Bus 185 - Family Business HRM - Session 4 Notes

HRM Functions

• Job analysis.
• Writing job descriptions.
• Hiring.
• Orientation & training.
• Employer/employee interactions.
• Performance appraisal.
• Compensation.
• Discipline.

Family Business "Facts"

• Nepotism: Family businesses are more likely to hire within the family.
• Family businesses are less likely to have a formal appraisal process.
• Turnover is generally higher in family businesses.
• Labor costs tend to be lower in family businesses.
• Family businesses are less likely to have a dedicated HRM function, a formal mission statement, or strategic plans.
• Families are more likely to retain ownership when divesting management responsibilities.
• Business complexity (stage & size) is a critical factor in family business dynamics.

Systems in Family Business

The interaction and overlap of the family, ownership, and the business itself are critical.

• Ownership/Governance System
  • Values/vision: Shared values and a clear vision for the future.
  • Legal structure: The legal framework within which the business operates.
  • Ownership transfer: Plans for transferring ownership to future generations.
  • Board: The board of directors and its role in governance.
• Family System
  • Roles & relationships: Understanding the different roles and relationships within the family.
  • Family values: The core values that guide the family's behavior.
  • Myths: The stories and beliefs that shape the family's identity.
  • Conflict: How conflict is managed within the family.
  • Clarity of communication: Open and transparent communication is crucial.
• Business Management & Leadership System
  • Mission & strategy: A clearly defined mission and strategic plan for the business.
  • Culture of the organization: The values and norms that shape the workplace environment.
  • Org structure: The organizational structure of the business.
  • Compensation system: How employees are compensated.
  • Decision-making system: The processes used to make decisions.

Perception of Justice

• Distributive justice: Concerns the perception of the fairness of outcomes (e.g., pay, promotions).
• Procedural justice: Focuses on the perceived fairness of the decision-making processes that lead to outcomes.
• Interactional justice: Relates to the quality of interpersonal treatment received during decision processes (e.g., being treated with respect).

Family Influence

• Low Levels of Family Influence: Have little impact on the fairness of HR practices, processes, and outcomes.
• Moderate Levels of Family Influence: Can have positive effects on the fairness of HR practices, processes, and outcomes.
• High levels of Family Influence: May have negative effects on the fairness of HR practices, processes, and outcomes.

Knowledge & Norms

• Data - Information - Knowledge - Wisdom: The spectrum of understanding.
• Experience: The cumulative family memory available to the organization, much of which is non-business related but still influences decision-making.
• Culture: The values and commitment of family members introduced into the family firm through the family system.

Family Cultures Issue

Family Councils

Establish three sets of plans:

• Individual plans: Help each family member determine their own professional goals.
• Family plans: Determine the overall goals of the family and the resources needed to achieve them.
• Business plans: Address issues such as ownership, management control, family involvement, and long-term strategic direction.

Succession Planning

• A company’s top managers are usually the drivers of its performance, growth, and survival.
• Company leaders hold power for longer than non family businesses.
• More important for family businesses as the family grows larger and several potential senior management candidates from different branches of the family become available.
• Many family businesses put off the succession planning of their senior managers until the last minute, which leads to crises that sometimes can cause the death of the business.
• Poor succession planning one of the reasons most family businesses disappear before they reach their third generation.

Why Succession Fails?

• Family members delay decisions to avoid friction, especially when multiple potential CEOs exist within the family.
• Family members delay because no one is deemed capable of replacing the current CEO.
• Avoiding the issue postpones discussing the eventual loss of a family leader.
• The current CEO refuses to address succession, reluctant to admit the company can survive without them or afraid of retirement.
• Family owners are less likely to have a degree or professional qualification (63% v 33%).
• Planning is more generic than specific in family businesses.

Succession Planning in the Context of Human Capital Planning

• Recruitment and Selection: Attracting employees with the right talent mix and creating interest in the organization.
• Retention: Encouraging successful employees to continue engaging their talent and commitment to the organization.
• Succession Planning: Identifying key positions, critical talent, and development options to facilitate the appropriate development and placement of successors.
• Assessment and Performance Management: Identifying and measuring criteria to select successful leaders and evaluate their performance/potential.
• Development: Providing ongoing learning opportunities via training, experience, and/or feedback to enhance individual knowledge or skill in leading others.

Homework: Staffing & Compensation Family Interviews

• Part A: Write up a summary of the roles of some of your actual personal family members, whom you envision could be contributing members of your immediate "class" family business.
  • Include a gap analysis of the short- and long-term viability of your staffing according to these roles (sustainability).
  • You can change the name of your family members to protect their privacy, but the demographics of the individual should remain accurate (i.e. youngest sibling, or aunt/uncle who just lost their spouse, or cousin who just graduated with a marketing degree, etc.)
  • Identify at least 5 different family members and think of participating roles for them in the business.
• Part B: Conduct actual interviews with these real-live family members.
  • Conduct at least 2-3 interviews
  • Summarize the details of what the role would at least superficially entail, to see if your family member believes he/she could be successful in that role, and to address total compensation expectations he/she would expect if he/she was to accept the position.
• Summarize the details of your interview (who, when, and details needed for family council).
• Turn this in at the first fishbowl exercise (class 6). Part of your family council meeting will be to discuss the staffing of your business.