Digital Management-1: Managing Family Business

DIGITAL MANAGEMENT-1
MANAGING FAMILY BUSINESS
Submitted to, Submitted by,
Prabu Christopher. B Reg no: 19BBA0089
Professor VITBS Name: J.S.Supreetha
Vellore Institute of Technology Slot: B1

DEFINITION OF FAMILY BUSINESS:
A family business is a corporation that is entirely owned and managed by members of a

single family. It is also known as a company owned, controlled and operated by members of
one or several families. A family business can be described as an interaction between two
separate but connected systems, the business and the family, with undetermined boundaries
and different rules.
CHARACTERISTICS OF FAMILY BUSINESS:
 Family members are able to communicate effectively with each other, expressing and
acknowledging each other’s feelings, wants and ideas openly and clearly with an
attitude of acceptance of differences. And there are no secrets.
 The family simultaneously encourages and supports individuality in its members,
both as it pertains to their strengths and weaknesses and especially as it affects the
family business.
 Conflicts and disagreements within the family are managed with respect and
openness. The family is fundamentally focused on achieving “win-win” solutions.
 Leadership is present and clearly defined. Leadership demonstrates competence,
vision, respect and superb communication to all its employees, vendors and
customers.
 Management, business and operational structures, processes and systems are
efficient, effective, well documented and regularly scrutinized for improvement, as
well as necessity.
 The family business has an active board of directors or advisors which includes at
least two non-family members.
 Loyalty and Succession.
 Minimum of transaction cost which includes Human Capital, Social Capital, and
Survivability Capital.
 Possible for Complications during the time of Diversification.
 Complexity and Informality.
WHY WE NEED TO STUDY FAMILY BUSINESS:
Having a strong education about family business matters helps the individual shape and
develop a personal vision and identity as a future family business owner.
 Tangible output- The tangible output of a process includes reports, meetings and

leaflets, which are useful in themselves but do not usually meet the full purpose of the
process. Employment and Economic Output major outputs of family business.
 Different from other firms- Family business differ in Ownership, Business and Social
Philosophies, Leadership Relationships from other businesses. Their main strategy is
not Financial, Transactional or Market Based in nature.
 Crosses Generations- It give raise to different Corporate Governance Model and
Theories.
MISSION AND VISION STATEMENT OF FAMILY BUSINESS:
1. MISSION STATEMENT:
 In terms of a family business, a mission statement that has the buy-in of all family
members should allow everyone to strive for success, together as a group.
 A mission statement crafted by the family can be referenced for guidance when
decisions must be made, conflicts resolved or questions answered as family member’s
journey toward success.
 But, if the mission statement is not aligned with the family's beliefs, it will not
resonate with family members, nor will it double as a compass should there come a
time when the path or the journey grows unclear.
 In other words, the mission statement should be based on a family's shared values.
2. VISION STATEMENT:
 The vision statement of family business neither to put the needs of the business before
the family, nor the family before the business, but to balance the two.
 As family members, they should intend to play in the management and ownership of
their company.
 They should stay together as a business owning family for generations to come.
 The vision statement of family business should be to set example to their employees,
their community, and future generations of family members.
DIMENSIONS OF FAMILY BUSINESS:
 OWNERSHIP-
The Ownership circle may include family members, investors or employee-owners. An

ownership group that speaks with one voice liberates management to focus on the business
instead of fearing shareholder disputes. Sharing a long-term view provides strategic stability
and enhances risk-taking. Responsible ownership reassures the board, the management and
other shareholders.
 MANAGEMENT-
Management is the process of guiding the development, maintenance, and allocation of

resources to attain organizational goals. Family businesses are steeped with tradition and
pride. As it seems that corporations overrun the business world, several family-run businesses
thrive thanks to strong management. Developing a management plan increases the chances
that a family business will survive through several generations. Continuity in the
management, strengthens its core values and guides future generations as they assume the
leadership roles.
 GOVERNANCE-
In a family business where the owners also share the values and emotions of an intimate
history, governance might best be seen as a set of relationships among management, owners,
and the board of directors.
SHAREHOLDERS OF FAMILY BUSINESS:

