CHAPTER 1 The Problem and Its Setting INTRODUCTION When you put up your own money and operate your own business, you prize your independence. It’s MY business, you can tell yourself, in good times and in bad. In a family company, however, it’s OUR business. A family business is any business in which a majority of the ownership or control lies within a family, and in which two or more family members are directly involved. It is also a complex, dual system consisting of the family and the business; family members involved in the business are part of a task system (the business) and part of a family system.
The family is always of vital importance in the Philippines; not surprisingly, most business organizations are modeled on the Filipino family. The boss and subordinate often exist in a bata relationship, basically like that between parent and child (bata literally meaning “child”). As a consequence, paternalistic management styles are the norm. A paternalistic management structure implies that decision making in most organizations is done at the top. Rights and responsibilities are different at home than at work, and it is imperative that family members keep this fact in mind.
At home family relationships and goals are the prime concern. Language is personal, attitudes are subjective, roles — husband/wife, parent/child, family/relatives/in-laws — are traditionally defined. At work, however, the success of the business must be paramount. Language becomes more impersonal, attitudes more objective. Family members who work in the business must accept the boss/employee relationship, as they would in any other business. Their job descriptions must be clear, in writing and adhered to.
Problems arising at home should be left there when the workday begins and workplace problems should not encroach on home life. Family members who accept and observe the home/business dichotomies not only avoid strained personal relationships, but also convey an important message to all employees that in the workplace business goals come first. Statement of the Problem The manager of a family-owned business faces the same challenges as the owner-manager of any small company.
However, the job of family manager may be complicated by relatives who must be reconciled to working together in a business. When family members work together, emotions may interfere with business decisions. Conflicts may arise as relatives see the business from different perspectives. The researcher aims to answer the following problems: Significance of the Study This study discusses about the family management style as a way of handling its own business. Through this study, the readers will be knowledgeable on how to handle family business effectively.
They will also learn and understand the importance of communication in resolving family business conflicts. The following persons will benefit from this study: Parents – this study will help them in dealing with their children about their business in a disciplined but right manner. Children – this study will help them in understanding their responsibilities and importance as part of the family business. Scope and Limitation This study limitedly deals with the paternalistic management style as a way of handling its own business.
This study will not cover the other family management styles involved in managing a family business. It focuses only on paternalistic management style and its related articles. Chapter 2 Conceptual Framework Family Communication Process Good family communication involves being both an active listener and a thoughtful speaker. In this way children can see how to communicate well and how to have more control of their lives. Respectful conversation can and should be practiced within the family unit in order for it to exist outside of the household.
Listening to each family member speak without interruptions, encourages, more than one viewpoint and these are skills that can be learned in the course of good family communication. Disciplinary Roots A Research Forum was purposefully entitled “Family Entrepreneurship” to acknowledge the growing consensus that the family firm is a combination of the family system with the entrepreneurial behaviors of its members (Heck and Mishra 2009; Mishra and Heck 2007). The emerging paths of family entrepreneurship research blend our disciplinary orientations and diverse methodologies in new and creative ways.
Early family business knowledge and research came from a variety of disciplinary roots and a cadre of fields of study. Writers and researchers, some often operating from a consulting perspective, began noticing that many businesses had members from the owning families involved with the business, either as owners, managers or employees. A family business was different from the traditional and isolated notion of a business (Organization Dynamics 1983). Agency theory has long stood as a widely applied theory explaining the relationship between ownership and management within a firm.
The reality is that a majority of firms–small or large and private or public–are and always have been family businesses, yet this fact or reality did little to stop the development and spread of this basic business theory. More recently researchers have carefully analyzed such early theory relative to the specific application, indeed as variant, in the case of the family business (Steier 2003). During these early years, a parallel dilemma was also true for the family studies and family sociology fields of study.
To be fair and balanced in our efforts here, rarely had early family studies researchers or those who studied families in general incorporated the contributions of business ownership and assets into their modeling or samples. Again, for example, classical family systems theory (Bowen 1985) was born out of clinical work, with actual families but with no specific recognition that owning and operating a business can complicate, as well as invigorate, family life, rather profoundly! One notable exception is the qualitative research of family businesses by Rosenblatt et al. (1985).
Studying 59 Twin Cities small businesses in the early 1980s, his research explored both the family system and the business system in the book titled The Family in Business: Understanding and Dealing with the Challenges Entrepreneurial Families Face and covered many important topics that we are still studying today, including: overlap between family and business systems, tensions, role carryover, fair compensation, management of the business, working with relatives, and succession and inheritance, among others. In a later book, Rosenblatt (1990) focused exclusively on farm families in the then U. S. arm crisis of the 1980s. Again, in these early years, many others also studied the family farm, a classic family business; however, except for Rosenblatt (1990) family researchers usually overlooked the business aspects of the farm family’s experiences. Review of Related Literature 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. Family businesses may 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. 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.
The interests of a family member may not be aligned with the interest of the business. Or, the interests of the entire family may not be balanced with the interests of their business. Finally, the interest of one family member may not be aligned with another family member. The importance of the family to businesses cannot be denied. The family is the first “school” where people learn and develop skills that are also necessary in the workplace – in the first place, the ability to commit oneself and form healthy and lasting ties with others. There are many ther skills acquired in a normal family, such as the ability to work as part of a team, to empathize, delegate, communicate, organize and focus on “the customer. ” The time one spends with his or her family can help a person contribute positively to the smooth functioning of a business. Issues in the Family Business The list below contains the issues that most family businesses face: • Participation — who can participate in the family business and under what circumstances. • Leadership and ownership — how to prepare the next generation to assume responsibility for the business. Letting go — how to help the entrepreneur let go of the family business. • Attracting and retaining nonfamily executives. • Compensation of family members — equality versus merit. • Successors — who chooses and how to choose among multiple successors. • Strengthening family harmony. All of these issues can potentially cause business conflict and family stress. But there are three steps you can take to manage conflict and stress in a family business: 1. Identify issues that may cause conflict and stress. 2.
