Quiz 5: The Family Business

When a parent retires completely and turns the firm over to a son or daughter, the firm ceases to be a family business.

Grateter's Ice Cream is managed by what is labeled a cousin consortium.

In a family business, the family's primary function it to ensure the profitability and survival of the business.

One advantage of a family business is that there is no need to separate the business interests from the family interests.

An advantage of a family business is that because key employees are related and trust one another, a firm can spend less on systems designed to reduce theft and to monitor employees' work habits.

Many publicly traded companies have policies against nepotism - the hiring of family members. Wise family business owners would be wise to adopt the same policy.

One weakness of a family business is the tendency of family members to leave quickly when the business "falls on hard times."

A major weakness of a family business is that it has greater difficulty than a nonfamily business in focusing on long-run decision making.

Though the distinctive values that motivate and guide an entrepreneur in the founding of a firm are important, these cannot serve as a foundation for competitive advantage in the firm.

A family firm's special patterns and beliefs comprise the firm's organizational culture.

Research shows that next-generation family members motivated by a need-based commitment instead of a desire-based commitment are the most likely to pursue long-term careers with the family business.

Family members with an obligation-based commitment may see their participation in the family business as a birthright that provides great job security.

Family members with a desire-based commitment in the family firm are the least likely to work hard because of their lack of passion for the business.

A 2007 survey of family business owners conducted by Mass Mutual Financial Group, Kennesaw State University and the Family Firm Institute concluded that the overlap between individual and organizational values may result in increased levels of employee loyalty, commitment and organizational citizenship behavior.

Husband-wife teams that own a business are popularly referred to as co-preneurs.

Two major factors involved in grooming a son or daughter to enter the family business are the child's aptitude and the child's right to choose a career.

Some family businesses benefit from effective collaboration among brothers and sisters.

A family business involving two or more children may experience either sibling cooperation or sibling rivalry.

One sibling dilemma in a family business has been labeled the predator/parasite conflict.

The Empyrean Management Group example cited in the text provides an excellent model for how families and their in-laws can work harmoniously, growing a company and a family together.

The role of the entrepreneur's spouse in family conflicts can sometimes be described as that of a mediator in business relationships between the entrepreneur and the children.

In the family business, family considerations affect only members of the family.

Nonfamily employees in a family business may be caught in the crossfire between feuding family members.

Family retreats are best handled by an outside facilitator, who can help develop an agenda and establish ground rules for discussion.

Even if family members lack the capability to run the business, an entrepreneur should always select a successor from this pool of talent.

The process of preparing a family member to take over a family business typically takes about one year.

The process of preparing a successor for leadership in a family business can take more than a decade.

One of the "best practices" for the family firm is to promote family members above other, more skilled employees, so that the workers will understand who is really in charge.

When hiring non-family employees it is only fair to identify the positions, if any, that are reserved for family members.

In Stage I of leadership succession, the pre-business stage, the child begins part-time work in the business.

In Stage II of leadership succession, the introductory stage, the successor becomes acquainted with the family business by playing on the business's premises or around its equipment.

In Stage IV of leadership succession, the functional stage, the successor enters full-time employment.

Bequeathing equal shares of ownership to children in a family business will probably create havoc in the future functioning of the business.

Bequeathing equal amounts of ownership to all heirs, including those outside the business, is obviously the fairest and probably the most efficient way to perpetuate a family firm.

In the declaration of succession stage the son or daughter is named president/general manager of the business and the parent is completely out of the decision making process.

A family retreat is the start of a process of connecting family members.

Family owned businesses are almost exclusively small businesses and represent less than five percent of the S&P's 500 Index firms in the United States.

In the U.S., family businesses are estimated to represent what percentage of all enterprises? A) 50-60% B) 60-70% C) 70-80% D) 80-90%

Which of the following is not an advantage of a family-owned business? A) shared social networks B) focus on the long-run C) an objective business perspective D) reduced cost of control

The following are characteristics of the family except A) competition is valued B) a unit that balances relationships C) perpetuates traditions D) is characterized by unity

In a family business, the interests of the family and the interests of the business are best described as A) overlapping. B) conflicting. C) coinciding. D) having no relationship with each other.

