Development of a Healthy Family Business - Essay Example

Family Business Family Governance of a Healthy Family Business When it comes to governance, family businesses find it difficult because of the competing family agendas, business management, and ownership. Family governance is described as the capability to optimally control and discipline the characteristics of the association between family members, managers, and shareholders. This is done in a manner “that the enterprise prospers and the family promotes and protects it unity – as much for the family’s sake as for the company’s, given that family unity represents a source of value that can be translated into competitive advantage” (Poza 2009, p247). Through their powers, public equity markets develop a market for corporate management or control. Public equity markets discipline the management and make it responsible to the shareholders of the company. The lack of such influence in the market obstructs the essence of discipline in the family firms (Poza 2009, p247). Family governance can be promoted through varying classes of nonvoting and voting stocks. It can also be enhanced through proper contributions from the advisory boards, family assemblies, annual shareholders’ meetings, family offices, family councils, top-management teams, and boards of directors (Poza 2009, p248). Business Development of a Healthy Family Business The first phase of business development of a healthy family business is the start-up phase. The association between the business and the family in a family business has unique characteristics. Strategic planning in the family company is based on a parallel process because of the significant contribution to the exceptional sets of competitive advantages resulting from the relationship (that is, the relationship between the business and the family in a family business). In other words, it needs the management (usually a team of nonfamily managers and owner-managers) and the shareholders (the family owners) to think about the strategy, plan it and execute it in tandem (Poza 2009, p178). Such a strategic-planning activity is beneficial both to the family business and those not in the family business because it recognizes the owners’ wishes and in return, it expects sufficient shareholder commitment for the family capital. The shareholder commitment is also expected to behave patiently permitting tax-efficient transfers of the capital and a lasting perspective on the business strategy (Poza 2009, p179). Resource-based perceptions of the family business and the systems theory suggest a good alternative to the business-first or family-first approach to the family business. They propose that better approaches are those that equally optimize family-business association. The approaches lead to the rise of unique resources that permit the family company to enjoy individual competitive advantages and at the same time controlling challenges and issues that confront them. The challenge faced by the family business in joint optimization is the possibility of becoming out-of-sync in regard to the life cycle and time. Statistics indicate that the survival rates of family-owned business are very low; very few family businesses go up to the fourth generation (Poza 2009, p179). The second phase, the growth phase lies within the organizational maturity. The third stage is the mature stage and in this stage, the business is a representation of a sophisticated set of stakeholders. The stage generally represents the overall growth of the family business in terms of the stakeholders such as the banks, family members who have worked in the company, substantial contribution from the key nonfamily managers, investors, and other family members with emotional and financial interests, the government, and the low-level employees. The stage can fail when the family-controlled business are weighed down by the sophistication of the stakeholder base (Poza 2009, p179). Corporate Governance of a Healthy Family Business Corporate governance in a family business refers to the set of legal, cultural, social, and administrative determinant features of control, ownership, and management of the family enterprises. It is important to note that the concept of corporate governance is a difficult one for the family enterprises. Many family enterprises have the notion that corporate governance is thought to apply only to the large companies. However, the notion is wrong since corporate governance is “a broader philosophical view of rethinking for any sized organization, an essential set of tools and rules vital to their survival and growth in this very competitive and changing world market” (Kaslow 2006, p121). The establishment of a family council is vital for the family business in this present age. It is as important as the formation of shareholders agreements, a board of directors, and other related stakeholders for the business (Kaslow 2006, p121). Ayub and Duguid (2011, p2) state that the success of a family business lies within effective governance and good communication. These two elements are able to address problems arising from the complex between the business and the family and within the family. Good governance is enhanced by the formation of a family council. A family council gathers the members of the family on a regular basis to discuss issues or problems linked to their association with the business. Social Responsibility of a Healthy Family Business Most of the family businesses do not engage in corporate social responsibility activities. This is because they are usually linked selfish pursuit of the family interests, and nepotism. A chance that an external employee is promoted is null and thus they lack joint decision-making and professionalism. Such a view of family business indicates non-fulfillment or shortcomings of the social responsibilities. However, there are family businesses linked with values such as integrity, continuity, tradition, and exemplary service and product quality. These family businesses also have main concern for the company’s reputation and a lasting strategic focus for doing business, major community involvement, and sacrifice taken by the family for the company’s sake. These companies tend to be controlled in a paternalistic way, and corporate social responsibility above all the corporate philanthropy fits well into the notion of firm sustainability. In such a case, the family might miss the chances to take advantage of corporate social responsibility as a competitive tool. These family businesses vary considerably in their actual family size, influence, generational evolution, level of professionalism, non-family CEOs existence, and the method of governance (Keinert 2008, p109). Philanthropy of a Healthy Family Business Families running business face numerous challenges when it comes to balancing different issues. These issues may be as different as successfully running a business