Case study
Alpha67
2023MGMT4710Chapter4.pptChapter Four.
The Governance and Professionalization Challenge
It’s All Greek
- Governance comes from the Greek term “to steer.”
- Current family business research mirrors Corporate research as to outcomes.
- What is missing are the outcomes important to families!
Family Governance
- Essential for the long-term well-being of the business and wealth
- The ability to control relationships between family, managers, and shareholders
- Protects unity and capital
- Financial
- Human
- Social
Family Governance Structures
Source: Poza, Family Business, 3e, 2010.
Shareholder
Meetings
Family Office
Family
Enterprise
Ownership
Family
Council
Top
Management
Board of
Directors
*
The Systems Theory Model
Family Members
Other Shareholders
Family Shareholders
Owner-Manager Family Members
Owner-Managers
Family
Employees
Non-Family Managers & Employees
Source: The Systems Model. Adapted from Davis and Tagiuri, 1981.
Family
Management
Ownership
*
What happens when we overlay Systems Theory with the Family Governance Structure?
Systems Theory and Governance Structures
Family Members
Other Shareholders
Family Shareholders
Owner-Manager Family Members
Owner-Managers
Family
Employees
Non-Family Managers & Employees
Overlay of Two Family Business Models. Source: The Systems Model. Adapted from Davis and Tagiuri, 1981. Source: Poza, Family Business, 3e, 2010.
Shareholder
Meetings
Family Office
Family
Enterprise
Ownership
Family
Council
Top
Management
Ownership
& Board
*
Family Systems Theory
- We must manage interrelated subsystems:
- Family
- Management
- Ownership
- Larger system must be effective and successful
- May lead to blurred boundaries
More Blurred Boundaries
- Can lead to vision and leadership issues
- Nepotism, hallo effect, & entitlement
- Losses of identity, values, sense of fairness, culture and wealth
- Festering into conflict, lack of oversight, secrecy, and selfishness
Professionalization Challenge
- Requires professional family and non-family managers
- An organizational structure aligned with strategy
- Policies that promote delegation
- Family firms must be willing to:
- Employ non-family executives
- Exclude incompetent family members
- Establish Policies (SHRM)
The Family Constitution
- Usually for larger companies
- Has no legal standing!
- Influence is felt in other legal documents, buy-sell agreements, etc.
- Supports family intentions and goodwill.
- Can support family philanthropy efforts
Managing Succession
- Very difficult to pick one member over another member
- A board can take a third person approach to the problem
- Consultants can take an independent approach
- Co-CEOs rarely work in reality
- Someone must be in charge!
Mapping The Family Business Governance Cluster
Business Family
Long
Term
Short
Term
- Human Resources
- Governance Structure
- Family Ownership
- Family Control
- Business mission and goals
- Role of Network
- Decision Making
Adapted from: Yu, Lumpkin, Sorenson, and Brigham. (2012).
Mapping The Family Business Governance Cluster
Business Family
Long
Term
Short
Term
Adapted from: Yu, Lumpkin, Sorenson, and Brigham. (2012).
