Introduction
For the success of any business, it is important that there be separations of ownership from management. A business should be run professionally in order to ensure that it survives hurdles in the business environment. Empirical evidence provided by financial experts show that one of the main causes of business failure is family relations or family problems (Aronoff & Ward, 1996).
In fact, it is ranked as the main cause of business failure in small-scale businesses. This is a case study of a family-held business. It will be used to show the family conflict, transitions and connection between the conflicts and performance.
In its life, Space Center Enterprises or Maritex, as it is presently known, was faced by many challenges that emanated from the ownership structure and governance (Hitt, Ireland & Hoskisson, 2011). The company was even facing liquidation at one point and it took the intervention of a board of directors drawn from various stakeholders to restore the company back to profitability. In this case, an insight in the business, the challenges and the mechanisms used by the board of directors to overcome the challenges are discussed in detail.
Success of the Business
The company began from humble beginnings and became one of the most successful businesses in the time. Harry McNeely started it with a humble $ 5,000 capital that he had borrowed from his father in law (Hitt, Ireland & Hoskisson, 2011). The company was called St. Paul Terminal Warehouse Company and it was in the business of warehouse and drayage.
The company was co-owned between McNeely and his brother in law, Paul Frenzel, who was also a fellow company executive. His shareholding was however, minor compared to that of McNeely. The company registered growth in asset-base general size of business.
A good measure of the success of any business is a close look at how the business has satisfied the stakeholder demands (Aronoff & Ward, 1996). A business has stakeholders who are the management, the government or the local authorities, customers, the owners or shareholders, suppliers to the business and the public at large.
The demands of each category of stakeholders are different and they are sometimes conflicting. A business must always try to rank the priorities of the businesses and ensure a balance in meeting the stakeholders’ demands.
For the St. Paul Terminal Warehouse Company, success can be measured by looking at how the company met its obligations to various stakeholders. It is the demand by the shareholders that the business grows so that their value is maximized. The company grew both in business and asset base.
It acquired real estates and was profitable. It was renamed Space Center and later Meritex due to its growth. An example of property bought by the company includes a plant in Whirlpool and land in Burlington among others (Hitt, Ireland & Hoskisson, 2011). The business grew from the primary business activity of warehousing to include other business lines such as transportation and financial business.
The customer’s demands were met well by the company. The company produced quality goods and services to the customers. For instance, the customers were pleased by the acquisition of Quincy in Illinois by Space Center for distribution purposes since it was a measure to ensure safety and environmental stability (Hitt, Ireland & Hoskisson, 2011). This was also a means of satisfying the obligations of the business to the public since the public requires that businesses should ensure environmental safety.
The business operated within the regulations of the government and thus it met its business obligations. It paid taxes and was not involved in unlawful businesses. To the management, it is obvious that they were well remunerated since they were also the owners of the business and it was doing well. An overall conclusion can therefore be made that the business was very successful since it met the obligations to the various stakeholders (Aronoff & Ward, 1996).
Mechanisms available to enhance relationships with stakeholders in order to improve strategic direction and performance of the company
There are various systems or mechanisms that an organization could use to ensure good relationship between stakeholders and to influence the strategic decisions and performance of a company. These mechanisms can be understood by having a clear understanding of the possible causes of conflicts of interest between stakeholders and ensuring that the causes of conflicts are avoided.
One mechanism and the most important are to put in place a professional management of a business. This is because professional managers do not have an interest in the business other than to work for the business. There is thus no conflict of interest between stakeholders (Aronoff & Ward, 1996).
Another mechanism is to have in place a board of directors that consist of members drawn from the various stakeholders. This board should be charged with formulation of policies regarding the business. The board should have representatives of all the stakeholders to ensure that the interests of various stakeholders are protected (Aronoff & Ward, 1996).
The decisions made by this board are supposed to be well balanced hence elimination of conflicts. In the Space Center Enterprises, it is evident that the establishment and implementation of a well-balanced board of directors was a big factor to the recovery of the family business.
After the establishment of a professional management team and a well-balanced board of directors, a system should be put in place that ensures that the management and the board of directors work towards the same goal. The management should not despise the board and likewise for the board. Each should respect the role of each other and work together in harmony (Aronoff & Ward, 1996).
Evaluation of performance of the board of directors for space center enterprises
The board of directors of the Space Centre Enterprises was successful in fulfilling its governance and dealing with the challenges it faced. This can be supported by facts from the case study. The biggest challenge that the board of directors faced was that of family interference in the affairs of the business.
