To assess a relative health of family business, scholars and other researchers who are interested in this issue employ various criteria. Some of the criteria used rest in the fields of corporate governance, family governance, business performance, philanthropy, social responsibility, ethics and environmental sustainability. This paper will discuss these commonly used criteria in assessing the health of family business, and relate two of them to Gopher IT, which is a family business.
Criteria Used by Scholars and Others in the Assessment
The first criterion, which can be used in assessing the health of family business, is the system of corporate governance present. As family businesses develop, the relationships between administrators, owners and workers become intricate (Ward 38).
A sound corporate governance system establishes the right policies to handle this intricacy. It forms a firm organizational system that clarifies reporting lines, duties and designation of the tasks. Corporate governance detaches policy direction from the daily operation of the business, and distinguishes management from ownership.
A healthy family business should have clear guidelines to choose the right family individual, in order to ascertain that management transition does not interrupt the development of the business (Aronoff 2). Prosperous family businesses emerge from years of commitment and effort.
Successful family businesses pass on accumulated experience, knowledge, and skills to other family members (Davis 6). Besides, corporate governance helps in preserving family harmony. Members of a family may have disputes among themselves on the administration of the business. A firm governance structure assists in solving such disputes enabling family members to concentrate on other significant issues.
In addition, a governance structure offers clear strategies for recruiting family or non-family members, and unbiased performance-oriented promotion is vital for the continuity of a family business (Mallin 76). Management of personnel and recruitment are key aspects in achieving the success of a family business in the long term.
Lastly, corporate governance promotes open decision-making and processes that guarantee justice assessing and rewarding both non-family and family workers, in order to avoid anxiety and maintain the reputation of a company.
The second criterion, which can be used in attaining the health of a family business, is the family governance. Family governance includes the constitution, which stipulates employment and shareholding terms, as well as governance institutions (Rouvinez 56). Institutions of family governance aid in reinforcing family harmony and building strong relationships with its company.
Family institutions augment the links of communication amid the family and its company, and also give chances for family members to discuss issues that can be linked to the family business, through letting members of the family gather under planned structures (Fishman 74; Rouvinez 56).
These structured activities assist in enhancing understanding, and promote consensus among members of the family. Family members must be well-versed in the activities and intention of any institutions of family governance. Also, it is essential to ascertain that family members can differentiate the functions of such institutions and the governing units of the business, including the top management and the board of directors (Abouzaid 37).
This may be realized through developing written processes for such institutions, and distributing them to all the members of the family. Some family governance institutions of a family business might have include family councils, meetings and retreats. Family councils offer families a medium to settle issues and reflect on position of the business and family.
All the members of the family may reconnect with each other, and family matters may be discussed logically instead of being left to aggravate into more serious matters. Family retreats may be performed from two to five days at a different place. They offer a neutral arena to talk about matters regarding the family and business.
The third criterion is business performance. Healthy family businesses have a performance program, which assesses and reimburses workers on how well they accomplish their tasks without reference to family knots (Fishman 78). Moreover, healthy family businesses involve workers in this process.
Workers should understand the review process and its significance. They also ought to complete a self-evaluation form in regard to their strengths, weaknesses and plans of professional growth for the following years. It is also vital for the company managers to discuss the future of the employees with them. Workers who are uncertain of their prospect may not deliver well. Managers of a healthy family business also discuss the roles that they should accomplish with all the nonfamily workers (Fishman 78).
The fourth criterion is philanthropy. Philanthropy is a vital factor for families devoted to the business (Rouvinez 43). A healthy family business may offer meaningful employment for all the family members who are not part of its workforce. Also, it should uphold family values along generations. Charities that get established by commercial families represent a massive share of philanthropic benevolent around the globe.
Family foundations also face operational and managerial choices regarding how best to utilize their finances (Gersick 2). Some family businesses have established that in the present, intricate situation, affiliations with nongovernmental organizations or non-profits can uphold social objectives of the family. Such foundations exploit the knowledge and local existence of other institutions, especially if these are executing projects in new localities.
That is why, to guarantee continual development and high performance, family foundations should merge expertise with passion and a firm assessment of its consequences.
Assessment is vital as it enables the members to distribute resources efficiently. Family foundations must center their monitoring and assessment endeavors on learning and enhanced making of decisions. They should as well approach functions with the attitude of an investor reducing costs of operation and making sensible investments in planning, tactics, qualified staff, and assessment.
