Riassunti Family Business

FAMILY INTERNAL COMBINATION FAMILY EXTERNAL

Family succession

FAMILY INTERNAL Mixed Professional OWNERSHIP we could maintain the management Management succession inside the family Mixed ownership and COMBINATION Partner or private Financial management (publicly-equity investment listed family company) Transfer to employees, MBO, FAMILY EXTERNAL Ongoing family involvement after sale to co-owner, financial or we could sell the business so succession strategic buyer, liquidation ownership become external

SUCCESSOR CHOICE, FORMAL MODEL: The popular belief is that successors to family businesses are often offspring (prole), because of nepotism. Is this always the case? No, the choice depends on 2 factors:

• Asset specificity: A candidate's idiosyncratic knowledge (tacit knowledge and knowledge related to that specific company) of the business that is individual specific. The firm's profit is an increasing function of ability and idiosyncratic knowledge at a diminishing rate.

head the family business if the agent's ability is known to be low. To address this paradox, the family may consider implementing certain mechanisms to mitigate the risks associated with appointing an agent of low ability. These mechanisms can include monitoring systems, performance-based incentives, and clear communication channels between the family and the agent. Furthermore, the family should also consider the long-term implications of their decision. While appointing a high-ability offspring may seem like the obvious choice, it is important to assess whether the individual has the necessary skills and experience to effectively lead the business. In some cases, it may be more beneficial to recruit an outside agent with proven expertise in the industry. Ultimately, the decision of who to appoint as the head of the family business should be based on a careful evaluation of the individual's ability, potential risks, and long-term goals of the family.ners involved, Evaluate potential successors based on the established criteria, Select the most suitable successor4) Transition: Prepare the successor for the new role, Transfer responsibilities gradually, Ensure support and guidance during the transition periodIntegrative phases:1) Family governance: Establish clear rules and procedures for family involvement in the business, Define roles and responsibilities of family members, Implement mechanisms for conflict resolution and decision-making2) Succession evaluation: Monitor and evaluate the effectiveness of the succession process, Make adjustments and improvements as needed to ensure long-term success and sustainability of the business

that could be interested.

4) Closure of the process: Formalize the new role of the incumbent and exploit succession as an opportunity for the organization renewal.

5) Management of the relationships within the family: Introduce family council as a means for transferring family values to younger generations and improve relationships between family members.

6) Management of the relationships with non-family members: Be open to non-family members and involve them.

FACTORS PREVENTING INTRA-FAMILY SUCCESSION: The succession could not work because of 3 reasons:

1. Family successors decline the proposal
2. The dominant coalition reject the family successor
3. The family successor wants, the dominant coalition want but then something happens and they will not do it.

A) Individual Factors: could be related to the successor (low ability, lack of motivation, unexpected loss) or related to the incumbent (attachment to the business, unexpected loss of the incumbent)

B) Relation Factors: related with family members

and non-family members are the same (conflicts, lack of trust or commitment).

C) Financial Factors: Inability to sustain tax or liquidation, change in the business performance or in the scale or loss of key customer.

D) Process Factor: Preparatory activities not well defined or communicated, Development of successor (training) and selection of successor (no criteria used)

SPACE OF INVOLVEMENT FOR NEXT GENERATION: There could be 3 possible spaces:

1. Management: we should create a next generation development program by: develop skills related to the ownership and management, know the resources, the history of the family and develop leadership skills. This program is defined by the family council. There should also be some principles like do not create work position just for family members, acquire only the best one, treat every employee in the same way and evaluate them with criteria.
2. Ownership: must be stewards, so long term orientation, develop and communicate a common vision of the family business,

Understand the emotional property and share the same value of the family. This could be done with a Next-Gen Council that offer a protected environment to train and experience.

Entrepreneurship: How is possible to establish a policy in order to provide equal opportunities to the family members in investment in other business that the family members have? These are the type of question that they must do in order to create a plan of investment.

ADVISOR: Advisor in succession could help a lot, could be: Balanced and efficient (mediates goal conflict between incumbent and successor), Incumbent dominated (when he want to favor the incumbent), successor dominated (favor the successor) or balanced with two advisor (one for incumbent one for successor).

