INTRODUCTION:

A family business is a business in which one or more members of one or more families
have a significant ownership interest and significant commitments toward the business
overall well-being.
In some countries, many of the largest publicly listed firms are family-owned. A firm is said to be
family-owned if a person is the controlling shareholder; that is, a person (rather than a state,
corporation, management trust, or mutual fund) can garner enough shares to assure at least 20% of
the voting rights and the highest percentage of voting rights in comparison to other shareholders.
[1]

Some of the world's largest family-run-businesses are Walmart (United States), Samsung Group
(Korea), Tata Group (India) and Foxconn (Taiwan).
In a family business, two or more members within the management team are drawn from the
owning family. Family businesses can have owners who are not family members. Family
businesses may also be managed by individuals who are not members of the family.
However, family members are often involved in the operations of their family business in
some capacity and, in smaller companies, usually one or more family members are the senior
officers and managers. In India, many businesses that are now public companies were once
family businesses.
Family participation as managers and/or owners of a business can strengthen the company
because family members are often loyal and dedicated to the family enterprise. However,
family participation as managers and/or owners of a business can present unique problems
because the dynamics of the family system and the dynamics of the business systems are
often not in balance.





Structuring:
When the family business is basically owned and operated by one person, that person usually
does the necessary balancing automatically. For example, the founder may decide the
business needs to build a new plant and take less money out of the business for a period so
the business can accumulate cash needed to expand. In making this decision, the founder is
balancing his personal interests (taking cash out) with the needs of the business (expansion).
Most first generation owner/managers make the majority of the decisions. When the second
generation (sibling partnership) is in control, the decision making becomes more consultative.
When the larger third generation (cousin consortium) is in control, the decision making
becomes more consensual, the family members often take a vote. In this manner, the decision
making throughout generations becomes more rational


Scenarios:
Balancing competing interests often become difficult in three situations. The first situation is
when the founder wants to change the nature of their involvement in the business. Usually the
founder begins this transition by involving others to manage the business. Involving someone
else to manage the company requires the founder to be more conscious and formal in
balancing personal interests with the interests of the business because they can no longer do
this alignment automaticallysomeone else is involved.
The second situation is when more than one person owns the business and no single person
has the power and support of the other owners to determine collective interests. For example,
if a founder intends to transfer ownership in the family business to their four children, two of
whom work in the business, how do they balance these unequal differences? The four
siblings need a system to do this themselves when the founder is no longer involved.
The third situation is when there are multiple owners and some or all of the owners are not in
management. Given the situation above, there is a higher chance that the interests of the two
sons not employed in the family business may be different than the interests of the two sons
who are employed in the business. Their potential for differences does not mean that the
interests cannot be aligned, it just means that there is a greater need for the four owners to
have a system in place that differences can be identified and balanced.

Succession:
One of the largest trends in family business is the amount of women who are taking over
their family firms. In the past, succession was reserved for the first born son, then it moved
on to any male heir. Now, women account for approx. 11-12% of all family firm leaders, an
increase of close to 40% since 1996. Daughters are now considered to be one of the most
underutilized resources in family businesses. To encourage the next generation of women to
be valuable members of the business, potential female successors should be nurtured by
assimilation into the family firm, mentoring, sharing of important tacit knowledge and
having positive role models within the business.
[3]

Success:
Successfully balancing the differing interests of family members and/or the interests of one or
more family members on the one hand and the interests of the business on the other hand
require the people involved to have the competencies, character and commitment to do this
work.
Family-owned companies present special challenges to those who run them. The reason?
They can be quirky, developing unique cultures and procedures as they grow and mature.
That's fine, as long as they continue to be managed by people who are steeped in the
traditions, or at least able to adapt to them.
[4]

Often family members can benefit from involving more than one professional advisor, each
having the particular skill set needed by the family. Some of the skill sets that might be
needed include communication, conflict resolution, family systems, finance, legal,
accounting, insurance, investing, leadership development, management development, and
strategic planning.
[5]

Problems:
The interests of a family member may not be aligned with the interest of the business. For
example, if a family member wants to be president but is not as competent as a non-family
member, the personal interest of the family member and the well being of the business may
be in conflict.
Or, the interests of the entire family may not be balanced with the interests of their business.
For example, if a family needs its business to distribute funds for living expenses and
retirement but the business requires those to stay competitive, the interests of the entire
family and the business are not aligned.
[2]