 Shareholder is an individual, group, or organization that owns one or more shares in a
company, and in whose name the share certificate is issued.
 A shareholder in a family business has legal shareholder rights and obligations as well
as rights and obligations as defined by the family dynamic.
 Legally, as a shareholder, you have the right to receive any dividends declared by the
board of directors, to vote for members of the board, to sue in the event of company
mismanagement and to receive a share of the assets if the company is liquidated.
Dealing within the family is another matter.
STAKEHOLDERS OF FAMILY BUSINESS:
 A stakeholder is either an individual, group or organization who is impacted by the

outcome of a project. They have an interest in the success of the project, and can be
within or outside the organization that is sponsoring the project. Stakeholders can
have both positive and negative influence on the project.
 Depending on circumstances, there are usually eight groups of key stakeholders in
family businesses. This may vary slightly from one family business to another, so it’s
always worth considering every possibility. Each is important to understand and work
with, for the future of the business and morale in the bigger team
 This includes: Family Owners, Current Families, Non-Family Shareholders, future
generations, Non-Family Employees, Customers & Clients, Suppliers, and Non-
Executives.
AGENCY THEORY-
Agency theory attempts to explain and resolve disputes over priorities between principals and
their agents. Principals depend on agents to execute certain transactions, especially financial,
resulting in a difference in agreement on priorities and methods. It is a principle that is used
to explain and solve issues in the relationship between business principals and their agents.
Most commonly, that relationship is the one between shareholders, as principals, and
company executives, as agents.
 RISKS INVOLVED IN AGENCY THEORY:
Agency problems may exist in family business on both behavioural and governance
dimensions. For instance, on the behavioral dimension – relationships among family
managers may create problems of piggybacking or moral hazard.
Mislead shareholder objectives or opportunistic behavior of diversion of resources may also

cause agency problems. On the aspect of governance, agency theory suggests establishing
mechanisms that check opportunistic behavior.
Family business have been found to setup monitoring and incentive mechanisms to direct
managers towards desirable behaviors. However, their unique governance challenges can lead
to agency issues.
For instance, controlling family dynamics and conflicts is difficult and can render monitoring
ineffective. Unnecessary emotional attachment can lead to poor business decisions that may
go unchallenged.
 MINIMISING AGENCY LOSS:
Family business can overcome the agency problem in your business by:
 Requiring full transparency,

 Placing restrictions on the agent’s capabilities, and
 Tying your compensation structure to the well-being of the principal.
STEWARDSHIP THEORY:
Stewardship theory is based on the humanistic model, which considers managers as stewards
with natural desire to serve the firm and therefore, naturally align with the principal. They
work in a pro-organizational and collective manner serving the interests of all stakeholders.
Stewardship theory suggests governance mechanisms based on trust that cooperate and
involve everyone so that a natural arrangement of the manager and the owner is achieved.
This leads to wealth maximization, thereby contributing to firm performance.
Family business have been noted to exhibit stewardship behavior. Basic motivation, trust and
commitment have been found to be higher in family firms compared to their non-family
peers. Family business are also characterized by parental relationships, family bonds and
reciprocal love and respect between the leader and other family business members. All of
these may contribute to stewardship behaviour within family business managers.
UNDERSTANDING CULTURAL DIFFERENCES THAT AFFECT THE

FAMILY BUSINESS:
 One of the ways that a family owned business – of any size – differs from other
businesses is that the values and habits of that family tend to influence the business as
a whole.
 The family business culture that exists affects the company’s mission, values,
productivity, profit, community relations, and even employee morale.
 Many people who work in a family business – even run a family business – are not
aware of its culture. This does not change the fact that culture is extremely important.
Not understanding your company’s family business culture will put you at a real
disadvantage when the time for a transition approaches.
 Business owners who don’t know what kind of culture their companies have are, in a
sense, flying blind. To better learn what your company’s strengths and weaknesses
are, try to examine it with a view towards its family business culture.

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DIGITAL MANAGEMENT-1

MANAGING FAMILY BUSINESS

Submitted to, Submitted by,

Prabu Christopher. B Reg no: 19BBA0089

Professor VITBS Name: J.S.Supreetha

Vellore Institute of Technology Slot: B1

A family business is a corporation that is entirely owned and managed by members of a

CHARACTERISTICS OF FAMILY BUSINESS:

 Tangible output- The tangible output of a process includes reports, meetings and

MISSION AND VISION STATEMENT OF FAMILY BUSINESS:

DIMENSIONS OF FAMILY BUSINESS:

The Ownership circle may include family members, investors or employee-owners. An

Management is the process of guiding the development, maintenance, and allocation of

SHAREHOLDERS OF FAMILY BUSINESS:

STAKEHOLDERS OF FAMILY BUSINESS:

 A stakeholder is either an individual, group or organization who is impacted by the

Mislead shareholder objectives or opportunistic behavior of diversion of resources may also

 MINIMISING AGENCY LOSS:

 Requiring full transparency,

UNDERSTANDING CULTURAL DIFFERENCES THAT AFFECT THE

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