Discuss these issues with the family. 3. Devise a policy to address them. Remember that being family does not guarantee the same professional goals, or a successful working relationship. Family meetings are important. You need to make sure that everyone in the business is on the same page in regards to the business’ future. Talking honestly about the business on a monthly basis and letting all involved family members vote on issues will prevent hurt feelings and surprises. Too often when a family member is unhappy in the business they tay out of a sense of duty, or are lax about their duties and break rules because they are family and believe they won’t be punished or fired. Set goals. Make sure members are held accountable. Set procedures. Remember that personal career goals should not affect the family relationship. For the “problem family member”, let them know that the business relationship is not working and you love them; thus would do whatever is needed to help improve the relationships (even if it means helping them transition out of the Family Business).
It is unreasonable to expect any group of people to have the same professional goals, so giving everyone to vote in the business, and allowing them to leave to pursue their own goals will keep resentment at bay. 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.
Paternalistic Management Paternalistic managers give more attention to the social needs and views of their workers. Managers are interested in how happy workers feel and in many ways they act as a father figure (pater means father in Latin). They consult employees over issues and listen to their feedback or opinions. The manager will however make the actual decisions (in the best interests of the workers) as they believe the staff still needs direction and in this way it is still somewhat of an autocratic approach.
The style is closely linked with Mayo’s Human Relation view of motivation and also the social needs of Maslow. Higher likelihood that employees will be motivated or feel some loyalty based on the concern shown towards them by management. Bowen Family Systems Theory Bowen family systems theory is a theory of human behavior that views the family as an emotional unit and uses systems thinking to describe the complex interactions in the unit. It is the nature of a family that its members are intensely connected emotionally.
Often people feel distant or disconnected from their families, but this is more feeling than fact. Family members so profoundly affect each other’s thoughts, feelings, and actions that it often seems as if people are living under the same “emotional skin. ” People solicit each other’s attention, approval, and support and react to each other’s needs, expectations, and distress. The connectedness and reactivity make the functioning of family members interdependent. A change in one person’s functioning is predictably followed by reciprocal changes in the functioning of others.
Families differ somewhat in the degree of interdependence, but it is always present to some degree. The emotional interdependence presumably evolved to promote the cohesiveness and cooperation families require to protect, shelter, and feed their members. Heightened tension, however, can intensify these processes that promote unity and teamwork, and this can lead to problems. When family members get anxious, the anxiety can escalate by spreading infectiously among them. As anxiety goes up, the emotional connectedness of family members becomes more stressful than comforting.
Eventually, one or more members feel overwhelmed, isolated, or out of control. These are the people who accommodate the most to reduce tension in others. It is a reciprocal interaction. For example, a person takes too much responsibility for the distress of others in relationship to their unrealistic expectations of him. The one accommodating the most literally “absorbs” anxiety and thus is the family member most vulnerable to problems such as depression, alcoholism, affairs, or physical illness. The Eight Concepts of Family Systems Theory
Triangles A triangle is a three-person relationship system. It is considered the building block or “molecule” of larger emotional systems because a triangle is the smallest stable relationship system. A two-person system is unstable because it tolerates little tension before involving a third person. A triangle can contain much more tension without involving another person because the tension can shift around three relationships. If the tension is too high for one triangle to contain, it spreads to a series of “interlocking” triangles.
Spreading the tension can stabilize a system, but nothing gets resolved. People’s actions in a triangle reflect their efforts to ensure their emotional attachments to important others, their reactions to too much intensity in the attachments, and their taking sides in the conflicts of others. Paradoxically, a triangle is more stable than a dyad, but a triangle creates an “odd man out,” which is a very difficult position for individuals to tolerate. Anxiety generated by anticipating or being the odd one out is a potent force in triangles.
The patterns in a triangle change with increasing tension. In calm periods, two people are comfortably close “insiders” and the third person is an uncomfortable “outsider. ” The insiders actively exclude the outsider and the outsider works to get closer to one of them. Someone is always uncomfortable in a triangle and pushing for change. The insiders solidify their bond by choosing each other in preference to the less desirable outsider. Someone choosing another person over oneself arouses particularly intense feelings of rejection.
If mild to moderate tension develops between the insiders, the most uncomfortable one will move closer to the outsider. One of the original insiders now becomes the new outsider and the original outsider is now an insider. The new outsider will make predictable moves to restore closeness with one of the insiders. At moderate levels of tension, triangles usually have one side in conflict and two sides in harmony. The conflict is not inherent in the relationship in which it exists but reflects the overall functioning of the triangle. At a high level of tension, the outside position becomes the most desirable.
If severe conflict erupts between the insiders, one insider opts for the outside position by getting the current outsider fighting with the other insider. If the maneuvering insider is successful, he gains the more comfortable position of watching the other two people fight. When the tension and conflict subside, the outsider will try to regain an inside position. Triangles contribute significantly to the development of clinical problems. Getting pushed from an inside to an outside position can trigger a depression or perhaps even a physical illness.