enterprise and controlling the relationships that provide support to it. As the family develops, not everyone’s interests or talents can be taken care of through the business owned by the family. At times, the family company fails to exist. Thus, the success of the family business lies within family office and philanthropy. The family’s commitment to family office activities (such as control and administration of taxes, trusts, and family investments) and joint charitable giving can bring together people for a common purpose regardless of their number and geographical location. The family members have different skills and each member can be effectively involves in these activities. Both family office and philanthropy can offer a platform for family collaboration and for reflection of the family’s culture to the entire world. Community concern seems to be a philosophy held firmly by majority of the family businesses. Investing activities done by the family office benefit the family only. On the other hand, charitable giving is an important component to the culture of the family and business. It is natural to take care of the problems that affect the communities. However, good intention or thinking is not sufficient. An approach that is intentional and thoughtful is sufficient to give the charitable giving impact and power. If charitable giving is done in the correct way, the health and the lives of the people can be improved considerably (Lief and Schwass 2008, p1). MAS Social Responsibility MAS (Mahesh, Ajay, and Sharad, the three brothers) was created by three brothers (Mahesh, Ajay, and Sharad Amalean); they believed in respect and quality. MAS is a clothing manufacturing company based in Sri Lanka. The name of the company according to the chairman of MAS Holding, Mahesh Amalean, represents the working relationship of the three brothers (Carlock and Ward 2010, p66). MAS Holdings is one of the biggest apparel manufacturers in Sri Lanka; the company employs more than 40,000 individuals in its 28 factories established in 8 countries. In 2006, the annual revenue for the company amounted to $700 million US dollars. The company produces 50 million bras each year and it is the largest supplier of bras for Victoria Secret. As stated before, the company belongs to the Amalean family (Global Impact 2007, par. 1). In most family businesses, corporate social responsibility is rarely the main competitive advantage. However, MAS recognized that it was not a proper sustainable business model to compete against low cost producers in the emerging markets. Uncertainties over regulations and tariffs, the continuing civil war in Sri Lanka, and the Western consumer’s worry over sweatshop practices created a chance for MAS to establish a business model that displayed the association of the family values and the difficult commercial environment realities. The Amalean family values concerning philanthropy and the people’s needs establish a competitive advantage for the family business. These family values are used as social responsibility (Carlock and Ward 2010, p65). The concept of the sweatshop was initially rejected by the Amalean brothers. During the inception of the company, their work was supervising the lines in the shop floor. The brothers were of the idea that workers dignity was important and believed that the worker’s productivity could be increased by allowing them to work in a comfortable and air-conditioned environment. The Amaleans “wanted to be able to eat in the same canteen, use the same restrooms and transportation as their workers. Rather than forcing their 90 percent female workforce to relocate to the city away from their families” (Global Impact 2007, par. 5). Thus, to realize this dream, they established plants in the rural villages. Before the concept of corporate social responsibility became a common term in the business world, MAS Holdings had a philosophy of doing the right things for its workers. For instance, the provision of decent working conditions for its workers. Its workforce comprises of close to 90 percent women and 80% of its product line consists of the female intimatewear. Thus, MAS Holdings considers securing the welfare of the women and the community as a good business practice (Global Impact 2007, par. 6). MAS Success There are many factors associated with the success of MAS. One of the key success factors is the organization of roles among the three brothers based on their skills and developing a deep mutual respect. Another main success factor for MAS is the establishment of a reliable workforce. MAS is a manufacturing company and it has over 35,000 employees within nine developing Asian nations. The traditional sweatshop model was not effective especially to a family that was concerned about the people it had employed. In other words, taking care of the basic needs of the workers gives them an opportunity to concentrate on the work they are doing and thus, bringing out their best. The beliefs encompass a strategy through which the MAS factories put the workers near so that they are not far away from the families. Through the same strategy, the factories also offer free meals, medical care, and on-site banking as stylish business investments (Carlock and Ward 2010, p66). Other than taking care of the workers basic needs, MAS has also established Women Go Beyond Program, which helps to educate and empower the workforce. It is important to note that the program indicates the workforce has to have women as the majority (ninety percent of MAS workforce are women). These family values have established the future success of MAS and this can be illustrated by the massive support they have received from major clients such as Victoria’s Secret, Marks & Spencer, Gap, and Nike. These international apparel retailers rely heavily on the image of their products and their brand reputation, thus, MAS’s Human Resource policies and the program Women Go Beyond represents strong marketing advantages (Carlock and Ward 2010, p66). References Ayub, T. & Duguid, S. (2011) A healthy family business. Let’s Talk Series, pp1-4. Carlock, R. S. & Ward, J. L. (2010) When family business are best: The parallel planning process for family harmony and business success, Hampshire, UK: Palgrave Macmillan. Global Impact. (2007) MAS Holdings: Championing women’s empowerment in the apparel sector [online], The Global Impact. Available from: [accessed 5 Dec. 2011]. Kaslow, F. W. (2006) Handbook of family business and family business consultation: A global perspective, London, UK: Routledge. Keinert, C. (2008) Corporate social responsibility as an international strategy, Verlag, Germany: Springer. Life, C. & Schwass, J. (2008) About family, business and philanthropy. Perspectives for Managers, 165, pp1-4. Poza, E. J. (2009) Family business, Mason, OH: Cengage Learning. VDL Groep. (2011) Corporate social responsibility [online], VDL. Available from: [accessed 2 Dec. 2011]. Read More