Global Family Business
According to Alderson K. (2011) 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 are a vital part of most economies around the world. The sustainability of these businesses is crucial, since they bear the weight of economic wealth creation. The family business is similar to other entrepreneurial organization as it exploits opportunity for wealth making to enable financial support of the founder’s family. Therefore, family businesses play a vital role in economic growth both through their business contributions and through creating a reliable investment environment.
There are many ways in which the academic use to access the relative health of a family business. This includes corporate governance, family governance, business performance, philanthropy and social responsibility.
Corporate Governance in Family Business
Niehm, L.S., & Miller, N.J. (2006) define corporate governance as the processes, structures, policies and laws that govern the management of a company.
Johnson et al (1988) state that the governance framework portrays whom the organization is there to serve and how the purposes and priorities of the organization should be determined. This concerns how an organization should work and the division of power among stakeholders.
Corporate governance has become increasingly important matter for organizations. The need to split ownership and management control of organizations such as operation within a hierarchy, or chain of governance especially in family businesses. There has also been an escalating tendency to make organizations accountable to both owners and managers in the governance hierarchy and to stakeholders such as the local community.
It also refers to the way the board watches over the operations of a company and how board members are accountable to the company and its shareholders. The key purpose of corporate governance is to promote accountability, transparency, fairness, disclosure and responsibility. These are core values which are relevant to the success of all business. The companies with sound corporate governance usually perform better than other companies. As greater accountability can provide a better access to external capital such as, Bank, which can lower financing cost and higher credit rating of the companies, therefore increase the investor’s confidence over the company.
As growth is increasing in family owned firm as well as the impact on globalization, corporate governance has become very crucial in family businesses. It helps in managing development, as family businesses grow the relationship between owners, managers and employees become complex. Corporate governance helps put them in place and reduces the conflict development between them. It adjusts the right guiding principles in order to deal with the complexity. This helps the firm to create an organizational structure that has well stated roles, reporting lines, and delegation of responsibility. It also differentiates between ownership and management and distinguishes policy direction from routine basis of the company.
Corporate Governance also influence in the leadership succession by ensuring that leadership changeover does not interrupt the company’s growth. Policies for recruiting and selection of the appropriate family member is necessary in order to convey the success to the predecessor in the next generation, corporate governance needs to be in cooperated as part of the family firm’s culture.
Conflicts among family members are usually common especially when working together in the family business. Corporate governance helps resolve such conflicts therefore they can focus on other principle issues such as improving the sales, providing better services.
Right recruitment and appropriate human resource management is the basis of the long-term success for family businesses. To ensure sustainability of the business a governance system that offers clear strategy for employing family or non-family members and fair performance-based promotion is fundamental.
Finally corporate governance enhances the impartiality in open decision making and procedure therefore ensures fairness in appraising and rewarding both family and non-family employees which is a critical tool in avoiding tensions and in building the reputation of the company.
Numerous family businesses are taking on corporate governance in order to secure their long-term future. Many firms have taken the initiative to make official policy frameworks and structures for efficient governance. This is evident especially in the firms that go into a new stage of growth and integrates closely with the universal economy. Family businesses that do not take into account corporate governance often are unable to withstand competition in the future.
Davis. J. (2001): It is an agreement that relates to the relationship between the family and the business. It focuses on ensuring that the wealth of the family continues and grows from one generation to another. It is also the distribution of power that already exists. He further defines family governance as a multi-generational management techniques designed to ensure that the family’s history, values and wealth extends well beyond the typical two generations.
The Harvard Business School stated that “Family governance has three components which are as followed. Periodic (annual ) assembly of the family, family council meetings for those that benefit from a representative group of their members doing planning, creating policies and strengthening business family communication and bond. Davis. J (2001) also states that a family constitution which is the family’s policies and guiding vision and values that regulate members’ relationship with the business is essential.
Davis. J (2001) further states that the family constitution helps to ensure the development of clarity on roles, rights and responsibilities of the family members. It encourages family members, family employees, and family business owners to act responsibly towards the business and the other family members. It regulates appropriate family and owner inclusion in business discussions.
An additional basic criterion to assess the relative success of the family business is the measure the business performance itself. Once the business is established and running well, it needs to plan ahead. Development should be analyzed after the preliminary stages and consequently recognize how competent it is for example, the market position that the firm has established and decide on the next step.
One of the tools used many firms to assess how well the business is performing is KPIs which stands for Key Performance Indicator. This is done by highlighting the strengths and areas of improvement and suggesting the measures that need to be taken to implement the improvements.