Two parents intensely focusing on what is wrong with a child can trigger serious rebellion in the child. Differentiation of Self Families and other social groups tremendously affect how people think, feel, and act, but individuals vary in their susceptibility to a “group think” and groups vary in the amount of pressure they exert for conformity. These differences between individuals and between groups reflect differences in people’s levels of differentiation of self. The less developed a person’s “self,” the more impact others have on his functioning and the more he tries to control, actively or passively, the functioning of others.
The basic building blocks of a “self” are inborn, but an individual’s family relationships during childhood and adolescence primarily determine how much “self” he develops. Once established, the level of “self” rarely changes unless a person makes a structured and long-term effort to change it. People with a poorly differentiated “self” depend so heavily on the acceptance and approval of others that either they quickly adjust what they think, say, and do to please others or they dogmatically proclaim what others should be like and pressure them to conform.
Bullies depend on approval and acceptance as much as chameleons, but bullies push others to agree with them rather than their agreeing with others. Disagreement threatens a bully as much as it threatens a chameleon. An extreme rebel is a poorly differentiated person too, but he pretends to be a “self” by routinely opposing the positions of others. A person with a well-differentiated “self” recognizes his realistic dependence on others, but he can stay calm and clear headed enough in the face of conflict, criticism, and rejection to distinguish thinking rooted in a careful assessment of the facts from thinking clouded by emotionality.
Thoughtfully acquired principles help guide decision-making about important family and social issues, making him less at the mercy of the feelings of the moment. What he decides and what he says matches what he does. He can act selflessly, but his acting in the best interests of the group is a thoughtful choice, not a response to relationship pressures. Confident in his thinking, he can either support another’s view without being a disciple or reject another view without polarizing the differences.
He defines himself without being pushy and deals with pressure to yield without being wishy-washy. Every human society has its well-differentiated people, poorly differentiated people, and people at many gradations between these extremes. Consequently, the families and other groups that make up a society differ in the intensity of their emotional interdependence depending on the differentiation levels of their members. The more intense the interdependence, the less the group’s capacity to adapt to potentially stressful events without a marked escalation of chronic anxiety.
Everyone is subject to problems in his work and personal life, but less differentiated people and families are vulnerable to periods of heightened chronic anxiety which contributes to their having a disproportionate share of society’s most serious problems. Nuclear Family Emotional System The concept of the nuclear family emotional system describes four basic relationship patterns that govern where problems develop in a family. People’s attitudes and beliefs about relationships play a role in the patterns, but the forces primarily driving them are part of the emotional system.
The patterns operate in intact, single-parent, step-parent, and other nuclear family configurations. Clinical problems or symptoms usually develop during periods of heightened and prolonged family tension. The level of tension depends on the stress a family encounters, how a family adapts to the stress, and on a family’s connection with extended family and social networks. Tension increases the activity of one or more of the four relationship patterns. Where symptoms develop depends on which patterns are most active. The higher the tension, the more chance that symptoms will be severe and that several people will be symptomatic.
The four basic relationship patterns are: Marital conflict- As family tension increases and the spouses get more anxious, each spouse externalizes his or her anxiety into the marital relationship. Each focuses on what is wrong with the other, each tries to control the other, and each resists the other’s efforts at control. Dysfunction in one spouse- One spouse pressures the other to think and act in certain ways and the other yields to the pressure. Both spouses accommodate to preserve harmony, but one does more of it.
The interaction is comfortable for both people up to a point, but if family tension rises further, the subordinate spouse may yield so much self-control that his or her anxiety increases significantly. The anxiety fuels, if other necessary factors are present, the development of a psychiatric, medical, or social dysfunction. Impairment of one or more children- The spouses focus their anxieties on one or more of their children. They worry excessively and usually have an idealized or negative view of the child. The more the parents focus on the child the more the child focuses on them.
He is more reactive than his siblings to the attitudes, needs, and expectations of the parents. The process undercuts the child’s differentiation from the family and makes him vulnerable to act out or internalize family tensions. The child’s anxiety can impair his school performance, social relationships, and even his health. Emotional distance- This pattern is consistently associated with the others. People distance from each other to reduce the intensity of the relationship, but risk becoming too isolated. The basic relationship patterns result in family tensions coming to rest in certain parts of the family.
The more anxiety one person or one relationship absorbs, the less other people must absorb. This means that some family members maintain their functioning at the expense of others. People do not want to hurt each other, but when anxiety chronically dictates behavior, someone usually suffers for it. Family Projection Process The family projection process describes the primary way parents transmit their emotional problems to a child. The projection process can impair the functioning of one or more children and increase their vulnerability to clinical symptoms.
Children inherit many types of problems (as well as strengths) through the relationships with their parents, but the problems they inherit that most affect their lives are relationship sensitivities such as heightened needs for attention and approval, difficulty dealing with expectations, the tendency to blame oneself or others, feeling responsible for the happiness of others or that others are responsible for one’s own happiness, and acting impulsively to relieve the anxiety of the moment rather than tolerating anxiety and acting thoughtfully.
If the projection process is fairly intense, the child develops stronger relationship sensitivities than his parents. The sensitivities increase a person’s vulnerability to symptoms by fostering behaviors that escalate chronic anxiety in a relationship system. The projection process follows three steps: (1) the parent focuses on a child out of fear that something is wrong with the child; (2) the parent interprets the child’s behavior as confirming the fear; and (3) the parent treats the child as if something is really wrong with the child.