Finally, the interest of one family member may not be aligned with another family member.
For example, a family member who is an owner may want to sell the business to maximize
their return, but a family member who is an owner and also a manager may want to keep the
company because it represents their career and they want their children to have the
opportunity to work in the company.
Five trends will shape next decade for family business

Despite the dour business and economic climate, many of Oregons family businesses are
positioned to take advantage of the rapidly changing marketplace. Many solid, profitable, and
growing family businesses have conservative operations supported by healthy family
dynamics. Some of these businesses recently have outlasted their now-defunct competitors
and are assessing new opportunities in the marketplace.
At the same time, we are in the midst of one of our countrys greatest economic struggles
since the Great Depression. Couple that with an increased life expectancy, changing public
policies and evolving family dynamics, and even the strongest family businesses can
stumbles on the path to success.
As Oregons family businesses navigate this challenging era, they need to be aware of the
following five trends, which will shape the rest of the year and decade in powerful ways.
Trend No. 1: Estate tax uncertainty
The past 18 months have witnessed formerly unthinkable events, from corporate bailouts to
widespread bank closures, yet the most shocking development is that 2010 could become the
first year without a federal estate tax liability since 1916. Despite the best predictions of
estate-planning experts, Congress has allowed the estate tax to expire and now, almost three
months into 2010, the future remains uncertain.
Policy analysts expect Congress to re-examine the estate tax after the November election and
reenact laws similar to those of 2007. However, if Congress fails to act by Dec. 31, federal
estate taxes will return to the one-million-dollar level at a 55 percent rate, closely resembling
that of 2001. Family business owners should plan to spend extra time navigating these
changes with a tax adviser through the fall of 2010.
Trend No. 2: Tax-motivated relocation
Last month, Oregon voters made headlines across the nation by approving Measures 66 and
67 to increase taxes on high-income taxpayers and businesses. These new tax laws have made
many of Oregons family businesses consider relocating to states with a more favorable tax
environment. Only time will tell whether this is reactive hyperbole or an actual commitment
to relocate.
The new tax laws will not only have significant financial consequences for family businesses,
but also serve as a rallying point for the Oregon business community through 2010 and
beyond.
Trend No. 3: Unraveling succession plans
The stress caused by the economic downturn has caused many family businesses to alter or
suspend their plans to transition ownership to the next generation. In some cases, the older,
retired generation has returned to the business to guide it through difficult times and handle
unresolved conflict within the family. In other cases, businesses face pressure to employ sons
and daughters who chose to pursue separate careers but, having been laid off, now want to
join the family business.
In each scenario, it is easy to find reasons to avoid developing and implementing a succession
plan. However, like a good football coach, successful family business owners know they need
to adjust their play to fit the situation. Doing so requires the maturity to have open and honest
discussions about what is best for the business and the family.
Trend No. 4: Unhappy shareholders
When businesses face financial hardship, their shareholders and other stakeholders
increasingly disagree over returns, reinvestment in the business, capital, dividends and
liquidity. In particular, the differences of opinion between active and passive shareholders
can deepen, especially for family businesses, when executives cannot clearly manage
expectations while simultaneously running a profitable business.
Businesses that were highly profitable just a few years ago will be hardest hit, as will
businesses involved in real estate or that used real estate as a tool for wealth transfer and tax
benefits. Even as the economy recovers, the commercial real estate market may remain soft
for years to come. More than ever before, family businesses must adapt their operations and
succession plans to balance the needs of multiple generations with what is best for the
business and family.
Trend No. 5: Increased loyalty
While large corporations use massive layoffs to cut costs, family businesses tend to agonize
over the prospect of reducing salaries, eliminating benefits or letting employees go. Many
family businesses have found creative ways to retain employees while effectively managing
their bottom line. Owners have inspired trust and loyalty in non-family employees by
voluntarily cutting their own salary and benefits before taking measures that affect their
employees.
Looking forward, family business owners should and must do everything they can to keep
their businesses intact, including laying off workers.

However, the special commitment that family business owners have demonstrated to their
employees and local community should give family businesses a leg up as the economy
improves and they reap the rewards of their generosity.
These five trends only scratch the surface of what family businesses can expect in this
difficult and uncertain business environment. 2010 will prove to be a pivotal year for family
businesses, but those that succeed will march through the next decade with a stronger
financial position and stronger family ties.