Family Business Structures.....The Innovative form of Entrepreneurship

Family Business Structures

The three-circle model of the family business system is represented as under:

In this model, the first circle indicates ‘ownership’, the second circle represents ‘family’ while the third represents ‘business’. Now we will discuss entity in detail:

·???????? Non-family non-manager owners: These are an external investor or say outsiders, who own a certain proportion of business but do not work.

·???????? Family owners: This group include those family members who own a part of the business but do not take part in its operations.

·???????? Family owner-employees: As the name specifies, these are the owners of the business, as well as work as an employee in the firm, usually in top managerial positions.

·???????? Non-family owners employees: This group covers those individuals who are employees of the concern and are not family members, as well as own a certain proportion of the firm’s share capital.

·???????? Family members: This group includes all those family members who neither own shares in the company nor they are actively involved in the family business.

·???????? Family Employees: In this group, all those members of the family are covered who work for the company, but they do not own part of the company’s share capital.

·???????? Non-family employees: These are the employees of the company, who work for the company under an employment contract, and are not family members. They also don’t own shares in the company.

Cross your Business threshold and go into “commercial mode”. Leave “Family-thinking” outside.

Family Business Structures

Business Structures are tangible “things” that aid Professionalisation and Best Practice by providing more clarity, substance, formality, authority and discipline to business operations.

Business Structures come in two forms: (1) Bodies; and (2) Documents.

Family Business Structures (1) – Bodies

Board of Directors

The Board of Directors is the company’s supreme governance and strategic decision-making body. ?It’s primarily responsible for strategic planning, corporate governance, risk management, senior executive performance review, reputational protection and executive supervision.

External (non-family) Directors are appointed to Boards to increase their depth and breadth of experience, boost business ‘nous’, widen business networks, and provide more sophisticated strategic and independent thinking.? Many family businesses find that appointing external directors provides a quantum uplift in objectivity and performance that far exceeds the cost of the engagement.

Boards are useful during succession processes, both to support the process in general, and to provide a different place and role for parents to transition into after they reduce their day-to-day involvement in the?operational?affairs of the business.

Advisory Board

This is a Clayton’s Board – the Board of Directors that isn’t. ?Members of an Advisory Board are selected for the relevance of their wisdom and expertise, at a point in time. ?They have no authority to make any decisions for the business, since they don’t have any legal standing or responsibility (as directors) for those decisions.? Instead, they provide recommendations and advice to the “real” directors on the Board.

They have no authority to make any decisions for the business, since they don’t have any legal standing or responsibility (as directors) for those decisions.? Instead, they provide recommendations and advice to the “real” directors on the Board.

Advisory Boards also provide a useful transition training ground for directors on their way towards more formal Board processes.

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Senior Executive Team (“SET”)

The SET is a small inner circle of highly trusted senior executives who are usually well informed about sensitive family and business issues.

They’re used by business owners as a sounding board, as a trusted resource for particularly urgent and delicate issues, and for making and carrying out delicate decisions.

Executive Management Team (“EMT”)

Family Businesses are notoriously autocratic, with many decisions made on an individual, or family-only basis.? This can be very self-limiting, especially once the business grows beyond a certain size.

An EMT is a standard business structure.? It comprises the senior managers in charge of major divisions of the business.? These individuals are responsible for the efficient operational performance of their business divisions, in accordance with agreed Strategy and Operational Plans, and budgets.

Regular monthly meetings of the EMT facilitate organisational information sharing and problem solving; identify issues and problems promptly, and share corporate knowledge amongst a broader group of professional managers than the family could field, on its own.

Organisational Structures

Every business with employees needs a clear picture of its organisational structure and reporting lines.? An organisation chart, based on the way the business actually works, can support useful analysis, such as:?is the business built around the people we have available (especially family members), rather than to perform the functions we need, in the best way possible?

Answers to that and other questions help to identify management and operational weaknesses and may suggest measures for business system re-design to help enhance commercial competitiveness.

Even small businesses often have some non-family staff in key managerial positions.? Providing them with more authority, responsibility and accountability, and with appropriate skills training, could be a major step towards having a more professionally managed and operated business.

Job Descriptions and Role Clarity

A major issue in many family businesses is the concentration of almost all real power in the hands of a dominant (or domineering) owner / founder. Many of these businesses take a very casual approach to job titles, because their cultures are set by their leaders, who feel so secure in their personal authority they see no need for formal titles to prove any points.

Unfortunately, this attitude often means that very little effective authority is delegated to other family members, or to trusted employees. As a result, the business is heavily reliant on the decisions or whims of their owners, which becomes increasingly problematic as:

1. The business grows and becomes more complicated.
2. Family members working in the business want to develop their own leadership style and skills, but receive little encouragement, and no indication of where the boundaries lie.
3. Staff are unclear about what is expected of them and either: (a) just wait to be told what to do, or (b) get so frustrated they leave. ?Consequently, the business only retains staff who are compliant followers, rather than initiative takers.
4. The owner ages and their decision making becomes less current / reliable.
5. A succession process is required to ensure business continuity, but there’s no obvious, or even potential successor in sight.

Once Organisational Structures have been reviewed and revised along modern business functional lines, you can develop detailed job descriptions for the type of person required to fill key roles in the business.

Our job descriptions (“JDs”) for family businesses are much more detailed than standard JDs. ?They contain full narrative descriptions of what’s to be done, and why, and how, and when.? There’s often a major need for educational support in this area, even in large family businesses, when they’re coming off a low HR base.

Performance expectations are linked to required outcomes, with clear measurement criteria (KPIs).? A regular review process ensures that commitments made are actually kept, and that personal performances are objectively measured, recognised and rewarded, or corrected.

Policies and Procedures

Operating Policies formally document the “what, why, how and when” of key business processes and activities.

On the creative side, they encourage serious thinking about how to improve business operations, and encourage buy-in to the improvement process.

On the practical side, they help to increase clarity and certainty about how things are supposed to be done to achieve maximum efficiency, productivity and profitability. ?They avoid the need to reinvent the wheel every time something new comes along, and they support the practical and objective enforcement of those intentions, thereby bolstering the drive towards professional management discipline.

During the many transitions that take place during a professionalisation process, policies provide useful guidelines and benchmarks for stimulating improvement and facilitating responsible change.? At the same time, nobody wants to drown in paperwork – policies should always be appropriate to the businesses they serve.

Staff Competencies

One of the main aims of the professionalisation process is to increase levels of capacity, competence and confidence amongst staff through a mixture of learning and doing.

In family businesses, we often find staff who know how to do their day-to-day jobs very well, but have little training in, or experience of, modern business performance improvement, or in creating management efficiencies.

The knowledge and skills most commonly required are in the “human skills” area, and are all about increasing personal and collective effectiveness and professionalism, mainly through better leadership, management and teamwork.

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Dr Hoori Nadir

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