These steps of scanning, diagnosing, and treating begin early in the child’s life and continue. The parents’ fears and perceptions so shape the child’s development and behavior that he grows to embody their fears and perceptions. One reason the projection process is a self-fulfilling prophecy is that parents try to “fix” the problem they have diagnosed in the child; for example, parents perceive their child to have low self-esteem, they repeatedly try to affirm the child, and the child’s self-esteem grows dependent on their affirmation.
Parents often feel they have not given enough love, attention, or support to a child manifesting problems, but they have invested more time, energy, and worry in this child than in his siblings. The siblings less involved in the family projection process have a more mature and reality-based relationship with their parents that fosters the siblings developing into less needy, less reactive, and more goal-directed people. Both parents participate equally in the family projection process, but in different ways.
The mother is usually the primary caretaker and more prone than the father to excessive emotional involvement with one or more of the children. The father typically occupies the outside position in the parental triangle, except during periods of heightened tension in the mother-child relationship. Both parents are unsure of themselves in relationship to the child, but commonly one parent acts sure of himself or herself and the other parent goes along.
The intensity of the projection process is unrelated to the amount of time parents spend with a child. Multigenerational Transmission Process The concept of the multigenerational transmission process describes how small differences in the levels of differentiation between parents and their offspring lead over many generations to marked differences in differentiation among the members of a multigenerational family. The information creating these differences is transmitted across generations through relationships.
The transmission occurs on several interconnected levels ranging from the conscious teaching and learning of information to the automatic and unconscious programming of emotional reactions and behaviors. Relationally and genetically transmitted information interact to shape an individual’s “self. ” The combination of parents actively shaping the development of their offspring, offspring innately responding to their parents’ moods, attitudes, and actions, and the long dependency period of human offspring results in people developing levels of differentiation of self similar to their parents’ levels.
However, the relationship patterns of nuclear family emotional systems often result in at least one member of a sibling group developing a little more “self” and another member developing a little less “self” than the parents. The next step in the multigenerational transmission process is people predictably selecting mates with levels of differentiation of self that match their own. Therefore, if one sibling’s level of “self” is higher and another sibling’s level of “self” is lower than the parents, one sibling’s marriage is more differentiated and the other sibling’s marriage is less differentiated than the parents’ marriage.
If each sibling then has a child who is more differentiated and a child who is less differentiated than himself, one three generational line becomes progressively more differentiated (the most differentiated child of the most differentiated sibling) and one line becomes progressively less differentiated (the least differentiated child of the least differentiated sibling). As these processes repeat over multiple generations, the differences between family lines grow increasingly marked. Level of differentiation of self can affect longevity, marital stability, reproduction, health, educational accomplishments, and occupational success.
This impact of differentiation on overall life functioning explains the marked variation that typically exists in the lives of the members of a multigenerational family. The highly differentiated people have unusually stable nuclear families and contribute much to society; the poorly differentiated people have chaotic personal lives and depend heavily on others to sustain them. A key implication of the multigenerational concept is that the roots of the most severe human problems as well as of the highest levels of human adaptation are generations deep.
The multigenerational transmission process not only programs the levels of “self” people develop, but it also programs how people interact with others. Both types of programming affect the selection of a spouse. For example, if a family programs someone to attach intensely to others and to function in a helpless and indecisive way, he will likely select a mate who not only attaches to him with equal intensity, but one who directs others and make decisions for them. Emotional Cutoff
The concept of emotional cutoff describes people managing their unresolved emotional issues with parents, siblings, and other family members by reducing or totally cutting off emotional contact with them. Emotional contact can be reduced by people moving away from their families and rarely going home, or it can be reduced by people staying in physical contact with their families but avoiding sensitive issues. Relationships may look “better” if people cutoff to manage them, but the problems are dormant and not resolved. People reduce the tensions of family interactions by cutting off, but risk making their new relationships too important.
For example, the more a man cuts off from his family of origin, the more he looks to his spouse, children, and friends to meet his needs. This makes him vulnerable to pressuring them to be certain ways for him or accommodating too much to their expectations of him out of fear of jeopardizing the relationship. New relationships are typically smooth in the beginning, but the patterns people are trying to escape eventually emerge and generate tensions. People who are cut off may try to stabilize their intimate relationships by creating substitute “families” with social and work relationships.
Everyone has some degree of unresolved attachment to his or her original family, but well-differentiated people have much more resolution than less differentiated people. An unresolved attachment can take many forms. For example, (1) a person feels more like a child when he is home and looks to his parents to make decisions for him that he can make for himself, or (2) a person feels guilty when he is in more contact with his parents and that he must solve their conflicts or distresses, or (3) a person feels enraged that his parents do not seem to understand or approve of him.
An unresolved attachment relates to the immaturity of both the parents and the adult child, but people typically blame themselves or others for the problems. People often look forward to going home, hoping things will be different this time, but the old interactions usually surface within hours. It may take the form of surface harmony with powerful emotional undercurrents or it may deteriorate into shouting matches and hysterics. Both the person and his family may feel exhausted even after a brief visit.
It may be easier for the parents if an adult child keeps his distance. The family gets so anxious and reactive when he is home that they are relieved when he leaves. The siblings of a highly cutoff member often get furious at him when he is home and blame him for upsetting the parents. People do not want it to be this way, but the sensitivities of all parties preclude comfortable contact. Sibling Position Bowen theory incorporates the research of psychologist Walter Toman as a foundation for its concept of sibling position.
Bowen observed the impact of sibling position on development and behavior in his family research. However, he found Toman’s work so thorough and consistent with his ideas that he incorporated it into his theory. The basic idea is that people who grow up in the same sibling position predictably have important common characteristics. For example, oldest children tend to gravitate to leadership positions and youngest children often prefer to be followers. The characteristics of one position are not “better” than those of another position, but are complementary.
