‘Health of the Family Business’ Consultant Report – Pizza Franco

PIZZA FRANCO Contents Executive Summary 'Health of the Family Business' Consultant Report Analysis Conclusion Recommendations References

Executive Summary

Pizza Franco is a family business that operates a pizza chain and has been in the business for decades. The company has flourished when it comes to expanding its chains but the business lacks behind in terms of having a vision and proper organizational strategies. Pizza Franco has a strong unified family that is running the business with strong communication amongst them. But the company does not have a proper organizational strategy, strategic plan, succession plans and shareholder management plans. Pizza Franco does not have a board of directors and has very few external members as part of their employees. These factors lead to the business not being able to develop properly and effectively and lacking behind when it comes to innovation or diversification. Pizza Franco should establish a proper board of directors that is able to communicate with shareholders on a regular basis, they should observe the business and provide guidelines and recommendations on how to improve the business. The board of directors will help give the business a direction and therefore help in its development. Another important step that should be taken by the business is to ensure that there is cohesion and coordination among family members, more non-family members should be brought in to fill in managerial positions in order to increase diversification among the firm if they have more experience than existing family members. Furthermore, the business should develop a proper succession plan so that conflicts can be avoided when filling out important positions such as CEO, CFO and the experienced person is selected for the position.

'Health of the Family Business' Consultant Report

Pizza Franco is a family run pizza chain that has been working for decades and has expanded their operations in a major way. The owner of the company is Don Franco and his sons have been appointed at various managerial positions within the company. The business has been operating for a long time but still it lacks a proper business strategy that is required for a family business. A family business is a synthesis of: ownership control (15 %+) by two or more members of a family or a partnership of families, strategic influence by family members on the management of the firm, concern for family relationships and the dream (possibility) of continuity across generations. By definition, Pizza Franco is a family business.

Analysis

The key criterion of a successful business is that there should be a mutual understanding and interdependence between all the groups present in a business. These groups include family owner, family members, and non-family members/employees. A proper family business realizes the fact that family dynamics play a very important and influential role in business and family influences the business and vice versa. Furthermore, ownership also plays an important role in influencing the business and the family. So all these groups are related and are independent as well as dependent on each other. If one system is not working properly, it will have a bad effect on the other system. Pizza Franco has established itself as a family business but it is not aware of the relation and influence of these groups on each other. Pizza Franco lacks a proper structured family council that is necessary for discussing and resolving problems before they turn into big issues, educating the family about the responsibilities that they have when they are part of the ownership and the management and helps in facilitating a proper communication process that enables the family to create a proper family plan. Pizza Franco also lacks of a proper management team which should include both family and non-family members. When the CFO of Pizza Franco, the eldest son of the owner, died, the family was in a conflict as to who to appoint as the new CFO; Alexander, who was the son of the owner and had no experience at all, or an external manager. The family favored Alexander over an external manager. Having less or no non-family managers reduces the efficiency of the management. The management team is responsible for coming up with business plans, strategic plans and contingency plans and experienced people are needed for this. The most important factor that Pizza Franco lacks in is of an absence of a proper board of directors. A board of directors is important for a company because it adds onto the perspective of the owner, makes efficient and effective business plans, as well as monitors the company’s performance, makes important decisions regarding investments and dividends and keep family members informed about the performance of the business. A firm should have a proper organizational strategy so that it can work efficiently. Businesses should be well aware of what their organizational hierarchy is, what type of skills do people at each post should possess and who is responsible for each department in the business. A proper organizational structure should be able to make sure that the organization is decentralized or centralized. The roles of family members and non-family employees should be carefully defined and the extent of the involvement of family members in the management should also be set properly. Pizza Franco lacked a proper organizational strategy. The business had no proper set guidelines for family members and it lacked a sense of direction. It can be apparent from the fact that when the owner was looking for a replacement for the CFO, he had to consult various people before coming to a conclusion. But despite this, the communication strategy of the business is efficient. In the process of coming to a decision to select the CFO, the father decided to consult all shareholders involved and make a collective decision. Good governance is also important for any business to flourish. Governance needs to be efficient and for a family business to achieve that, they need to make sure that they have a proper structure (with rules and guidelines) and encourage emotional intelligence among their employees (both family and non-family members). Like any other business, a family business should also have a clear strategy concerning their mission, vision, succession laws, shares and much more. Pizza Franco lacks in this area as well. Despite expanding their business to such an extent, they still do not have a formal strategy to carry out their business. While their communication strategy is strong and effective, they need to be clear about what their long-term and short-term goals are and how their business should be able to operate. Family firms need help in governing the family–owner–management relationship. The desired outcome is rational economic and family welfare decisions unencumbered by traditional family dynamics. Governance can be provided for through ownership structure, different classes of voting and nonvoting stock, buy-sell agreements, a family constitution. Pizza Franco also lacks of a proper board that is essential for firms to operate effectively. Board composition in family-controlled firms in the S&P 500 found that companies, in which independent directors balanced the influence of founding families on the board, performed better and created greater shareholder value. Firms in which founding family ownership remained (and relatively few independent directors served on the board) performed significantly worse than nonfamily firms. Shareholder management in the firm is also very important as shareholders are the ones who own the firm or the business and are responsible for its well-being and development. The shareholders in Pizza Franco are all family members and therefore a proper plan for their management does not exist. Shareholder wealth management and stewardship is important as these factors make sure that the firm is on its way to development and is maximizing its profits. With a proper shareholder wealth management plan in place, the shareholders of the firm will be motivated to maximize the wealth of the firm, increase its stock prices, increase the overall value of the firm and in turn increase the net worth of the individual who is holding the stock. Stewardship, on the other hand, involves the concept that the owner of the firm or any shareholder that is involved in the business is not in it solely for the financial gains but wants to contribute something to the community and the workers, they want the business to keep on growing and succeeding long after they are gone and are basically looking for long-term instead of short-term gain because of the desire to have future generations take over the business.Pizza Franco encourages stewardships among its stakeholders as they are expanding their business, are settling in for the long-term and are involving future generations in its operations. But the company, then again, lacks a clear strategy for the business and it needs to define its long-term and short-term objectives. Shareholder meetings are also very important as these represent one of the best opportunities to educate owners about their responsibilities and what the company and its management expect of shareholders and allow for financial, business, and competitive information-sharing and communication on other issues critical to a family firm in a disciplined and proactive manner. Family shareholders expecting to fulfill their responsibility of aligning management interests with shareholder priorities and holding management accountable need to have a thorough understanding of financial statements. They need to be able to make sense of what the numbers say about the firm and its competitive condition. In order for a family business to keep on operating efficiently for a long time, succession policies need to be defined clearly and efficiently. A proper succession criterion should be set for each post (mainly the important posts such as the CEO) and successor goals should be identified. Without proper successors taking over the business, the family business would fall apart and would fail in a very bad way. A family business also needs to ensure that successors also fit the profile of successful successors. For example they can be people that know the business well or even love the nature of the business, they are guided responsibly by the previous generation, by advisors, and by a board of outside directors, they have good relationships and the ability to accommodate others, especially if part of a successor team, they can count on competent nonfamily managers in the top management team to complement their own skills or they have controlling ownership or can lead, through allies. Pizza Franco did not have clear succession policies. They lacked behind this area. The example of setting up a new CFO when the owner’s son died is a clear example of how important it is for the business to have a clear succession policy. Despite having a lack of experience, Alexander (younger son of the owner) was keen and adamant to take his brother’s place as the new CFO of the organizations. The family could not reach a consensus on this decision and consultants had to be bought in to contribute to this decision. The meeting ended with a mutual agreement of appointing an interim CFO for a period between 6 months up to a year until Alexander gains the necessary experience needed to succeed. The aim of the consultants was to reach a decision that would satisfy all the family members and avoid a family conflict. Therefore it is clear that Pizza Franco needs to have a proper succession strategy in order to avoid such conflicts and decision making processes in the future and be clear about what the organization wants.

