Family-owned business by Professor Kobus Visser Department of Management University of the Western Cape Bellville, South

1. Family-owned businessbyProfessor Kobus VisserDepartment of ManagementUniversity of the Western CapeBellville, South Africa

2. Family Business (FB) • Objectives • Challenges facing family-owned businesses • Implement strategies for succession • Skills & competencies required for succession • New venture teams & family members • Dealing with crises in family enterprises • Tutorial on family business

3. Introduction • FB has become “popular” … again • Changing attitudes: young corporate bureaucrats return to FB as decision-makers • FB is a little-understood aspect of new ventures • FB range in size from very small to international conglomerates • Significant contribution to GNP • What is FB? • 2 or more (extended) family members influence the business • A business the founder intends to pass to heir(s)

4. Some key points on FB • All healthy and growing companies will eventually have to hire a CEO to replace the founder • Exactly when this day happens, differs widely from business to business • For some businesses it comes before the business even starts doing business • For some it can be when the company is already an established player with decades of history • Family businesses make a significant contribution to the global economy and their contribution in South Africa is no exception • 84% of businesses in South Africa have been identified as family businesses

5. Transfer of power, authority, responsibility • Often a very sensitive issue for founding entrepreneurs • Deciding when it is time to “let go” requires the founder to be clear and honest about his or her own capabilities and skills, not to mention mortality • “Letting go” also requires forming goals and aspirations for the company that will outlive their own period of management and perhaps even their own lifetime • Many founders have a really hard time coping with the succession issue

6. Transfer of power, … • The fact is that most businesses are not runaway successes; therefore, • Most companies spend years struggling in obscurity with very little money • After a struggle like that it is hard for the founder to let go • The company has taken up the best part of their lives and thoughts for so long they tend to sympathize with Louis XIV who said “I am France.” • Conceptually the founders can not separate themselves from their companies

7. Oldest family business in the world? • Kongo Gumi Co. Construction began in A.D. 593 • Shigemitsu Kongo, traveled to Japan from the Korean kingdom of Paekche to buildShitennoji (the first Japanese temple commissioned by a royal), one of the oldest Buddhist complexes in Japan • Masakazu Kongo, 40th Kongo is now leading the company in Japan • 1410+ years old • 90% of the carpentry techniques Shigemitsu Kongobrought to Japan from Korea in AD 593 are still used today • Temples, shrines, schools and retirement homes • "Temples are our focus"

8. World’s 10 oldest family businesses

9. Corporate versus personal goals Publicly-owned corporations Personal goals owner/manager Corporate goals Closely-held firms: non-family Creates conflict and complications Family enterprises Family goals

10. Types of involvement • Why join a family business? • Family obligations • Meet career interests • Develop identity • Satisfy needs • Types of involvement in the family enterprise • Helper: duration unknown, which position, which level, “jack of all trades” • Apprentice: use enterprise as stepping stone, launchpad to other choices • Socialised successor: joins, becomes socialised, likely to take over • Convergent/divergent goals: clash/overlap?????

11. Farming as a traditional form of succession Three children each inherit – economic unit does not exist & changes into survivalist units Three children inherit – economic unit under serious threat Farmer on original size of land – economic unit

12. Vision, Goals and Plans Future (Vision) These goals & objectives create major clashes between founder and next generation Goal Goal Plan 6 Plan 7 Here & Now Goal Plan 4 Plan 5 Plan 1 Plan 2 Plan 3

13. General considerations on FB • Starting on one’s own versus starting as a family • Decision-making • Stakeholders in a family business • Their agenda/s • Impact of these demands on the enterprise • Efficiency: doing things right • Effectiveness: doing the right thing

14. Keep eye on the goal • Clear mission statement • Chains of command • Plans to establish goals • Good communication between family & non-family members • Language is personal: • It needs to become more impersonal • Attitudes are subjective: • Attitudes must become more objective • Roles are traditionally defined: • Redefine roles • Role transfer between home & business

15. Behaviour: Family versus workplace • Opinions & emotions • Challenge to management of family enterprises: • Separate home & workplace issues • Allegiance to family members redefined • Leader: taking sides?

16. Some thoughts …… • Who is in charge? Patriarch/matriarch versus real manager • Permission to decide & clearance procedures: missed opportunities • Personalities & emotional reactions = inefficiency • Communication at work: continuation from home

17. Remaining in charge … • Apply efficient management techniques • Rise above family “bickering” (i.e. family quarrels, famil disagreements, family infighting) • Be tough enough to make decisions (i.e. “tough love”) • Possible solutions: • Hire management for operational activities • = “freeing-up” family to strategise, set basic policy, growth • Do not exempt family from rules

18. Geoffrey Seeff Bill Venter Harry Oppenheimer Kunene Brothers Raymond Ackerman Anton Rupert

19. Succession: who takes over? • Succession planning: illness, retirement • Neutral family meeting with (possible) external guidance • Agenda for succession planning - Issues to be raised: • Family goals for the future • Who stays in the business: aptitude, aspirations, role-definition • Grooming future leaders: how? • Timing: when to succeed • Preparations for stepping-down • Financial aspects of stepping down

20. More key issues …. • Hiring more family: resisting family pressure, cultivate talent, provide special training, working with non-family member • Personnel problems: resentment by outside talent • Departure of skilled, outside talent • Spending money to save money • Resistance to expansion, opportunity and growth plans • Base argument on facts & supporting information • Demonstrate impact of opportunity • Utilise external assistance: e.g. banker, accountant

21. Status quo versus growth • Longevity (prolonged existence) & status quo • Increasing risk intolerance = blocking growth • Some possibilities: dilute their influence, reducing ownership • Encourage involvement in other directions • Restructure the enterprise • Acquiring capital for growth - outgrowing its resource-base: • Factoring (“selling” the Debtors/Accounts Receivable to a bank) • New supplier agreements • New investors

22. Grooming the next generation: De Beers Professional Management: Julian Ogilvie-Thompson G1 Ernest Oppenheimer G2 Harry Oppenheimer G3 Nicky Oppenheimer G4 Jonathan Oppenheimer G3 too young/ not ready to take over

23. Family enterprises: advantages • Business performance: • Family members take long-term view of their investments • Commitment: • Strong (emotional) bonds through ownership • Customer/client appeal: • Strong sense of community • Beyond profits: • Notion of providing employment, commerce, social responsibility • Other: • Creativity & innovation, uniting family(?)

24. Family enterprises: disadvantages • Discord (i.e. conflict, friction, disputes): • Private matters spilling over into enterprise • Anger, jealousy, resentment • Personal history & “bad blood” • Employment: • Entitlement (incompetence, under-qualified, lack of commitment, “soft” job) • Marital stress: • 24/7 syndrome

25. Succession revisited • Characteristics of effective succession: • Select managers for next generation • Put in place a comprehensive development programme for these members • Provide opportunities for next-generation managers to fulfill their personal & career goals • Develop plans for management succession: realistic assessments • Establish positive associations & good working relations

26. To conclude ... • Family enterprises start as entrepreneurial ventures • Lead entrepreneurs demonstrate characteristics of successful entrepreneurs • Articulate (communicate) the vision to next generation • Leadership requirements differ as family business moves from start-up, through expansion and growth into maturity • Deal with complexity • Family as decision-makers, employees

27. Competencies for success: do family business possess these elements? Technical & Business skills Core Entrepreneurial skills Interpersonal & Leadership skills

28. TIME Magazine covers