For example, a boss who is an oldest child may work unusually well with a first assistant who is a youngest child. Youngest children may like to be in charge, but their leadership style typically differs from an oldest’s style. Toman’s research showed that spouses’ sibling positions affect the chance of their divorcing. For example, if an older brother of a younger sister marries a younger sister of an older brother, less chance of a divorce exists than if an older brother of a brother marries an older sister of a sister.
The sibling or rank positions are complementary in the first case and each spouse is familiar with living with someone of the opposite sex. In the second case, however, the rank positions are not complementary and neither spouse grew up with a member of the opposite sex. An older brother of a brother and an older sister of a sister are prone to battle over who is in charge; two youngest children are prone to struggle over who gets to lean on whom. People in the same sibling position, of course, exhibit marked differences in functioning.
The concept of differentiation can explain some of the differences. For example, rather than being comfortable with responsibility and leadership, an oldest child who is anxiously focused on may grow up to be markedly indecisive and highly reactive to expectations. Consequently, his younger brother may become a “functional oldest,” filling a void in the family system. He is the chronologically younger child, but develops more characteristics of an oldest child than his older brother. A youngest child who is anxiously focused on may become an unusually helpless and demanding person.
In contrast, two mature youngest children may cooperate extremely effectively in a marriage and be at very low risk for a divorce. Middle children exhibit the functional characteristics of two sibling positions. For example, if a girl has an older brother and a younger sister, she usually has some of the characteristics of both a younger sister of a brother and an older sister of a sister. The sibling positions of a person’s parents are also important to consider. An oldest child whose parents are both youngests encounters a different set of parental expectations than an oldest child whose parents are both oldests.
Societal Emotional Process Each concept in Bowen theory applies to nonfamily groups, such as work and social organizations. The concept of societal emotional process describes how the emotional system governs behavior on a societal level, promoting both progressive and regressive periods in a society. Cultural forces are important in how a society functions but are insufficient for explaining the ebb and flow in how well societies adapt to the challenges that face them. Bowen’s first clue about parallels between familial and societal emotional functioning came from treating families with juvenile delinquents.
The parents in such families give the message, “We love you no matter what you do. ” Despite impassioned lectures about responsibility and sometimes harsh punishments, the parents give in to the child more than they hold the line. The child rebels against the parents and is adept at sensing the uncertainty of their positions. The child feels controlled and lies to get around the parents. He is indifferent to their punishments. The parents try to control the child but are largely ineffectual. Bowen discovered that during the 1960s the courts became more like the parents of delinquents.
Many in the juvenile court system considered the delinquent as a victim of bad parents. They tried to understand him and often reduced the consequences of his actions in the hope of effecting a change in his behavior. If the delinquent became a frequent offender, the legal system, much like the parents, expressed its disappointment and imposed harsh penalties. This recognition of a change in one societal institution led Bowen to notice that similar changes were occurring in other institutions, such as in schools and governments. The downward spiral in families dealing with delinquency is an anxiety-driven regression in functioning.
In a regression, people act to relieve the anxiety of the moment rather than act on principle and a long-term view. A regressive pattern began unfolding in society after World War II. It worsened some during the 1950s and rapidly intensified during the 1960s. The “symptoms” of societal regression include a growth of crime and violence, an increasing divorce rate, a more litigious attitude, a greater polarization between racial groups, less principled decision-making by leaders, the drug abuse epidemic, an increase in bankruptcy, and a focus on rights over responsibilities.
Human societies undergo periods of regression and progression in their history. The current regression seems related to factors such as the population explosion, a sense of diminishing frontiers, and the depletion of natural resources. Bowen predicted that the current regression would, like a family in a regression, continue until the repercussions stemming from taking the easy way out on tough issues exceeded the pain associated with acting on a long-term view. He predicted that will occur before the middle of the twenty-first century and should result in human beings living in more harmony with nature. Agency Theory
Agency theory suggests that the firm can be viewed as a nexus of contracts (loosely defined) between resource holders. An agency relationship arises whenever one or more individuals, called principals, hire one or more other individuals, called agents, to perform some service and then delegate decision-making authority to the agents. The primary agency relationships in business are those (1) between stockholders and managers and (2) between debtholders and stockholders. These relationships are not necessarily harmonious; indeed, agency theory is concerned with so-called agency conflicts, or conflicts of interest between agents and principals.
This has implications for, among other things, corporate governance and business ethics. When agency occurs it also tends to give rise to agency costs, which are expenses incurred in order to sustain an effective agency relationship (e. g. , offering management performance bonuses to encourage managers to act in the shareholders’ interests). Accordingly, agency theory has emerged as a dominant model in the financial economics literature, and is widely discussed in business ethics texts. Agency theory in a formal sense originated in the early 1970s, but the concepts behind it have a long and varied history.
Among the influences are property-rights theories, organization economics, contract law, and political philosophy, including the works of Locke and Hobbes. Some noteworthy scholars involved in agency theory’s formative period in the 1970s included Armen Alchian, Harold Demsetz, Michael Jensen, William Meckling, and S. A. Ross. CONFLICTS BETWEEN MANAGERS AND SHAREHOLDERS Agency theory raises a fundamental problem in organizations—self-interested behavior. A corporation’s managers may have personal goals that compete with the owner’s goal of maximization of shareholder wealth.
