Family Governance for SME’s: Issues of Succession Alvin Au Executive Director Programme Organised by HK Trade Development Council Management Consultancy Assn. Time: 10:15 - 10:45 p.m. Friday, 28th June, 2002
Family Governance forSME’s: Issues of Succession
Alvin AuExecutive Director
Programme Organised by
HK Trade Development CouncilManagement Consultancy Assn.
Time:10:15 - 10:45 p.m.Friday, 28th June, 2002
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Governance System
- Legal Forms- Distribution of Ownership- Board of Directors- Mission and Goals- Decision Making Process
Business System
- Mission- Strategy- Structure- Technology- Culture- Systems (e.g. Reward and Information)- Process (e.g. Communication, Decision Making)
Family System
- Roles and Relationships- Cultural Patterns- Decision Making
Systems of an EntrepreneurialFirm
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System Start-up Growth Succession
Business Business - Strategic planning - Strategic planningplanning - Structural change - Succession planning
- Team building- Career development
Family Family council - Family strategic - Asset management planning board- Career development - Estate planning- Family therapy - Conflict management
- Family therapy
Governance Partner - Board of directors - Ownership and boardrelationship interventions interventions
transition planning
Stage of Development
Interventions in Entrepreneurial Firms
Small
Young Mature
Siz
e o
f O
rgan
isat
ion
} Evolution stages
} Revolution stages Company inhigh-growthindustry
Company inlow-growthindustry
Company inmedium-growthindustry
Model of Organisation DevelopmentLarge
Age of organisation
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Managethe Corporate
Culture
Identify and Define a Market NicheIdentify and Define a Market Niche
Develop Products and ServicesDevelop Products and Services
Acquire Resources
Develop Operational Systems
Develop Management Systems
Developmental Emphasis in a Stage I Firm
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Managethe Corporate
Culture
Identify and Define a Market Niche
Develop Products and Services
Acquire ResourcesAcquire Resources
Develop Develop Operational SystemsOperational Systems
Develop Management Systems
Developmental Emphasis in a Stage II Firm
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Managethe Corporate
Culture
Identify and Define a Market Niche
Develop Products and Services
Acquire Resources
Develop Operational Systems
Develop Develop Management SystemsManagement Systems
- Planning- Planning- Organization- Organization
- Management Development- Management Development- Control- Control
Developmental Emphasis in a Stage III Firm
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ManageManagethe Corporatethe Corporate
CultureCulture- Values- Values- Beliefs- Beliefs- Norms- Norms
Identify and Define a Market Niche
Develop products and Services
Acquire Resources
Develop Operational Systems
Develop Management Systems
Developmental Emphasis in a Stage IV Firm
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Profit Profit orientation; profit is an explicit goal.
P/E Ratio Long term earnings growth
Profit seen as a by product.
ROI or family dividend
Key ResultAreas
ProfessionalManagement
EntrepreneurialManagement
Comparison of Professional Management and Entrepreneurial Management
Planning Formal, systematic planning: Strategic planning Operational planning Contingency planning
Coordination of divisional & corporate plan. Top down or Bottom up approach
Capital rationing
Informal, ad hoc planning.
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Organisation Formal, explicit role descriptions that are mutually exclusive and exhaustive.
Informal structure with overlapping and undefined responsibilities.
Key ResultAreas
ProfessionalManagement
EntrepreneurialManagement
Control Formal, planned system of organisational control, including explicit objectives, targets, measures, evaluation, and rewards.
Partial, ad hoc control; seldom uses formal measurement.
Board Activities
Regular Meetings Strategic Decisions Formal Minutes Board sub committees Board Policy Development
Family forms the Board
Infrequent Meetings (4 or less per year)
Poor Corporate Governance
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Management Development
Planned management development: Identification of requirements Design Programmes
Ad hoc development, principally through on-the-job training
Key ResultAreas
ProfessionalManagement
EntrepreneurialManagement
Systems Explicit IT Strategy Marketing / Market Research
prior to key divisions Formal Pay Fringe Benefit
grading structure Performance Appraisal HR Information System Production Control Quality Control Productivity Measurement
Budget not explicit; no follow-up on variances
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Innovation Orientation to incremental innovations; willingness to take calculated risks.