It determines how the business differentiates itself from the competition in the perception of customers and suppliers. This improves the business competitive edge and its main strengths and the way in which the business performance are developed and monitored.
The measure of the outputs analysis tool is financial KPIs. They are achieved when every aspect of the business is corrected performed. Measuring, monitoring and evaluation of significant success factors in the areas of customer perspective, internal perspective and future perspective is important.
The customer acceptability result can be assessed in terms of the number of customers, number of new customers, level of customer satisfaction and feedback and percentage of business focused to a particular group of customers.
Evaluation of the success of the business can also be done by use of financial result such as, the turnover and the margin. Provision of positive financial results on an ongoing basis is crucial for businesses that rely on investors who expect regular returns. Financial results are readily available consequently are a popular tool for evaluating success because they are easily understandable and unambiguous.
Corporate Social Responsibility (CSR) and Charitable Giving
Johnson (1988) argues that “corporate social responsibility is concerned with the ways in which an organization exceeds the minimum obligations to stakeholder specified through regulation and corporate governance. This includes considerations as to how the conflicting demands of different stakeholders will be reconciled. The legal and regulatory frameworks pay uneven attention to the rights of different stakeholders such as customers, suppliers or employees,who have a legal relationship with the organization, and community stakeholders, such as local communities, consumers and pressure groups who do not have the protection of the law to the same extent as the first group. Therefore the CSR policies of companies will be particularly important to these community stakeholders. “
The way in which the company acts toward the social and environmental responsibilities affects commercially the business in terms of the company variety of workforce and energy efficiency.
Measuring the effectiveness of CSR
CSR helps the firm to cut costs and boost sales and gives benefits such as improved reputation, stronger customer loyalty and motivated employees which can be measured. For example, improved motivation could lead to reduced absenteeism and reduced staff turnover. Similarly, customer loyalty could increase levels of repeat purchasing. However, there are other significant benefits which are slightly harder to measure.
According to Corporate Social Responsibility in Measure the effectiveness of your corporate social responsibility (November 2010) the measurements will probably only show the immediate impact of CSR. The biggest benefit however can be the long-term improvement in your reputation.
The justification of the relative success criteria in my family business
The family business which I would like to make the justification of the relative success criteria to is Heineken international in the brewing sector in Netherlands which posses 50% family ownership by the Dutch Heineken family. Heineken International is a Dutch brewing company, founded in 1864 by Gerard Adriaan Heineken in Amsterdam. Heineken’s Dutch breweries are located in Zoeterwoude, ‘s-Hertogenbosch and Wijlre.
In term of Corporate Governance
The two members of the Executive Board, the five Regional Presidents and five Chief Officers together form the Executive Committee. The members of executive board are Chairman Executive Board and Member Executive Board.
The roles of Chairman Executive Board and Member Executive Board are very different. They might have some conflict over some of the issues as a chairman Executive Board, he is decision makers, and he plans things ahead over the expansion strategy of the company. While the Member Executive Board role is to focus on the areas inside the company such as, finance, marketing, personnel and production throughout the business and thus evaluate the decisions and reported to the chairman, therefore they have different perspective point of view towards things.
The five Regional Presidents President Western Europe, President Africa , President Central and Eastern Europe, President Americas, President Asia Pacific. The five Chief Officers are Middle East Chief Business Services Officer, Chief Supply Chain Officer, Chief Commercial Officer, Chief Human Resources Officer and Chief Corporate Relations Officer. The Executive Committee is the highest consultative body within Heineken. The Executive Committee supports the development of policies and ensures the alignment and continuous implementation of key priorities and strategies across the organization.
Heading the Heineken Group, Heineken Holding N.V. is no ordinary holding company. Since its formation in 1952, the objective of Heineken Holding N.V., pursuant to its Articles of Association has been to manage and/or supervise the Heineken Group and to provide services for Heineken N.V. The role Heineken Holding N.V. has performed for the Heineken Group since 1952 has been to safeguard its continuity, independence and stability and create conditions for controlled, steady growth of the activities of the Heineken Group. The stability provided by this structure has enabled the Heineken Group to remain independent and to rise to its present position as the brewer with the widest international presence and one of the world’s largest brewing groups.
Every Heineken N.V. share held by Heineken Holding N.V. is matched by one share issued by Heineken Holding N.V. The net asset value of one Heineken Holding N.V. share is therefore identical to the net asset value of one Heineken N.V. share. The dividend payable on the two shares is identical. Historically, however, Heineken Holding N.V. shares have traded at a lower price due to technical factors that are market-specific. Heineken Holding N.V. holds 50.005 per cent of the Heineken N.V. issued shares. On 31 December 2012, L’Arche Green N.V. held 51.083 per cent of the Heineken Holding N.V. shares.