Since the shareholders authorize managers to administer the firm’s assets, a potential conflict of interest exists between the two groups. SELF-INTERESTED BEHAVIOR. Agency theory suggests that, in imperfect labor and capital markets, managers will seek to maximize their own utility at the expense of corporate shareholders. Agents have the ability to operate in their own self-interest rather than in the best interests of the firm because of asymmetric information (e. g. , managers know better than shareholders whether they are capable of meeting the shareholders’ objectives) and uncertainty (e. . , myriad factors contribute to final outcomes, and it may not be evident whether the agent directly caused a given outcome, positive or negative). Evidence of self-interested managerial behavior includes the consumption of some corporate resources in the form of perquisites and the avoidance of optimal risk positions, whereby risk-averse managers bypass profitable opportunities in which the firm’s shareholders would prefer they invest. Outside investors recognize that the firm will make decisions contrary to their best interests.
Accordingly, investors will discount the prices they are willing to pay for the firm’s securities. A potential agency conflict arises whenever the manager of a firm owns less than 100 percent of the firm’s common stock. If a firm is a sole proprietorship managed by the owner, the owner-manager will undertake actions to maximize his or her own welfare. The owner-manager will probably measure utility by personal wealth, but may trade off other considerations, such as leisure and perquisites, against personal wealth.
If the owner-manager forgoes a portion of his or her ownership by selling some of the firm’s stock to outside investors, a potential conflict of interest, called an agency conflict, arises. For example, the owner-manager may prefer a more leisurely lifestyle and not work as vigorously to maximize shareholder wealth, because less of the wealth will now accrue to the owner-manager. In addition, the owner-manager may decide to consume more perquisites, because some of the cost of the consumption of benefits will now be borne by the outside shareholders.
In the majority of large publicly traded corporations, agency conflicts are potentially quite significant because the firm’s managers generally own only a small percentage of the common stock. Therefore, shareholder wealth maximization could be subordinated to an assortment of other managerial goals. For instance, managers may have a fundamental objective of maximizing the size of the firm. By creating a large, rapidly growing firm, executives increase their own status, create more opportunities for lower- and middle-level managers and salaries, and enhance their job security because an unfriendly takeover is less likely.
As a result, incumbent management may pursue diversification at the expense of the shareholders who can easily diversify their individual portfolios simply by buying shares in other companies. Managers can be encouraged to act in the stockholders’ best interests through incentives, constraints, and punishments. These methods, however, are effective only if shareholders can observe all of the actions taken by managers. A moral hazard problem, whereby agents take unobserved actions in their own self-interests, originates because it is infeasible for shareholders to monitor all managerial actions.
To reduce the moral hazard problem, stockholders must incur agency costs. COSTS OF SHAREHOLDER-MANAGEMENT CONFLICT. Agency costs are defined as those costs borne by shareholders to encourage managers to maximize shareholder wealth rather than behave in their own self-interests. The notion of agency costs is perhaps most associated with a seminal 1976 Journal of Finance paper by Michael Jensen and William Meckling, who suggested that corporate debt levels and management equity levels are both influenced by a wish to contain agency costs.
There are three major types of agency costs: (1) expenditures to monitor managerial activities, such as audit costs; (2) expenditures to structure the organization in a way that will limit undesirable managerial behavior, such as appointing outside members to the board of directors or restructuring the company’s business units and management hierarchy; and (3) opportunity costs which are incurred when shareholder-imposed restrictions, such as requirements for shareholder votes on specific issues, limit the ability of managers to take actions that advance shareholder wealth.
In the absence of efforts by shareholders to alter managerial behavior, there will typically be some loss of shareholder wealth due to inappropriate managerial actions. On the other hand, agency costs would be excessive if shareholders attempted to ensure that every managerial action conformed with shareholder interests. Therefore, the optimal amount of agency costs to be borne by shareholders is determined in a cost-benefit context—agency costs should be increased as long as each incremental dollar spent results in at least a dollar increase in shareholder wealth.
MECHANISMS FOR DEALING WITH SHAREHOLDER-MANAGER CONFLICTS There are two polar positions for dealing with shareholder-manager agency conflicts. At one extreme, the firm’s managers are compensated entirely on the basis of stock price changes. In this case, agency costs will be low because managers have great incentives to maximize shareholder wealth. It would be extremely difficult, however, to hire talented managers under these contractual terms because the firm’s earnings would be affected by economic events that are not under managerial control.
At the other extreme, stockholders could monitor every managerial action, but this would be extremely costly and inefficient. The optimal solution lies between the extremes, where executive compensation is tied to performance, but some monitoring is also undertaken. In addition to monitoring, the following mechanisms encourage managers to act in shareholders’ interests: (1) performance-based incentive plans, (2) direct intervention by shareholders, (3) the threat of firing, and (4) the threat of takeover.
Most publicly traded firms now employ performance shares, which are shares of stock given to executives on the basis of performances as defined by financial measures such as earnings per share, return on assets, return on equity, and stock price changes. If corporate performance is above the performance targets, the firm’s managers earn more shares. If performance is below the target, however, they receive less than 100 percent of the shares. Incentive-based compensation plans, such as performance shares, are designed to satisfy two objectives.
First, they offer executives incentives to take actions that will enhance shareholder wealth. Second, these plans help companies attract and retain managers who have the confidence to risk their financial future on their own abilities—which should lead to better performance. An increasing percentage of common stock in corporate America is owned by institutional investors such as insurance companies, pension funds, and mutual funds. The institutional money managers have the clout, if they choose, to exert considerable influence over a firm’s operations. Institutional investors can influence a firm’s managers in two primary ways.
