Question

exercise
Trouble in the family

In the past, most people in Port Eizabeth who wanted to get their imported cars fixed had to turn to the dealer from which they had purchased the car. The problem with that was that the buyer of an imported car sometimes had to arrange for his or her car to be fixed in Cape Town or Johannesburg at huge extra cost. Recently, however, auto repair shops that specialise in imported cars have become popular in most large cities of South Africa, including Port Elizabeth.

When Calvin Mazibuko started his business 10 years ago in Port Elizabeth, he was lucky if he had two cars a day to work on. Today, Calvin has 20 people working for him, and he usually has a backlog of about 6 days’ work. Some of this work is repairs caused by auto accidents, but the majority of his work is generated due to improper maintenance by the owners.

Calvin is 60 years old and feels that he will work for at least 5 to 10 years more before retiring. The business is very profitable, and Calvin and his wife Sue, do not need to worry about retirement. However, Calvin is concerned about what to do with the business. The couple have three children: John, who is 30 years old and who is a trained musician; Xandile, who is 28 years old and studied marketing; and Ezekial, who is 25 years old and has a B.Com degree. Both John and Ezekiel work in the business. Xandile is married and stays in another town. Calvin has not yet asked any of the children if they will be interested in taking over the business when he retires. He assumes that his oldest son, John, will take over the business. Calvin’s brother’s son, Peter, is 40 years old and has also been working in the business for the past 10 years.

Calvin is thinking about handing the business over to both of his sons collectively. He is, however, concerned about whether they will get along with another. Calvin is also worried about John who has told Sue that he misses his career as a musician and does not want to hurt his dad by leaving the business. Ezekial enjoys working in the business, but only likes to handle administration. Calvin feels that he is also still too young to take over the business and that the oldest son should rather take over the business. Peter is great with the operational side of the business, but Calvin feels that Peter is not one of his sons and does not consider him as a successor.

Calvin has decided that he cannot wait any longer to choose and train his successor. The biggest problem he is grappling with is who that person will be. Additionally, Calvin does not know anything about picking a successor. What characteristics should this person possess? What types of training should the person be given? In fact, Calvin does not know when and how to do succession planning.

Exercise

Use the illustration in the case above to answer important questions related to the nature and uniqueness of the family business.

1. Is a family business different from a non-family business, and if so, how?

2. What are the unique characteristics and problems associated with family businesses?

3. How should succession be handled inside a family business? What activities should be conducted to ensure a successful succession process?

4. What types of training does Calvin need to consider in successfully preparing and training the potential successor(s) for their future role in the family business?

5. What can Calvin and Sue do to ensure that Xandile gets a fair share of the business

Answer 1

(1) Family owned business is a business run by members who are either related by blood or marriage while the non family business might be owned by distinct members. So the family business differs from the non-family business in terms of various aspects:

• Business Structure: Family business have a centralized model and it follows top-bottom approach while non-family business has a decentralized model it can consist of either top-bottom or bottom-top approach
• Strategy: In family owned business, all the strategies are formulated by the members of family and the involvement of others is highly unlikely while in non-family owned business, members at all levels might get included in the strategy formulation
• Culture: Family owned business has a more informal approach towards the decisions whereas non-family owned business has a formal approach

(2) There are various problems associated with the family owned business as below:

• One of the problems associated with family owned business is that the heir to the business may or may not be capable of handling the business.
• There's always pressure to hire the members of the family
• Centralized approach resulting in to lack of different view point
• Succession planning as described in the passage above
• Resolving conflicts among the family members in business

Unique characteristics being the Centralized model (top-bottom approach), informal approach towards handling a situation, low involvement of others in the decision making

(3) There are 2 parts of handling succession in family owned business: Management Succession and Ownership Succession. There are numerous succession activities planned to make family members more comfortable with both succession process and the outcomes. These activities should allow family members to take better decisions about the present and the future of the business.

Various activities involved are: Family Communication Activities like Family business meetings, family council meetings; Grooming the successors by providing the necessary training, familiarizing with the management processes, family governance and shareholder agreement

(4) A comprehensive development program should be developed which would include formal training, self-study, mentoring and an incessant evaluation of performance over a period of time. Training should include various aspects like giving situations wherein thinking on feet is required. It should include the development of decision making skills, develop a holistic view for any situation. It should also include giving a short term project and evaluate the performance of it.

(5) If Xandile is not interested in the business then he should be made a sleeping partner which means he will have an equal share of the business but less amount of share of the operating profits every year, thereby getting a fair share in case the business gets dissolved in the future