The Dynamics of Closely Held Family Business, Its Transition Planning and Management

Abstract

Families are about caring and is about money, combining these two is Family Business. The outcome can be both best and worst. The best may combine values, ethics, dedication and discrete potential of each family member. The worst is when hostile family members have to work together, where self-interest is first. The case becomes challenging when the transfers from generation to generation for example Aditya Birla, Walmart, Samsung, Reliance, Tata, JP, Muruguppa, GVK, GMR group, etc.The owner plays the major role in a closely held family business. Owners may be one or more members of the family itself. Major decisions are under taken by the owner, keeping in mind the emotions within the family. The linkage between the family and has a mutual influence on the firm’s working and on its objectives and interest of the family.Transition management is a “once in a life time” strategic decision, very critical by nature. Thus, sustainability of the family solely depends on successful transition planning and management. It focuses on both procedural and psychological considerations that have to be kept in mind. It is the most crucial and dominant area in family business, the decision made at this stage always have an ever lasting impact on the future of the business, employees, customers and most importantly the founder and their family. On transition, a person with business acumen should be considered and not emotions in business. Transition planning should start at family level. If the core is strong then subsequent trans-generational decisions shall be successful. Unfavourable transition planning is the reason why most of the family declines in the second generation. The invisible challenge is to pass on the baton of family to trans generations, hereby termed transition planning and management.The research is based literature review, existing information on family businesses, besides analysis of few published cases on family in Indian context that reflect how unstructured transition planning became the cause of its failure at inability and the same time how structured transition planning and management transformed the organisational on its sustainability and growth.Purpose: The purpose of the paper is to relay a better understanding on Transition planning and management within a closely held family and how it is critically associated towards the organisation’s sustainability. Theoretical frameworkFamily is a governed and/or managed with the intention to shape and pursue the vision of the held by the dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families (Chua, Chrisman & Sharma, 1999). Rosenblatt, et al (1985, pp.4) define a family as any in which majority ownership or control lies within a single family and in which two or more family members are or at some time were directly involved in the business. The family is the oldest form of multi-party enterprise. In fact the world’s oldest continuously operated family business, Japanese temple-builder Kongo Gumi, began in 578 (Hutcheson, 2002, pp.119). There are 3 overlapping systems in a family business: the family, the and the ownership / governance systems (Federer, 2012). To lead a family successfully, it mandates managing the different systems of the family and business. Balancing the family interests and the interests is of paramount importance. Thus transition planning and management is must.Astrachan (1988) advocates formalizing job descriptions, writing out family protocol manuals, appointing an independent non-executive to the board and/or setting up an independent advisory board so that actions and ideas could be judged objectively by people outside the family.The patriarch must devise systems that clearly define transition planning and management if the organisation must provide sustainable solution for its existence and growth.Results and conclusions: Some Family businesses are not so successful as compared to their peer group. Effective transition planning and management is the clear outcome of this imbroglio, which is explored and discussed in this research paper.Implications for ‘Resilience the New Research Frontier’ Transition planning and management is a critical issue rather say a vector defining the sustainability within closely held family businesses. There has to be a resilience integrated within the operational framework of the organisation that will supplement its growth.