First, they can meet with a firm’s management and offer suggestions regarding the firm’s operations. Second, institutional shareholders can sponsor a proposal to be voted on at the annual stockholders’ meeting, even if the proposal is opposed by management. Although such shareholder-sponsored proposals are nonbinding and involve issues outside day-to-day operations, the results of these votes clearly influence management opinion. In the past, the likelihood of a large company’s management being ousted by its stockholders was so remote that it posed little threat.
This was true because the ownership of most firms was so widely distributed, and management’s control over the voting mechanism so strong, that it was almost impossible for dissident stockholders to obtain the necessary votes required to remove the managers. In recent years, however, the chief executive officers at American Express Co. , General Motors Corp. , IBM, and Kmart have all resigned in the midst of institutional opposition and speculation that their departures were associated with their companies’ poor operating performance.
Hostile takeovers, which occur when management does not wish to sell the firm, are most likely to develop when a firm’s stock is undervalued relative to its potential because of inadequate management. In a hostile takeover, the senior managers of the acquired firm are typically dismissed, and those who are retained lose the independence they had prior to the acquisition. The threat of a hostile takeover disciplines managerial behavior and induces managers to attempt to maximize shareholder value. STOCKHOLDERS VERSUS CREDITORS: A SECOND AGENCY CONFLICT
In addition to the agency conflict between stockholders and managers, there is a second class of agency conflicts—those between creditors and stockholders. Creditors have the primary claim on part of the firm’s earnings in the form of interest and principal payments on the debt as well as a claim on the firm’s assets in the event of bankruptcy. The stockholders, however, maintain control of the operating decisions (through the firm’s managers) that affect the firm’s cash flows and their corresponding risks.
Creditors lend capital to the firm at rates that are based on the riskiness of the firm’s existing assets and on the firm’s existing capital structure of debt and equity financing, as well as on expectations concerning changes in the riskiness of these two variables. The shareholders, acting through management, have an incentive to induce the firm to take on new projects that have a greater risk than was anticipated by the firm’s creditors. The increased risk will raise the required rate of return on the firm’s debt, which in turn will cause the value of the outstanding bonds to fall.
If the risky capital investment project is successful, all of the benefits will go to the firm’s stockholders, because the bondholders’ returns are fixed at the original low-risk rate. If the project fails, however, the bondholders are forced to share in the losses. On the other hand, shareholders may be reluctant to finance beneficial investment projects. Shareholders of firms undergoing financial distress are unwilling to raise additional funds to finance positive net present value projects because these actions will benefit bondholders more than shareholders by providing additional security for the creditors’ claims.
Managers can also increase the firm’s level of debt, without altering its assets, in an effort to leverage up stockholders’ return on equity. If the old debt is not senior to the newly issued debt, its value will decrease, because a larger number of creditors will have claims against the firm’s cash flows and assets. Both the riskier assets and the increased leverage transactions have the effect of transferring wealth from the firm’s bondholders to the stockholders. Shareholder-creditor agency conflicts can result in situations in which a firm’s total value declines but its stock price rises.
This occurs if the value of the firm’s outstanding debt falls by more than the increase in the value of the firm’s common stock. If stockholders attempt to expropriate wealth from the firm’s creditors, bondholders will protect themselves by placing restrictive covenants in future debt agreements. Furthermore, if creditors believe that a firm’s managers are trying to take advantage of them, they will either refuse to provide additional funds to the firm or will charge an above-market interest rate to compensate for the risk of possible expropriation of their claims.
Thus, firms which deal with creditors in an inequitable manner either lose access to the debt markets or face high interest rates and restrictive covenants, both of which are detrimental to shareholders. Management actions that attempt to usurp wealth from any of the firm’s other stakeholders, including its employees, customers, or suppliers, are handled through similar constraints and sanctions. For example, if employees believe that they will be treated unfairly, they will demand an above-market wage rate to compensate for the unreasonably high likelihood of job loss.
AGENCY VERSUS CONTRACT Although the notions of agency and contract are closely intertwined, some academics bristle at the suggestion they are essentially the same. Specifically, they point out a number of unique features of agency versus contractual relationships. There are two major sets of differences. First, agents are usually retained not for any particular or discrete set of tasks, but for a broad range of activities, which may change over time, that are consistent with basic objectives and interests set forth by the principals.
In this instance principals must be concerned to some degree about agents’ personal attitudes, dispositions, and other characteristics that are usually not a concern in contractual agreements. Principals hire out broad objectives to be fulfilled instead of specific tasks. Second, in an agency relationship there is typically much less independence between agent and principal than between contracting parties. Typically this also means that the principal-agent relationship is more hierarchical and power-driven than a contractual relationship, and included in this power is greater latitude for principals to reward, punish, and control agents.
A conventional view holds that agency is a special application of contract theory. However, some argue that the reverse is true: a contract is a formalized, structured, and limited version of agency, but agency itself is not based on contracts. AGENCY AND ETHICS Since agency relationships are usually more complex and ambiguous (in terms of what specifically the agent is required to do for the principal) than contractual relationships, agency carries with it special ethical issues and problems, concerning both agents and principals. Ethicists point out that the classical version of agency theory assumes that agents (i. e. managers) should always act in principals’ (owners’) interests. However, if taken literally, this entails a further assumption that either (a) the principals’ interests are always morally acceptable ones or (b) managers should act unethically in order to fulfill their “contract” in the agency relationship. Clearly, these stances do not conform to any practicable model of business ethics. A familiar real-life example is large corporations’ layoff dilemma. Conventional wisdom holds that investors are rewarded when companies thin their employment rosters because operating costs are lowered, in theory leading to greater profits.