People with higher levels of desire- and _____ based commitment are more likely to support efforts to promote change, which is common in small businesses and very important to their performance and survival. A) need-based B) obligation-based C) cost-based D) strategy-based

_____based commitment may motivate a person to go "beyond the call of duty" to protect or extend his/her financial interests in the company. A) need-based B) obligation-based C) cost-based D) strategy-based

The close relationship of business factors and family concerns in a family business has been described as A) separation of domains. B) a generational gap. C) an example of blood being thicker than water. D) overlapping.

A primary benefit deriving from the strength of family relationships is the willingness of family members to A) adopt new operating methods when needed. B) act generously in compensating nonfamily employees. C) sacrifice salaries and dividends when necessary. D) emphasize short-run profits.

Steve, Harry, and Chris, who own and operate a family auto parts store, are experiencing tough times during a downturn in the local economy. To help the store weather these adverse conditions, the brothers agree to each take a 25 percent reduction in salary for a one-year period. This decision A) demonstrates a weakness of financial management. B) illustrates an important advantage of a family business. C) reveals a lack of customer orientation in a family business. D) reflects a lessening of entrepreneurial ambition in second-generation businesses.

A founder's values become part of the family business culture because A) the founder insists that the values are sound. B) others in the firm learn what's important and absorb traditions established by the founder. C) the values coincide with modern management theory. D) family members follow family traditions without excessive analysis.

Those with a _____based commitment, a deep-seated sense of identity with the enterprise, are the most likely to work hard because of their passion for the business. A) need-based B) strategy-based C) cost-based D) desire-based

Family members who join the business because of a concern that they might not be able to reach career success on their own display a _____ - based commitment. A) desire-based B) obligation-based C) need-based D) cost-based

A family member who feels he/she ought to pursue a career in the family business is expressing a _____ - based commitment. A) desire-based B) obligation-based C) cost-based D) need-based

A family member who believes that joining the business may be the best way to benefit from what the family firm has to offer is revealing a _____ - based commitment. A) desire-based B) obligation-based C) cost-based D) need-based

One of the most common problems for a founder in passing the business on to a son or daughter is A) introducing the child to outsiders such as bankers. B) finding a suitable position for the son or daughter within the business. C) arranging the transition from part-time to full-time employment. D) deciding whether the child has the necessary temperament and ability.

An inherent problem for couples involved in a family business is that A) conflicts in the business tend to carry over into family life. B) hours of work become longer for the wife than for the husband. C) wives get the menial tasks to perform. D) husbands find their masculinity threatened.

While running a family business, a couple is experiencing a strain on family relationships. Which of the following might be the most likely cause of the tension? A) The wife holds the top position in the firm. B) The husband started the business. C) The roles of both parties are carefully defined. D) They have a difference of opinion about a business matter.

In considering the role of younger family members, the best philosophy is to recognize that A) a child should have a right to a job in the business if he or she desires. B) no family member should be hired at any level. C) children should have a right to prove themselves. D) second-generation managers are doomed to failure.

From the children's standpoint, one common reason that they may be reluctant to join the family firm is A) teenage rebellion. B) a desire to prove their abilities in another company. C) a desire to make a higher rate of pay. D) a desire to help the parent avoid favoritism.

Sibling rivalry in a family business A) rarely affects nonfamily members in the firm. B) may create disagreements about business policy or about siblings' roles within the business. C) is unusual since only one child will normally be employed in a family business. D) is often good because it spurs healthy business competition.

The spouse of the head of a family business may serve the family firm by A) making impartial decisions on controversial business matters. B) filling the role of a company director. C) mediating family disputes. D) staying out of the business.

In a 2007 study conducted by MassMutual Financial Group ___ percent of respondents said family members share the same values. A) 87% B) 73% C) 48% D) 65%

In-laws create complications in a family business A) rarely, since they only married into the family. B) only if they are employed in the firm. C) only if they are directly competing against another family member for a promotion. D) because the more family members become involved in the firm (even indirectly), the more difficult the fairness issue becomes.

