-owned if a person is the controlling shareholder; that is, a person (rather than a state, corporation, management trust, or mutual fund) can garner enough shares to assure at least 20% of the voting rights and the highest percentage of voting rights in comparison to other shareholders.
[3] A three-circles model is often used to show the three principal roles in a family-owned or -controlled organization: Family, Ownership and Management.
The Management circle typically includes non-family members who are employed by the family business.
These individuals are intensely connected to the family business, and concerned with any or all of the above sources of value creation.
It is a useful tool for spotting relationship patterns across generations, and decrypting seemingly irrational behavior.
Myths help people cope with stress and anxiety and, by prescribing ritualistic behavior patterns, will enable them to establish a common front against the outside world.
They provide a rationale for the way people behave, but because much of what makes up a family myth takes place deep beneath the surface, they also conceal the true issues, problems, and conflicts.
Fair process helps create organizational justice by engaging family members, whether as owners and employees, in a series of practical steps to address and resolve critical issues.
Many years of achievement through generations can be destroyed by the next, if the family fails to address the psychological issues they face.
Applying psychodynamic concepts will help to explain behaviour and will enable the family to prepare for life cycle transitions and other issues that may arise.
In making this decision, the founder is balancing his personal interests (taking cash out) with the needs of the business (expansion).
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.
[16] Arieu proposed a model in order to classify family firms into four scenarios: political, openness, foreign management and natural succession.
The education of potential successors is a critical issue in the succession process because it affects the endowment of managerial capabilities of the firm.
Such a transfer of power can take the form of the incumbent providing the successor with entrepreneurial resources that foster the firm's innovation.
[18] Eventually, the successor gains all the authority and influence while the incumbent steps down, leaves to company completely, or remains as an advisor (Handler, 1990)[1].
[full citation needed] An international body called International Council for Family Business (ICFB) having professor Alain Ndedi as Board of Trustees chairman, is assisting worldwide the private sector and non for profit organisations (Universities, Foundations, etc) to develop effective and successful planning process.
If all the shares rest with one individual, a family business is still in its infant stage, even if the revenue is strong.
