Case Study 1: Family Enterprise
Nature of Family Business & Family Business Reputation
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Lecture 1 Outline
What is the three generation rule?
What is the Three Circle Model of the Family Business and the overlapping areas?
What is the difference between family-first, business-first, and ownership-first perspectives?
How does family, business, and ownership relate to generational transition and the need for governance?
The Three Generation Rule
In America: “Shirtsleeves to shirtsleeves in three generations.”
In China: “Fu bu guo san dai” (Wealth never survives three generations or “From peasant shoes to peasant shoes in three generations.”
In Mexico: “Padre bodeguero, hijo caballero, nieto pordiosero”. (Father-merchant, son-gentleman, grandson-beggar.)
In Brazil: “Pai rico, filho nobre, neto pobre” (Rich father, noble son, poor grandson.)
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Three Circle Model of Family Business
Family
Business
Ownership
Source: The Systems Model. Adapted from Davis and Tagiuri, 1981.
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Overlapping Areas
Family and Business
Family Employees and Managers
Family and Ownership
Family Shareholders
Business and Ownership
Owner-Manager Non-Family Members
Family, Business, and Ownership
Owner-Manager Family Members
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Family-First Businesses
Employment in the business is expected
Equal pay for same generation members
Qualifications based on being born into family or being connected to one of its members
Permanent employment
Strong commitment to continuity
Family “Socialistic” System
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Business-First Businesses and Ownership-First Businesses
Business-First
Employment is selective not automatic
Qualifications matter
Family members may not be qualified for business
Performance reviewed and competence assessed
Compensation based on responsibility and performance
Focused on future market needs
Business “Capitalistic” System
Ownership-First
Focused on satisfaction of business owners through dividends
More about risk and return on investment
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Generational Transition & Governance
Active to Passive Involvement in Family Business
Stage 1: One-Person
Focused on business, control, and owner personality
Stage 2: Small Family
Transition to business and family focus, power sharing, and competence
Stage 3: Large Family
Transition to FB + ownership, division of labor, dividends, less reinvestment
Integrative Governance Structure
Family Governance
Family Assembly and Family Council
Development of Family Constitution
Business Governance
Board of Directors
Management
Ownership Governance
Shareholder Meeting
Family Office
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Lecture 2 Outline
What is the difference between brand and reputation?
What is reputational capital for family firms?
What are the myths of communication as it relates to reputation management for family firms?
What are the different areas of reputation management?
What is the difference between brand and reputation?
A brand refers to everything a firm does and says about itself. The brand is owned by the company and is its promise to stakeholders.
Reputation refers to the sum of what others hear, think, believe, and feel about a company. Reputation is owned by the stakeholders and is how well the promise is understood or believed.
What is reputational capital for family firms?
Reputational capital is about proactively managing the business reputation prior to a crisis event.
It is about getting the right people to understand the right things about you, in a way that is consistent with your personal and commercial objectives and the family business profile.
What are the myths of communication as it relates to reputation management for family firms?
Communications is about PR and talking to the media
Being proactive in communications is being high profile.
“Saying nothing” is a feasible strategy for managing reputation.
What are the different areas of reputation management?
First, define the family story and values.
Second, assess the relationship between corporate and family reputation.
Third, identify who leads the family business to stakeholders and plan communication strategies for when the business transitions from the first to second generation.
Fourth, manage the family firm’s involvement in philanthropy.