A document that states the principles intended to guide a family firm through times of crisis and change, including the succession process is called the A) business plan B) articles of incorporation C) family business constitution D) corporate by-laws

Which of the following is the most appropriate and useful role for the entrepreneur's spouse in maintaining good family relationships in a business? A) Worrier B) Listener C) Evaluator D) Appeals judge

Concerning the need for good management in the family business, which of the following is one of the "best practices" identified in the textbook? A) Resist preparing successors for leadership to avoid demoralizing those who are not selected. B) Maintain rigid guidelines based on family traditions to guide the company into the future. C) Emphasize the attraction and retention of family members. D) Stimulate new thinking and fresh strategic insights.

To avoid a stifling atmosphere for nonfamily employees in a family business, the owner should A) promote only nonfamily members. B) avoid all special consideration for family members. C) make clear the extent of opportunity for nonfamily members. D) minimize discussion about future management changes.

To protect the interests of both the family and the business in a family business, the owner should A) recognize a basic obligation to supply the family with jobs of some type. B) refuse to hire family members but, instead, reward them with dividends. C) keep management simple by personally making all personnel decisions affecting family members. D) identify the positions, if any, that are reserved for members of the family.

A nonfamily employee of a family business complains that the recent promotion of a family member was unfair. The owner should A) enter into a discussion of the roles and opportunities for both family members and outsiders. B) point out the fact that family members always have the inside track, even though this is disappointing to the bypassed employee. C) get the employee to think more positively by describing other attractive features of the employee's job. D) shrug his shoulders and acknowledge that a tension always exists and that it can never be satisfactorily dealt with.

A family retreat is designed to A) bring family members together to openly discuss business matters. B) focus on business matters while avoiding extensive communication. C) control the lines of communication. D) announce the latest policy decisions.

A nonfamily employee of a family business is concerned about competing with family members for future career opportunities. To protect her personal interests, the nonfamily employee should A) align herself with the CEO. B) ask that the manager clarify the extent of opportunities. C) seek assurances that she will receive first consideration for promotion, ahead of family members. D) leave the firm and seek employment in a nonfamily business.

Family retreats, which open lines of communication, A) use the father as a communication facilitator. B) avoid discussing sensitive issues. C) involve family members but not in-laws. D) may result in formation of a family council to continue discussion.

The process of preparing a family successor for leadership in the family business often takes A) weeks. B) months. C) about one year. D) a decade or longer.

Family business constitutions are sometimes synonymous with _____ but the latter are usually more comprehensive. A) business plans B) by-laws C) family protocols D) succession plan

Stage III in the process of succession is the A) pre-business stage. B) proof of competence stage C) formal start in the business stage D) education and personal development stage

When a son or daughter begins working at the family business full-time, he or she is in _____ of the process of succession. A) Stage I B) Stage II C) Stage III D) Stage IV

When fathers train their children in the family business, the typical problem is A) ambitious fathers. B) disloyal children. C) reluctant fathers. D) capable children.

The text presents _____ stages in the process of succession. A) 4 B) 5 C) 6 D) 7

A founder of a family business is contemplating turning the business over to his five children. One possibility, the founder believes, is to divide ownership equally among the children. This would A) be impossible. B) be inherently unfair to the children. C) potentially hinder the future functioning of the business. D) require an S corporation.

Fran and Bob Smithers (wife and husband) own and manage a cleaning service. A potential advantage of this arrangement is that A) differences of opinion about the business won't carry over into family lives. B) it affords the opportunity to share more of their lives. C) the business isn't likely to dissipate their energies. D) they can count on working fewer hours in the business.