Heineken takes a proactive role in maintaining an open dialogue with shareholders and bondholders, providing accurate and complete information in a timely and consistent way. The Company does this through media releases, the Annual Report, presentations, webcasts, an annual Financial Markets Conference and regular briefings with analysts, fund managers and shareholders.
In term of Family Governance
Poza, E. (2010) “Heineken started as Dutch family businesses and still maintain family ties. Four generations of the Heineken family have been passionately involved in the expansion of Heineken and the Heineken Company throughout the world. Established in 1864 by the Heineken family, Heineken has a long and proud history and heritage as an independent global brewer. The passion of the Heineken family remains as strong today as it was in 1864 when we first started brewing beer. The Heineken family holds 88.55 per cent of L’Arche Green N.V. The remaining 11.45 per cent of L’Arche Green N.V. is held by the Hoyer family. Mrs. de Carvalho-Heineken also owns a direct 0.03 per cent stake in Heineken Holding NV.”
In term of Business Performance
As of 2007, according to Profile Annual Report 2007 heinekeninternational.com. (2008-12-02), Heineken owns over 125 breweries in more than 70 countries and employs approximately 66,000 people. It brews and sells more than 170 international premium, regional, local and specialty beers, including Cruzcampo, Tiger Beer, Żywiec, Starobrno, Zagorka, Birra Moretti, Ochota,Murphy’s, Star and of course Heineken Pilsner.” As per the report the company has an annual beer production of 139.2 million hectoliters and Heineken ranks as the third largest brewer in the world. The financial performance of Heineken has shown satisfied profit level which has increasingly risen each year. The company uses KPIs tool in order to analyze the performance in each department every quarter.
Heineken is the world’s most international brewer, thanks to our global network of distributors and more than 165 breweries in over 70 countries.
The company achieves its global coverage through a combination of wholly-owned companies, license agreements, affiliates and strategic partnerships and alliances. Some of the wholesalers also distribute wine, spirits and soft drinks. In Europe, it is the largest brewer and cider maker and the brands are well established in these profitable markets. Due to acquisitions and joint ventures in India, Africa, Asia and Latin America it has a strong platform for current and future growth from these emerging beer markets.
In term of Corporate Social Responsibility
William B. Werther (2010) “Launched in 2010 ‘Brewing a Better Future’ is Heineken’s long-term sustainability ambition for 2020. 22 integrated programmes make up the ambition, focusing on improving the environmental impact of Heineken’s brands and business, empowering people and the communities in which Heineken operates and positively impacting the role of beer in society.
Amongst the commitments Heineken has made as part of its approach to sustainability are: by 2020 a reduction of specific direct and indirect carbon dioxide emissions in breweries by at least 40% and a reduction in specific water consumption by at least 25%,to expand to €20 million the funding for the Heineken Africa Foundation, to expand the local sourcing of raw materials in Africa to 60% by 2020, the continuous reduction of carbon dioxide footprint of brands, by 2015 ensuring that all markets have a partnership that help the company play its part in reducing alcohol abuse and by 2015 for every majority-owned business to have a sustainability plan and to report publicly on its progress and commitment.”
To conclude I believe by matching up the criteria suggested earlier Heineken is a successful family business whereby a good corporate governance, family governance, outstanding business performance and social responsibilities towards their stakeholders and the local communities have been upheld.
Reference and Bibliography
(1) Niehm, L.S., & Miller, N.J. (2006). Entrepreneurship and the Impact of Managerial Role of Family Business Success
(2) Johnson. , G, Scholes. , K and Whittington R.(1988), Exploring Corporate Strategy Text and Cases, seventh edition p.165, 191-193
3) William B. Werther, Jr., David Chandler (2010) Business & Economics
4) Poza, E. (2010). Family Business (III Edition). South-Western, Cengage Learn
(5) Corporate Social Responsibility, Measure the effectiveness of your corporate social responsibility http://www.businesslink.gov.uk/bdotg/action/detail?r.s=m&r.l1=1074404796&r.lc=en&r.l3=1075408468&r.l2=1074446322&type=RESOURCES&itemId=1075408572 Accessed 26 November 2010
6) “Profile – Annual Report 2007”.heinekeninternational.com. Heineken International. Retrieved 2008-12-02.