The fifth criterion is social responsibility. Distributing wealth through social responsibility creates a reputation for the business (Poza 21). Money cannot assure a high social effect. Besides the monetary and operational challenges, which every charitable activity encounters, families have to handle the critical challenge of cultivating a consensus on the management of their charitable actions along the generations.
Various family foundations have solved this concern through creating an open spending budget, which lets family members sponsor projects that they want. The others provide them with the chances to serve as board members or to directly contribute to charitable projects via volunteering plans and onsite visits. This system is extremely effective in ensuring the next generation gets involved in it early.
The sixth criterion is wealth management. Families require strong competence for controlling their wealth outside the core holdings (Fishman 31). The wealth may exist as liquid assets, stakes in other firms or semi liquid assets. Successful wealth management assists in maintaining harmony through offering a source of money to the family together with liquidity events, and diversifying risks. For big fortunes, the most excellent solution is a wealth-management bureau serving an individual family.
A bureau of wealth-management providing services to sets of distinct families can be an alternative when individual lacks for the scale to validate the expense of a single-family bureau. A family wealth-management bureau may offer several services, which raise the possibilities of success including rigorous criteria for divestment/investment and a high degree of professionalism.
The final criterion is ownership. Upholding family management or control while increasing new capital for business and gratifying the cash requirements of the family is an equation that should be dealt with because it is a key source of disagreement, especially transferring power from generation to generation (Mallin 76).
Lasting family businesses standardize matters regarding ownership, such as the way shares that may be sold outside and inside the family through shareholders’ accords, which have been designed cautiously to last for over 15 years (Fishman 229).
Most family businesses limit the sale of shares in order to maintain control. Family members who want to sell their shares should offer the right of first negation to their siblings and, subsequently, to their cousins (Fishman 85). Besides, the holding usually re-buys shares from present family members.
Policies of payout are typically long-lasting, in order not to de-capitalize the business. Since exit gets limited and dividends are relatively low, a number of family businesses have turned to generational liquidity dealings, to gratify the cash requirements of the family. These can assume the shape of tax of family shares to the workers or from publicly operated businesses in the investment with the earnings returning to the family.
Assessment of Gopher IT Family Business
The structure of Gopher IT corporate governance gets well documented in a strategic plan. It comprises policies and values of the business. It defines the roles of the key players of the family business (Sahlman 98). Employees are the in-laws, cousins and non family members who have finished school recently.
However, the company’s corporate governance system lacks for clear guidelines to make a choice of the right family individual in the line of succession. Therefore, conflicts always arise in regard to the successor of the wife and husband. Hence, management transition interrupts the development of the business.
Also, corporate governance is not part of the family’s culture. Gopher IT as a family business includes favoritism. Family members get employed regardless of whether they become qualified or not. There is no record that the managers have the right education to hold the managerial positions (Sahlman 98). There is also no record that managers have some experience in running the business.
Consequently, the business lacks harmony as well as clear strategies for recruiting family or non-family members; thus performance-oriented promotion becomes biased. In such a case, the business does not have free decision-making and processes that guarantee justice in assessing and rewarding both non-family and family workers; these create anxiety in the company.
Gopher IT has a clear system of family governance. The business has a constitution, which stipulates employment and shareholding terms as well as governance institutions. The management of Gopher IT falls under family members, and there is also a board of directors. Membership in the board of directors is mostly reserved for the family members although it may also be given to the non-family members who can be trusted.
Roles and duties are clear at Gopher IT. The owners hold more than one role in the business and have different positions as managers and directors.
Laura Welch is the general manager who oversees the running of the company (Stempler 53). She handles all the purchases, opening and closing of the office every day. Jack Welch, her husband, is the Sales and Marketing Manager. He creates promotional activities, monitors sales and distributes all the marketing materials.
Chris Welch, their son, is the Financial Manager. He is responsible for finance, payroll, accounting taxes, billing and matters related to budgets. The non-family managers are operations manager and human resources manager. The operations manager is in charge of daily operations. The human resources manager supervises employees, and his roles include hiring and firing of new applicants.
There is a proper governance in Gopher IT to implant discipline and prevent the conflicts for the business to continue developing. The company communicates its vision, rules and regulations, decisions and ideas to all its members.