Billy Newton works part time in his mother's garden supply wholesaling business. According to the results of Sue Birley's survey of the children of owner-managers of family businesses, how likely is Billy to work somewhere else before entering his mother's business? A) 25 percent B) 40 percent C) 55 percent D) 70 percent

A parent might attempt to resolve a transfer of ownership by giving active children in the firm's management _____ stock and giving nonactive children _____ stock. A) distributed, undistributed B) growth, speculative C) common, preferred D) dowry, canonical

Tom is taking over the family business because it was what his parents told him all his life that they wanted him to do. Tom is showing _____ commitment. A) cost-based B) obligation-based C) desire-based D) need-based

John is more likely to pursue a long-term career in the family business if he is motivated by _____ commitment A) cost-based B) obligation-based C) desire-based D) need-based

Explain the concept of family and business overlap in a family business.

Explain the role of the entrepreneur's spouse as it affects a family business and show how it can be made most effective.

Outline the "best practices" for the management of a family firm.

Describe the model of succession in a family business, giving particular attention to its stages.

Discuss the problem of reluctant parents and ambitious children in a family business. Propose solutions.

You Make the Call-Situation 1 Though they are brothers, you might not know it by watching them interact. Even a simple "Good morning" at the start of a workday seems to be more than anyone can manage. No one is happy to be at the office. The three Patton brothers-John, Richard, and Bill- have been in business together for 25 years, running the janitorial services company that was started by their father. Most of the years were happy ones, but the good times have now faded into distant memory. What could have gone so wrong? The conflict started when the founder's grandchildren got involved in the business. Today, John's oldest son manages the employees who work with residential accounts, Richard's daughter does most of the bookkeeping, and Bill's son is an outside salesperson for the company. Despite differences in their personal goals and interests, and even in their long-term vision for the company, the cousins get along very well. But the Patton brothers disagree about who should lead the company in the future. As the oldest brother with the most experience in the business, John believes his son is best positioned to take over the reins of the company when the time comes, but Richard and Bill realize that this means opportunities for their kids will be limited. Bill is convinced that his son shows more managerial promise than his nephew, and Richard believes that his daughter is underpaid and underappreciated, even though she is "obviously" the financial mind behind the machine. This is no small matter to the Patton brothers. Early on, the arguments became so heated that the brothers nearly came to blows. Today, the disagreements are mostly unspoken. Though the business is in no immediate danger of failing, it has not been doing all that well during the last 18 months or so. More importantly, the Patton brothers need to make some major decisions that will position the company for the future, but these are being neglected as the brothers continue their war of silence. Under the circumstances, progress is impossible. What can be done to get this family business back on track?

You Make the Call-Situation 2 Harrison Stevens, second-generation president of a family owned heating and air conditioning business, was concerned about his 19-year-old son, Barry, who worked as a full-time employee in the firm. Although Barry had made it through high school, he had not distinguished himself as a student or shown interest in further education. He was somewhat indifferent in his attitude toward his work, although he did reasonably-or at least minimally-satisfactory work. His father saw Barry as immature and more interested in riding motorcycles than in building a business. Stevens wanted to provide his son with an opportunity for personal development. As he saw it, the process should begin with learning to work hard. If Barry liked the work and showed promise, he might eventually be groomed to take over the business. His father also held a faint hope that hard work might eventually inspire him to get a college education. In trying to achieve these goals, Stevens sensed two problems. The first problem was that Barry obviously lacked proper motivation. The second problem related to his supervision. Supervisors seemed reluctant to be exacting in their demands on Barry. Possibly because they feared antagonizing the boss by being too hard on his son, they allowed Barry to get by with marginal performance.

You Make the Call-Situation 3 Siblings Rob, 37, and Julie, 36, work in their family's $15 million medical products firm. Both are capable leaders and have experienced success in their respective areas of responsibility. Compared to Julie, Rob is more introverted, more thorough in his planning, and much better on detail and follow through. In contrast, Julie is more creative, more extroverted, and stronger in interpersonal skills. Since childhood, they have been rather competitive in their relationships. Their 62-year-old father is contemplating retirement and considering the possibility of co-leadership, with each child eventually holding a 50-percent ownership interest.

Describe five features of a family firm that can lead to superior performance of a business.