PROFESSIONALIZATION: Means mainly 2 things: Bring inside the family business professional outsiders (in order to substitute non-professional family manager), and formalize the system (so change the informal atmosphere and make it)

WHO IS A PROFESSIONAL AND HOW CAN WE MEASURE IT?

Is one who has formal education or training, has ethics, and wants to continuously improve his skills. In order to distinguish a professional, a family business should have their policy and principles, and all decisions must be emotion-free. The problem of a professional is that he doesn't take into account the perpetuation of family values and unity, which are really important. A professional will warn you that it is possible that the family manager and also non-family manager are agents or stewards, so we have to pay attention to it. Everything should be explicit, written, and communicated.

CULTURAL CONTEXT ROLE:

There is a family business culture which results from the founder's values and norms and the history of the family. The top management in a family business must be sensitive to these values and norms, and also the creation of values, norms, and goals is a continuous process in which communication is fundamental. This introduction is to say

That manage a FB must take into account the cultural context of a FB.

WHY PROFESSIONALIZE A COMPANY: Because of lack of talent management inside the family, change the norms and values, prepare the leadership succession. This could help in a lot of ways, for example in creating diversity of perspective and experience, a high-performance system and so on.

HOW TO PROFESSIONALIZE A FAMILY COMPANY: We could do it with External Professionalization when professional managers are hired to leverage on their skills or Internal Professionalization when we train somebody inside the company. Each one has its advantages and drawbacks, for example the external one is better to do revolutionary change but there could be a problem in following values and in communication. There should be a formal performance evaluation and incentives compensation and monitoring due to the possibility of agency problem in professionalization because we know that there are Asymmetric information, Adverse selection and Moral.

hazard.AGENCY ANALISIS: Performance evaluations in family firms will be more problematic (more subjective, complex, and biased) than performance evaluations in nonfamily firms. Family firms will pay family managers more than they pay nonfamily managers with the same ability because of asymmetric altruism. The higher paid family manager with the same ability as the nonfamily manager in the family firm will not expend sufficient additional effort to justify the higher pay received. A family manager with lower ability than the nonfamily manager will expend even less additional effort to justify the altruism induced additional pay. The professionalized family firm with both family and nonfamily managers will underestimate the performance pay the nonfamily manager deserves. The economic performance of professionalized family firms with both family and nonfamily managers will be lower than that of nonfamily firms. This brings us to the fact that nonfamily managers will be motivated to lower their commitment.

In addition, they will tend to focus on the short term more than what the family owner desires.

SPEECH- FAMILY SYSTEM THEORY

GENERAL SYSTEM THEORY: Family business theory is based on General system theory: they are not following a linear cause effect model but is based on the circular causality (in which everything influences everything). There is a sort of system which is more than the sum of the individual.

STRUCTURAL FAMILY THERAPY: The family system theory looks at how person relates with their social context, the psychopathology is between the people (so their relationship). The structural family therapy says that if a person does an action is because of the actions of the others (the structure).

By going on an important concept in structural family therapy is boundaries: are the rules defining who participates and how. It's important the role of power: could be active or passive. Be passive doesn't mean that I don't have power, the power is about how much I'll

EXECUTIVE SUBSYSTEM: There should be a power subsystem inside the family in order to not let the family influence the rest of the business.

ALLIANCES: Can be shifted all of the times, could be considered healthy or no. For example if the alliances is between 2 members against the third is not a good alliances.

ENMESHED FAMILY: these families can appear very close, but they demand loyalty at the expense of individual needs. Moves to separate from the family and become autonomous are seen as disloyal. Enmeshed families use guilt to manipulate. Communication is indirect, conflicts avoided, problems not resolved deeply. No robust dialogue and key decisions delayed.

DISENGAGED FOBs (Family owned Business): When there is a little attachment in the family, conflicts can be brutal and there will not be interest in a win-win approach but only in one will win one will lose.

HEALTHY FAMILIES: Are connected but also allow individual autonomy and encourage to become who they are.

care more about win-win results, the conflicts are