However, Gopher IT lacks for family governance institutions, such as family councils, which offer a medium to settle issues and reflect on family projects. Consequently, it lacks a proper entry criterion, and family equality does not become practiced in family making business resolutions.
In conclusion, after assessing Gopher IT family business, we realized that the company needs to improve its corporate governance. First, we realized that corporate governance is not a part of the family’s culture. We, also, found out that although the company’s corporate governance system has employment policies, it lacks for clear guidelines to choose the right family individual in line of succession. Again, Gopher IT, as a family business, includes favoritism.
Family members become employed irrespective of their qualifications. The management is in the hands of family members. As for a board of directors, the membership there becomes reserved for the family members although it may also be given to the non-family members who can be trusted.
The company shares its vision, rules and regulations, decisions and ideas with all its members. However, Gopher IT lacks family governance institutions, such as family councils, which could offer a medium to settle issues and reflect on family projects. We made these assessments using different criterions that get used, by scholars, to assess the relative health of family business. The first criterion, which we used, was the present system of corporate governance.
Corporate governance detaches policy direction from the daily operation of the business, and distinguishes management from the ownership. Gopher IT lacked a sound corporate governance system, with the right policies to handle this intricacy. It lacked a firm organizational approach that clarifies reporting lines, duties and designation of the tasks. The second criterion that we considered was the family governance.
The family governance includes the constitution, which stipulates employment and shareholding terms as well as governance institutions. We realized that Gopher IT lacked links of communication amid the family and its company. Therefore, it did not offer opportunities for its family members to discuss issues that became linked to the family or business through letting members of the family gather under planned structures.
The third criterion that we used in this assessment was business performance. Gopher IT has a performance program, which assesses and reimburses workers on how well they accomplish their tasks regardless the family ties. Also, Gopher IT involves their workers in this process.
The company ensures that workers get to understand the review process as well as its importance. Also, workers at Gopher IT complete a self-evaluation form mentioning all their strengths, weaknesses and plans of professional growth for the next year. The fourth criterion that we employed to assess Gopher IT was philanthropy. Gopher IT practiced philanthropy activities. Also, the company offers meaningful employment for the family members who are not part of its workforce.
The fifth criterion that we used to assess Gopher IT was social responsibility. Gopher IT distributes wealth through social responsibility, which creates the reputation of the business. The company, also, can handle the critical challenge of cultivating a consensus on the management of their charitable actions along generations. The sixth criterion that we used to assess Gopher IT was wealth management. Gopher IT has strong competence in controlling the wealth of the company outside the core holdings.
The wealth exists as liquid assets, stakes in other firms and semi liquid assets. Successful wealth management assists in maintaining harmony through offering a source of money to the family together with liquidity events and diversifying risk. The final criterion that we used to assess Gopher IT was ownership.
Gopher IT Upholds family management, while increasing new capital for business and gratifying the cash requirements of the family. This ensures that disagreements do not occur, especially in transferring power along the generations. Hence, since Gopher IT meets most of these criteria of measurements, we can say it is a successful family business.
Works Cited
Abouzaid, Sanaa. IFC Family Business Governance Handbook. Washington DC: International Finance Corporation, 2008. The Business in Society Gateway. Web.
Aronoff, Craig. Family business Succession: The Final Test of Greatness. Marietta, GA: Family Enterprise Publishers, 2003. Print.
Davis, John. “The Family Business.” Harvard business Review 19.20 (2001): 6. Print.
Fishman, Allen. 9 Elements of Family Business Success: a Proven Formula for Improving Leadership & Relationships in Family Businesses. New York: McGraw-Hill, 2009. Print.
Gersick, Kelin. Generations of Giving: Leadership and Continuity in Family Foundations. Lanham: Lexington Books, 2004. Print.
Mallin, Chris. Corporate Governance. New York: Oxford University Press, 2007. Print.
Rouvinez, Denise. Family Business: Key Issues. New York: Palgrave Macmillan, 2005. Print.
Sahlman, Wiiliam. “How to Sustain a Family Business.” Harvard Business Review 4.75(1997): 98-108. Print.
Stempler, Gerald. A Study of Succession in Family Owned Businesses. Thailand: University Microfilms International, 1988. Print.
Ward, John L. “Governing Family Businesses.” Economic Perspectives 10.1 (2005): 38-42. Web.