This expectation is often made explicit in news reporting surrounding a downsizing episode; the reports highlight whether investors seem pleased or displeased with an announcement of a mass layoff, and the often-stated assumption is that corporate management has undertaken the layoffs in part, if not in whole, to please shareholders and enhance their wealth. In this instance it is obvious that shareholders’ interests are advanced to the detriment of at least one other constituency, namely the employees.
In such cases, observers question whether it is ethical to serve the principals’ interests when those actions harm a large number of people, and whether the benefits shareholders receive are commensurate with the harm inflicted on the laid-off employees. Along the same lines, others have noted that traditional agency theory makes little mention of what obligations, moral or otherwise, principals have to their agents. The emphasis lies almost exclusively on what agents should or must do for the principals, relying, in turn, on a vague assumption that principals will compensate agents adequately—even more than adequately—for their services.
Some ethics scholars argue that principals have obligations as well. In the example above, some would argue that not only is it unethical to harm employees to obtain improvements (often marginal) in shareowners’ wealth, but also that the shareholders have moral obligations directly to the employees as an extension of the ethical employer/employee relationship (i. e. , not to harm them arbitrarily, among other obligations). This ethical problem is only complicated by the reality that, as noted above, principals are often institutions rather than individuals.
Meanwhile, consistent with the conventional formulation of the theory, agents are seen as having ethical duties to the principals. If managers act in self-interest—a rather negative assumption—and it fails to serve the best interests of the shareholders, they may, according to some views, have fallen short on their ethical responsibilities. In a larger sense, some see the traditional agency model as a simplistic, even deceptive, justification for traditional economic power relationships, specifically that large wealth holders can extract concessions from weaker economic beings.
Certain scholars have argued that from a broader social perspective, there are many kinds of principal-agent relations, and included among these is the fact that shareholders may be seen as agents to managers, employees, and the broader society. Family Meetings Family meetings are time set aside to promote meaningful communication and to provide for family discussion, decision making, problem solving, encouragement and cooperation. It can be structured and rather formal or flexible and informal. At family meetings, everyone has a part and something to contribute.
No one is less important than another, and family members contribute according to their age and ability. All families can benefit from family meetings whether they are stepfamilies, dual-career, single-parent, intergenerational or traditional. Family meetings are an excellent way to practice problem-solving skills, promote communication and build family unity. When a particular plan is discussed and mutually agreed on in a family meeting, everyone — even the youngest child — feels a sense of “ownership” and thus is more likely to go along with the plan. Also, children are able to see their family working together as a group.
They experience feeling stronger and smarter in a group. Good family communication involves being both an active listener and a thoughtful speaker. In this way children can see how to communicate well and how to have more control of their lives. Respectful conversation can and should be practiced within the family unit in order for it to exist outside of the household. Listening to each family member speak without interruptions, encourages, more than one viewpoint and these are skills that can be learned in the course of good family communication. Definition of Terms
RESEARCH METHODOLOGY This Chapter identifies the methods and techniques used in this study. The type of approach used in validation, reliability, analysis, procedure, and application to gather information of the subject. The method that was used in this study is the qualitative approach. Subject of the Study The subject of this study is about family management system and family business. DATA GATHERING PROCEDURE The researcher will be gathering the information from six to ten respondents. Qualitative method investigates the why and how of decision making, not just what, where, when.
Hence, smaller but focused samples are more often needed, rather than large random samples. CHAPTER 4 ANALYSIS, INTERPRETATION and Presentation of Data The table shows the talligram of the questionnaire which were answered by ten respondents who own and manage their own family business. It will determine the type of management used in one’s business and the attitudes of the family members toward their own business. |QUESTIONS |ALWAYS |OFTEN |SOMETIMES |SELDOM |NEVER | |1.
Did you express your ideas and | | | | | | |opinions? | | | | | | |2. Did the other family members do their | | | | | | |part on the business? | | | | | | |3. Did the problems arising at home | | | | | | |affect the business? | | | | | |4. Did the family members who work in the| | | | | | |business accept the boss-employee | | | | | | |relationship? | | | | | | |5. Did emotions interfere with business | | | | | | |decisions? | | | | | |6. Did conflicts arise as others see the | | | | | | |business from different perspectives? | | | | | | |7. Did you maintain good family | | | | | | |communication? | | | | | |8. Did you make way to solve business | | | | | | |issues as soon as possible? | | | | | | |9. Did everyone in the family receive | | | | | | |fair compensation? | | | | | | |10.
Did you discuss business issues in | | | | | | |the family? | | | | | | |11. Did you conduct family meetings? | | | | | | TALLIGRAM |12. Did the management style implement in| | | | | | |the family same as in the business? | | | | | |13. Did the decision-making come from the| | | | | | |top (parents/grandparents)? | | | | | | |14. Did you consult other family members | | | | | | |over issues? | | | | | | |15.
Did you listen to their feedback or | | | | | | |opinions? | | | | | | SAMPLE QUESTIONNAIRE Name: ____________________________ Type of Business: _____________ Age: ___ Year/s of Business: ______ The questions below will determine what type of management is used and the attitudes of family members towards their own business. Please put a check on the column which corresponds to your answer. QUESTIONS |ALWAYS |OFTEN |SOMETIMES |SELDOM |NEVER | |1. Did you express your ideas and | | | | | | |opinions? | | | | | | |2. Did the other family members do their | | |