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Opinion

Life cycles of the family business

BREAKTHROUGH - Elfren S. Cruz - The Philippine Star

Family business has always been a topic that has interested me. There was a time when I even used to be a consultant on family business. I also gave talks on the same topic. I wrote about the book, “Family Wars” which focused on conflicts in family firms. It even had 22 case studies. I received a few inquiries about other possible books on family business that I can recommend. There is a growing body of literature on this topic.

However, for those who are only beginning to read about this important subject matter, I would highly recommend that your first book, if you are serious, is “Generation to Generation: Life Cycles of the Family Business” by Kelin E. Gersick, John A. Davis, Marion McCollom Hampton and Ivan Lansberg (Harvard Business School Press, 1997). The book is about families who own or manage businesses and about the businesses themselves.

Family businesses are the most predominant form of enterprise around the world. In the Philippines, more than 90 percent of businesses are family businesses. The most well known businesses here are family businesses. These include business conglomerates like the Ayala, Aboitiz, SM Prime owned by the Sy family, the Lucio Tan group, San Miguel Corporation, the Metro Pacific group whose principal owner is the Salim family of Indonesia and the ITCSI group owned by Enrique Razon.

Family businesses have a mixed record, with some spectacular failures but also among the largest and most successful businesses in the world. The companies that have lasted the longest are family businesses.

In most countries in Asia, aside from China and Japan, family firms hold the dominant position. In Latin America, business conglomerates built and controlled by families are the primary form of private ownership in almost all industrial sectors. In the United States, family businesses generate more than half of the gross domestic product and employ half of the work force. These businesses range from grocery stores in small rural towns to Walmart owned by the Walton family, the largest retail chain in the world. In Europe, family firms dominate the small and medium size and are the majority of larger firms in most European countries.

In the book “Generation to Generation,” it says that “over 80 percent of all businesses worldwide are family firms.” The book is an academic exploration of the world of family businesses, as it “explores the special dynamics and challenges that these organizations face as they move through their life cycles.” The authors have created an original developmental model for understanding and managing patterns of change in family firms. It is this model that almost the entire book is focused on explaining to the reader. It is also a model that became and continued to be the basic model for understanding and managing family firms. It has also become the basic framework for teaching family business management. This model is quoted in all serious books on family business.

According to the authors, the models “show how issues of organizational structure, leadership, strategy, financial management, and organizational behavior in these enterprises differ from those in public companies.”

In the book, the authors also write about critical questions confronting family firms. These include:

• How do offspring in the younger generation form their impression of the business and make choices whether or not to enter the family company?

• How do families moving through generational changes in leadership anticipate the transition, accomplish it and move ahead?

• How can a company’s trusted advisers – including attorneys, accountants, consultants – understand the complex interaction of the business, family and ownership systems?

In the book, the family business is presented as a system. The family business model is a three-circle model which describes the family business as three independent but overlapping subsystems: business, ownership and family.

In this three-circle model, the book proposes a structure and plan for each circle. In the ownership circle, the structure consists of the board of directors and shareholder meetings. The plan is the strategic plan for the business. In the family circle, the proposed structure is a family council and the plan is the family plan. In the business model, the structure is a management development team and a management development plan.

In areas that overlap among the three circles are the necessity for an estate plan and a continuity plan. The basic goals of family business owners are for their businesses to be profitable and provide a good standard of living for their family members. The basic problem that has to be addressed is that the possibility of accomplishing these goals in one of the circles will come at the expense of the other circles. For example, it is possible that family conflicts, indifference or unprofessionalism will undermine the ability of the business to thrive. The possibility therefore is that conflicts will undo the financial support for the family and erode the legacy that family businesses have worked so hard to build.

The book is primarily an analysis and explanation of this three-circle model of family business. The only way one can understand this model is by reading the book.

The three-circle development model for family business is the best tool that has been developed to help families satisfy their desire.

*      *      *

Our sole December writing date: Dec 10, 2-3 pm, Young Writers’ Hangout with facilitator Roel SR Cruz.

Contact [email protected] 0945.2273216

Email: [email protected]

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