Conclusion

Pizza Franco is a family business that has developed in terms of its locations but it still needs to go a long way when it comes to strategy. The business has developed itself efficiently in a few areas but it still needs to work in various other parts. Pizza Franco has a family council which lacks in structure and experience but is very effective for collective decision making among family members. Furthermore, they have a vague stewardship strategy as the owner of the business is working for the long-term and want to make sure the business remains successful in the future. The family is also much unified when it comes to taking decisions which is an important trait for a business to have. But Pizza Franco lacks various necessary things. They do not have a board of directors which is important for a business to perform and progress efficiently. The business denotes the notion of unhealthy family culture perhaps rooted in the sons’ limited business knowledge and lack of vision especially expressed by Alexander who is assertive on his decision to take on the role as the CFO at current times). To an extent this problem lies in the structure of the business, as the head of the family and the business, the father, has not started to integrate the younger sons in the business operations. The company lacks in strategic planning, succession planning and shareholder strategy. These strategies ensure that conflict is minimized among family members. Furthermore, Pizza Franco also lacks in diversifications when it comes to having more non-family members as managers. They do not have a proper organizational culture which is necessary for any business to thrive.

Recommendations

The most important step that should be taken by Pizza Franco in order to improve their business is to have a board that oversees the business and works for its progress. The role of the board is prominent in the governance of the relationship between a family and its business when the owner–family–business interaction is perceived as a positive-sum dynamic. Pizza Franco needs to ensure that their board is also adaptable to any sort of change in the company. The board should develop or approve the strategic plan, participate in the management development plan, and prepare the leadership continuity plan and the contingency plan. The board should work works with a professional team of advisors to prepare a succession plan and should use a succession planning consultant to ensure that the board takes steps professionally. The other step that should be taken by them is to have proper defined succession policies. These policies will ensure that conflict among family members is reduced when succession needs to take place and the process is done smoothly. The business needs to ensure that more non-family members are placed at managerial positions if they have the required experience since it will bring more innovation and diversification into the firm. A management team should be developed by Pizza Franco that should evaluate potential successors for management, including family and non-family members and promotion and succession should avoid nepotism and management should promote the most qualified candidate. A systems approach should be adopted by the organization in which all the family members are made aware of their relation to each other and their effect on the business. Training of potential heirs from an early stage in their life by offering them internship or working opportunity at market rates should also be given importance. Employees and members should be made aware about emotional intelligence and they should be able to recognize each other’s feelings and manage emotions effectively.

References

Anderson, R. and Reeb, D., Board Composition: Balancing Family Influence in S&P 500 Firms, Administrative Science Quarterly, 49 (2004), pp. 209-237. Astrachan, J. H. (2010). Strategy in family business: Toward a multidimensional research agenda.Journal of Family Business Strategy,1(1), 6-14. Eddleston, K. A., & Kellermanns, F. W. (2007). Destructive and productive family relationships: A stewardship theory perspective.Journal of Business Venturing,22(4), 545-565. Gersick, K. E., Davis, J. A.,Hampton, M. M., & Lansberg, I. (1997). Generation to generation: Life cycles of the family business. Cambridge, MA: Harvard Business School Press. Kellermanns, F. W., Eddleston, K. A., Barnett, T., & Pearson, A. (2008). An exploratory study of family member characteristics and involvement: Effects on entrepreneurial behavior in the family firm.Family Business Review,21(1), 1-14. Poza and Daugherty (2013). Family Business. 4th Edition, chapter 6 and 7. 1

Cite this page