• Understand the importance of family business

• Discuss the main components in a family business

system and the differences between family values
and family business values.
• Identify the positive and negative characteristics of
family business, and the strength and weakness of
family business.
• Explain the source of family business takeover and
replacement development strategy.
• Discuss the continuity of family business and
outstanding issues.
 INTRODUCTION
• Generally, family business can be found in
various industries. Known as ‘mom and
pop’ enterprise.
• Unique due to dilemmas and problems
which differs to that of other businesses.
Mixture of business and family matters in
business management and operations.
 UNIQUENESS / IMPORTANCE
(US CASE STUDY)
• Churns the economy of a country.
• 60% of 17million business in US is under
the influence of family.
• Capable of generating 85% job
opportunities and 49% of Gross Domestic
Product (GDP) of US
• Malaysian family run businesses are small scale
enterprises (51 staff and below) which are still
managed by the founder with activities focused
on manufacturing, retailing or construction.
• most of these businesses were started by
people having 6½ years or more of work
experience, which means that family
businesses were commenced by people with
appropriate experience.
• Malaysia has great potential for growth of
family run businesses, which will
positively impact the country's economic
growth as a whole.
• Eg: ALBUKHARY FOUNDATION, YTL
CORP.,
 Characteristics of the family
businesses in MALAYSIA
• Most of the businesses (59%) are still run by the founder
& the founder is supported by:
- brothers & sisters (45%)
- children (24%)
- distant relatives (14%)
• Most small scale enterprises (65%) are managed by
founders
• 55% of the businesses are small scale enterprises
employing below 51 persons
• Manufacturing (35%) is the main activity of family
business
 DEFINITION OF FAMILY
BUSINESS
• Can be defined as majority ownership and
management of a family of which 2 or
more of the family members are directly
involved.

• 50% of shares owned by a family

• A family controls the business, and
• Important post held by the same family.
(LONDON BUSINESS SCHOOL)
 DEFINITION OF FAMILY
BUSINESS
• Meredith (1988) defines family business
as a business that has family members
holding majority posts, and normally the
founder and spouse holds the major
equity.
• Ward and Aronoff (1996), family business
is as a business that involves two or more
family members that controls the finances
of a company.
 DEFINITION OF FAMILY
BUSINESS
• Galiano dan Vinturella (1995) classify
family business as a business of which the
family members has a legitimate control
on ownership.
• Dyer (1986) defined a family business as
an organization that is being owned and
governed by a family.
 SIZE AND IMPORTANCE OF
FAMILY BUSINESS
• La Porta, Lopez-de-Salanes and Shleifer
(1999), stressed that the involvement of
family members shows that they are
controlling at least 69% of the
management.
• 30% of public listed companies in US and
Canada are 75% controlled and managed
by families.(Forbes, 2000; Kang 2000).
• 10% in Australia, Jepun dan Finland
• 50% in Belgium
• 55% in Sweden,
• 65% in Argentina dan Greece,
• 70% in Hong Kong dan
• 100% in Mexico.
 Sumbangan perniagaan keluarga terhadap ekonomi
AS.
Sumber: Adaptasi daripada Shanker & Astrachan (1996).

A(DEF LUAS) B(DEF SEMPIT)

• Total of family business in US 20,332,400 4,121,300

• GDP Contribution 49% 12%

• Total workforce 59% 15%

• Job vacancy contribution 78% 19%

 BACKGROUND OF FAMILY
BUSINESS
TYPES:

• Controlled and Managed by Family Members

Wholly owned and managed by family. Directly influence the
organizational behaviour of the company.

• Family Controlled but Managed by Others

Controlled ownership by family but recruit others to manage the
company. Only interested in developing the mission and vision of the
company, holds post as board of directors and receives profits and
dividends based on their shares. Does not want to be directly involved
and be responsible in the business.

• Controlled and Managed by Non-Family Members

Organization does not have any family members involved. However, any
member is capable to takeover the business.
 FAMILY BUSINESS SYSTEM

Ownership / Control System

Mission & Objectives
Rules & Regulations
Ownership Division

Business System Family System

Mission, Strategy, Structure, Role & relation
Technology, Culture, Culture / Values
System (rewards & information), Decision making
Process (communication Communication
& decision making) Conflict Management
 DIFFERENCES BETWEEN
FAMILY VALUES AND BUSINESS VALUES
Conflict Family System Business System
Division
Objective Development & support of family Profit, Income, Efficiency, Growth

Relationship Personal relationship – Primary Semi-personal or no personal

interest relationship – secondary interest

Rules Informal Expectation Formality & written, includes rewards

& punishment

Evaluation Rewards based on love and unlimited Support based on performance and
support outcome, can be fired or promoted