Orientation toward major innovations; willingness to take major risks.
Key ResultAreas
ProfessionalManagement
EntrepreneurialManagement
Culture Well-defined culture
Defined Vision, Mission & Values understood by all members
Loosely defined, "family"-oriented culture
Family culture/founder culture
Leadership Consultative or participate styles
Styles may vary from very directive to laissez-faire.
Budgeting Management by standards and variances
Budget not explicit; no follow-up on variances
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Six Classic Symptoms of Board Problems which Lead to Corporate Collapse:
(1) One man rule(2) A non-participating board(3) An unbalanced top team(4) A lack of management depth(5) A weak finance function(6) A combined Chairman and Chief Executive role
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Nine Survival Skills-9 ways to avoid botching your
company's recovery
1. Don't overtrade. Keep a careful view as to the level of growth that the company can sustain while maintaining a reasonable balance of internal and external funding.
by Patrick Wadsted
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2. Maintain tight credit-control systems. Ensure that all liquid resources are preserved. They may be needed in the next recession.
Nine Survival Skills-
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Nine Survival Skills-
3. Review your stock-control systems. Stock costs money, not only to manufacture or to purchase, but to finance. While "just-in-time" controls may be too extreme, regular stockholding reviews should occur.
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Nine Survival Skills-
4. Don't forget overheads. For example, does every manager need a secretary, or could they share? As for a fixed asset, if you don't need it, don't buy it.
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Nine Survival Skills-
5. Don't neglect strategic planning. Use SWOT(Strengths, Weaknesses. Opportunities and Threats) analyses or another measure of performance.
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Nine Survival Skills-
6. Review your financial and management information systems. Ensure that they keep pace with existing and anticipated growth.
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Nine Survival Skills-7. Motivate your staff. Consider
bonus or share schemes and implement performance management, a shared understanding about what has to be achieved and what brings the best results.
$
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Nine Survival Skills-
8. Review your professional advisers. Do they still meet your needs and understand your strategy?
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Nine Survival Skills-
9. Don't be at the mercy of your bankers. be open, honest and provide any financial information they require on a timely basis. It may be that your recovery gives your bankers a perfect exit route if do not want you as a customer any more.
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How to Save the Family Business
Family members working in the business must be at least as able and hard-working as any unrelated employee.
Family-managed businesses, except perhaps for the very smallest ones, increasingly need to staff key positions with non-family professionals.
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How to Save the Family Business No matter how many family
members are in the company's management, and how effective they are, one top job must be filled by a non-relative
Before the situation becomes acute, the issue of management succession should be entrusted to someone neither part of the family nor part of the business.
Need Help?
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Basic Requirements foran Effective Business
Strategy
Businesses need to articulate their strategy
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Basic Requirements foran Effective Business (Cont’d)
Structure
Structure is a function of business purpose and must fit the strategy. Job descriptions, levels of authority need to be agreed and publicised so that everyone knows who they report to, what their responsibilities are and what decisions they can make.
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Control
To control you need information to make decisions. Thus you must install systems that provide the right information to the right people at the right time. Information is required in the following areas:-
Purchasing of raw materials, plant and equipment Sales vs Plan and customers Market information, what is happening in each market
Basic Requirements foran Effective Business (Cont’d)
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Basic Requirements foran Effective Business (Cont’d)
Manufacturing, output, quality, cost and capacity Distribution and storage - cost of distribution and
storage and productivity measures Invoicing and credit control Purchase orders and payments due Monthly P/L account by main business stream Capital expenditure Cashflow
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People Obtaining and retaining the right people Motivating and retaining them Control of establishment Management of Performance through business
related goals and measurement vs plan Appropriate pay systems and personnel policies
Basic Requirements foran Effective Business (Cont’d)
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Investment Determine the mission and purpose of the business Invest in the right businesses Manage the deal flow and impact on balance sheet Determine mix of JVs, wholly owned business and
business sectors you wish to enter Then stick to it.
Basic Requirements foran Effective Business (Cont’d)
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Basic Requirements foran Effective Business
Governance Appoint a responsible and qualified Board Meet at least quarterly to review the
business and make major strategic decisions
Decide what issues the Board will deal with.
Seek continuous improvement in the performance of all business, people and processes.