The board made policies that would ensure that business decisions and family issues would not bring conflicts in the running of the family business. Issues such as career conflicts, dividend decisions and ownership structure and liquidity issues were solved once and for all (Hitt, Ireland & Hoskisson, 2011).
When faced by the family tension between the two brothers who were owners and founders of the company, the board of directors maintained its calm and took measures to mitigate the effects of the tension between family members and in effect the non family members. The board was successful in these attempts and it managed to survive the division that followed.
When faced with the challenge of choosing the next CEO for the company after the retirement of Harry, the board ensured that it came up with the best CEO for the company. This was done through requiring Paddy to write plans he had for the family business (Hitt, Ireland & Hoskisson, 2011). This was all in an attempt to ensure that the company got a visionary CEO. The board also had back up plans in case Paddy failed as the CEO, a fact that confirms the board was professional in its work.
The board also helped the company to survive a takeover bid by the CEO who wanted to impose leadership of the company. He followed Walt Richie’s decision that he wanted to retire and that he had chosen one of the people in the organization to succeed him. The board did not approve this and it planned for a buyout that was effective.
In an attempt to eliminate family issues in the business, the board decided to merge the two rival companies into one and initiate professional management into the business. These actions show that the board was successful in handling the challenges it faced in the business at various points.
Evaluation of Paddy’s qualification to succeed his father as CEO of Meritex
Paddy was qualified as CEO for Meritex Company. Paddy was a banker for ten years before he joined the family business. He was trained and experienced in banking issues such as loans and creations of credit. He was the youngest son of Harry junior and his names were Harry McNeely III. Paddy was his name too. It was less expected by the people and to Paddy himself that he would work in the family business at any time.
His father had let him decide his career and Paddy admitted that only fate had brought him to run the family business. Paddy joined the family business without a defined designation after a restructuring in the bank that he had been working for. It was at this time that he attended numerous meetings for and on behalf of the family business and this gave him the much-needed exposure (Hitt, Ireland & Hoskisson, 2011).
When he joined the family business, Paddy was in the executive team but with no title and it was from there that he realized there was a long-term opportunity in the business. He decided to participate fully in the management in order to earn the trust of his father and to convince the board, which consisted of both family and non-family members that he had the potential to lead the company.
The vision for Paddy was to ensure that the business remained a family business and that it was professionally managed. With the help of other board members, Paddy managed to arrange a buyout programme to save the company from hereditary leadership. Through this, Paddy earned a leadership position in the company and he became the CEO for Space Center. The business name changed to Meritex.
The board made the decision to make Paddy the CEO after long consultations and considerations of his role and commitment in the family business (Hitt, Ireland & Hoskisson, 2011). His father left the matter of choosing the next CEO squarely in the hands of the board hence Paddy was not an imposed CEO.
Accordingly, Paddy was well qualified as a replacement of his father. Primarily, Paddy had attended various meetings for the family business and he had shown the concern and passion he had for the business. Another reason that shows his suitability for the position is the fact that his father did not impose him.
His appointment and take over was executed in a transparent manner and was approved by the board and the shareholders. He had tabled plans for the future of the family the business, which impressed the board. He had also helped the company to manage a takeover bid in order to protect the company hence the board had confidence in him.
Another reason that can show that Paddy was qualified as the CEO for the family business was the fact that he understood the role of professional management in the business. He also had support from the family members although they left the task of choosing the company CEO to the board.
To cap the evidence that Paddy was qualified as CEO is the achievements he made in the company. He managed to lead the company to great growth heights and even made it win the ‘family business of the year’ award (Hitt, Ireland & Hoskisson, 2011).
Conclusion
Family businesses are known to elicit unpleasant happenings and even cause family disintegration. This is because family issues and business are incompatible things. In the case of Space Center Enterprises, the business was facing a crisis but after separation of management of the business with family issues, the business recovered and became the award winning family business.
For family businesses to succeed, they must put mechanisms in place that ensure that conflicts in stakeholders’ interests are eliminated (Aronoff & Ward, 1996).
Space Center Enterprises faced various challenges and even filed for liquidation. The company was however saved by establishment of a well-balanced board of directors who were drawn from both the family and non-family shareholders. This went along way to ensure that there was no conflict of interest between the stakeholders and it minimized interference of family issues with the business (Aronoff & Ward, 1996).
References
Aronoff, C. & Ward, J. (1996). Family business governance: maximizing family and business potential. London: Family Enterprise Publisher.
Hitt, M., Ireland, R. & Hoskisson, R. (2011). Strategic management: Competitiveness and globalization, concepts and cases: 2011 custom edition. Mason, OH: Cengage Learning.