Succession Death, divorce or illness Retirement, promotion or resignation

Authority Seniority or status in family Formal in organization hierachy

Commitment Generation to generation, long term Short term based on rewards while
commitment based on identity in family still employed
 TYPES OF FAMILY BUSINESS
• Sole Propriety (Milikan
Tunggal)
• Partnership (Perkongsian)
• Company (Syarikat)
– Shareholders consists of family
members but being managed by
managing director and operated on a
day-to-day basis by the employees
 POSITIVE CHARACTERISTICS
OF FAMILY BUSINESS
BUSINESS MANAGEMENT (Pengurusan
Perniagaan)
• Shared knowledge and information
• Knowledge used for adapting to environmental
changes and competitive edge.
• Decison making based on knowledge and skills.
• Learning organization, highly competent and
positive behaviour.
• Balance of responsibility and authority.
• Leadership of organization and family.
• Early plans for succession.
 POSITIVE CHARACTERISTICS
OF FAMILY BUSINESS
MANAGEMENT DEVELOPMENT AND OWNERSHIP
SYSTEM (Pembangunan Pengurusan dan Sistem
Pemilikan)
• Clear mission and vision
• Board of directors consists of outsiders
• Plans of succession and change of ownership between
generations
 POSITIVE CHARACTERISTICS
OF FAMILY BUSINESS
Keberkesanan batasan di dalam sistem
perniagaan keluarga
• Uses family values in strategic planning
• Every systems uses vision and values for
implementation
• Clarity and honesty ease the flow of information
among systems
• Does not mix family issues and business
• Shared learning between systems
• An individual that understands the competency
of workers and organization
 NEGATIVE CHARACTERISTICS
OF FAMILY BUSINESS
• Weak communication • Does not think about
skills and weak conflict successor issues
management • Lack of teamwork among
• Lack of trust in family workers (family & non-
members family)
• Unclear values and vision • No board of directors
• Vague achievements and • No expert reference for
no strategic planning advise in case of trouble
• Lack of experts and try to • Mix business issues with
do everything within the family issues
family • No clear boundaries
between business and
family
To be continued…
 DEVELOPING SUCCESSION STRATEGY
(Hisrich & Peters-1998)

i. Understanding conceptual aspects

ii. Identify the successor’s qualities
iii. Understanding the reason for succession
cause
iv. Developing and implementing succession
plan
 1. Understanding Conceptual Aspects
• Time – the earlier the succession plan starts, the
better the chances are of getting the suitable
successor. The only problem is that there might be a
time constraint in getting a suitable successor should
there be an emergency.
• Venture effort type (Jenis usaha teroka) – if it is a
Hight-Tech business, there might be a problem in
getting a successor. It is also faced in business that
depends heavily on personal networks.
 1. Understanding Conceptual Aspects
• Managerial Capabilities (kebolehan pengurusan) –
expertise, determination and capabilities determines
the success of the organization. An entrepreneur who
has the expertise of technology and management
skills is more valuable than that who only has
technology knowhow but does not have any
marketing background.
• Entrepreneur’s Vision (Visi Usahawan) – every
entrepreneur has expectation, hope and determination
towards the organization. He has to share his vision
and commit to it. A new vision needs to be
implemented should the need arises.
1. Understanding Conceptual Aspects

e) Environmental Factors (Faktor-faktor

persekitaran) – sometimes, a successor is needed
due to environmental changes that the company
needs to adapt to.
2. Identifying the Successor’s Quality
Needed Characteristics:-
 Business knowledge and academic
qualification
 Honest and capable, healthy, energetic, alert
and active.
 Suitable personality with the business, proud of
the firm, mature, aggressive and meticulous,
problem solving skills, capable of planning and
organizing, leadership talent, same vision with
the entrepreneur.
3.Understanding the Reason for
Succession Cause
3a) Business Culture and Family Issues
 Business Environment
 Company development limits
 Norms and business tradition
 Family culture, strength and influence
 Values and entrepreneur’s motivational factors
3b) Entrepreneur’s Concern
(Keprihatinan Usahawan)
 Surrendering of power and leadership
 Ensuring the family performs as a unit
 Explain the roles of each family members in the
business future
 Ensuring a competent potential leader
 Retaining non-family resources in the company
3c) Family Member’s Concern
(Keprihatinan Ahli Keluarga)
 Gaining or loosing control on family asset
 Protects interest when business ownership is
being divided among family members
 Power to decide in the firm
 How to withdraw money from the firm when
needed
 Ensuring continuity of business operation
 4. DEVELOPING AND IMPLEMENTING
SUCESSION PLAN
• Choosing the Successor (Memilih Calon Pengganti) -
Entrepreneur needs to identify a suitable successor or
experienced individual.
b) Developing Tools for Potential Successor
• Prepare a strategic future analysis
• Entrepreneur has to share his vison with the successor
• Openness and listen to ideas from potential successor
• Explain the relation between business strategy and company
success
• Discuss business principles and issues
• Discuss the strength and weakness of team resources
• Discuss the firms reward policy
• List out clients, suppliers, competitors and how to manage the
relationship
a) Developing the Succession Candidate
Potential
 Patience and step-by-step power transfer
 Willing to accept mistakes from potential
successor
 Use mistakes as a learning tool
 Communicate effectively and listen to potential
successor.
 Willing to place sufficient hope and expectation
on successor
a) Consider Assistance from Outsiders

 To identify mistakes and explaination apart from

building up skills needed by the successor.
 Ensuring mistakes are not repeated and operations
moves accordingly.
 Environmental changes can be addressed accordingly.
a) Developing Respect and Trust to the new
Successor

A motivation to develop commitment and willingness

to learn and gain experience in order to improve
confidence for decision making
 Creating an environment where clients, suppliers,
workers, investors and creditors can evaluate
objectively the development of successor.
 The Harvest Strategy: Selling Out
A. Prepare a financial analysis
B. Segregate assets
C. Value the business
D. Utilize appropriate timing
E. Publicize the offer to sell
F. Finalize the prospective buyers
G. Remain involved through the closing
H. Communicate after the sale
• Family Business is just like any other businesses
that is profit oreinted.
• The difference is in terms of ownership and
management which is being done by a family
that could be handed down the genereations.
• The challenge is in separating family issues and
business issues in order to avoid dissatisfaction.
• The main issues in a family business is a
suitable candidate for succession, family
involvement in the business, nepotism etc. That
makes a family owned business unique.