CU-BBA-SEM-III-Basics of Family Managed Business

c. a person to whom the decedent did not wish to leave inheritance inherits from the estate. d. None of these 3. MART goals are best described as _ a. specific, measurable, attainable, relevant, and timely b. straight forward, meaningful, accessible, real, and tested c. strategic, moderate, achievable, relevant, and timely d. specific, measurable, achievable, relevant, and tested 4. What is the first step in the appraisal process? a. giving feedback b. defining the job c. administering the appraisal tool d. making plans to provide training 5. ___________ refers to the passing assets / investments down from one generation to another. a. Estate planning b. Succession planning c. Business planning d. None of these Answers 1-c, 2-c, 3-a,4-b, 5- a 10.11REFERENCES Reference books  CollaborativeEntrepreneurship:Howcommunitiesofnetworkedfirmsusecontinuou sinnovationtocreateeconomicwealthbyRaymond Miles, GrantMiles, and CharlesSnow(Hardcover-Jun 1, 2105)  UnravelingtheRagTrade:ImmigrantEntrepreneurshipinSevenWorldCitiesbyJan 151 CU IDOL SELF LEARNING MATERIAL (SLM)

Rath(Hardcover-Feb 1, 2102)  FromConcepttoWallstreet:ACompleteGuidetoEntrepreneurshipandVentureCapi talbyOrenFuerstand UriGeiger(Paperback-Aug22, 2102). Textbook reference  Chandra,P.ProjectPreparation- AppraisalandImplementation.NewDelhi:TataMcGrawHill.  Gupta,C.B. &Srinivas,Entrepreneurial Development.NewDelhi:SultanChand&Sons.  Arora,R.andSood,S.K.FundamentalsofEntrepreneurshipandSmallBusinessMana gement. Ludhiana:Kalyani Publishers.  Desai,Vasant.Small-ScaleIndustriesandEntrepreneurship.Mumbai: HimalayanPublishing House. 152 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 11 BUSINESS ETHICS AND 153 ENTREPRENEURSHIP STRUCTURE 11.0 Learning Objectives 11.1 Introduction 11.2 Business Ethics 11.3 Ethical Principles in Business 11.4 Essential Elements of Business Ethics Management 11.4.1 Ethics in Compliance 11.4.2 Ethics in Finance 11.4.3 Ethics in Human Resources 11.4.4 Ethics in Marketing 11.4.5 Ethics of Production 11.4.6 Ethical Dilemma 11.5 Social Entrepreneurship 11.5.1 Risks of Entrepreneurship 11.5.2 Challenges for the Indian Social Enterprise Sector 11.6 Summary 11.7 Keywords 11.8 Learning Activity 11.9 Unit End Questions 11.10 References 11.0 LEARNING OBJECTIVES After studying this lesson, you will be able to:  Know the business ethics  Understand the ethical principles in business  Explain the essential elements in business ethics  Know the social entrepreneurship CU IDOL SELF LEARNING MATERIAL (SLM)

 Recognize the risks and challenges of entrepreneurship 11.1 INTRODUCTION The study of proper company rules and procedures pertaining to potentially contentious problems like corporate governance, insider trading, bribery, discrimination, corporate social responsibility, and fiduciary responsibilities is referred to as business ethics. Business ethics is typically governed by law, but it can also serve as a basic guideline that companies can follow to gain public favour. Consumers and various types of market participants have a fundamental level of trust in businesses, thanks to business ethics. A portfolio manager, for example, must evaluate the portfolios of family members and small individual investors in the same way. These measures ensure that the general population is treated fairly. The notion of business ethics emerged in the 1960s, when businesses became more cognizant of a growing consumer-based culture that was concerned about environmental issues, social causes, and corporate responsibility. The decade was marked by a greater emphasis on so- called social issues. Since then, the concept of business ethics has evolved. Business ethics is more than just a moral code of what is right and wrong; it seeks to strike a balance between what organisations must do legally and maintaining a competitive advantage over their competitors. Business ethics are demonstrated in a variety of ways by companies. 11.2BUSINESS ETHICS The application of ethics in the business environment is known as business ethics. Corporate ethics is the application of general ethical principles to business behaviour. Ethical corporate behaviour benefits society, increases profitability, strengthens company partnerships, and boosts employee productivity. Business ethics has come to mean many things to different people, but in general, it is knowing what is right and wrong in the workplace and doing what is right in terms of product/service repercussions and relationships with stakeholders. Business ethics is concerned with a businessman's conduct while conducting business. Businessmen and company units are having challenges as a result of unethical practises. The ethics practised by a businessman determines the life and growth of a company unit. Business ethics are formed over time and by practise. A custom varies depending on the type of business. When a custom is adopted and accepted by businesspeople and the general public, it becomes an ethic. Every sort of business can benefit from good business ethics. A company's social obligation necessitates the observance of business ethics. While assuming social responsibility, a businessman should not disregard commercial ethics. Business ethics refers to a businessman's conduct when conducting business while adhering to morals in his operations. Corporate ethics, according to Wheeler, is an art and science for maintaining a harmonious relationship with society, its many groups and organisations, as well as reorganizing moral responsibility for the rightness or wrongness of business activity. 154 CU IDOL SELF LEARNING MATERIAL (SLM)

Corporate ethics, according to Rogene. A. Buchholz, relates to the right or improper behaviour in business decisions. 11.3ETHICAL PRINCIPLES IN BUSINESS  The following are the business ethics principles developed by renowned authors such as Cantt, J. S. Mill, Herbert Spencer, Plato, Thomas Garret, Woodrad, Wilson, and others:  Sacredness of means and ends: The first and most essential principle of business ethics highlights the importance of using sacred and pure means and procedures to achieve corporate goals. It means that a good end cannot be achieved with the use of ineffective means, even if the end is helpful to society.  Not to do any evil: Whether the evil is a means or an end, it is unethical to conduct a serious harm to another or oneself.  Principle of proportionality: This principle emphasises that one should exercise proper judgement before doing anything so that a fair view is taken, and others are not harmed as a result of business action.  Non-cooperation in evils: It plainly states that a company should not collaborate with anyone who is committing evil deeds.  Collaboration with others: This idea states that businesses should assist others only when they are in need.  Publicity: According to W. Wilson, anything that is being done or is about to be done should be made public. If everyone is aware, no one will be able to commit an unethical conduct.  Equivalent price: According to W. Wilson, people have the right to receive things that are equal to the value of the money they will pay.  • Universal value: This idea states that business should be conducted in accordance with universal values.  Human dignity: According to this principle, man should not be treated as a factor of production, and his dignity should be preserved.  Nonviolence: When a businessperson harms the interests and rights of society, and exploits the consumer by ignoring their needs, this is equivalent to violence and unethical behaviour. 155 CU IDOL SELF LEARNING MATERIAL (SLM)

11.4ESSENTIAL ELEMENTS OF BUSINESS ETHICS MANAGEMENT Everyone who is entrusted to manage ethics in his organization is bound to prepare a sound ethical programme which should include the following components: -  Formal code of conduct  Ethics committee  Ethics communication  An Ethic office with Ethical officers  Ethics Training Programme  A disciplinary system  Establishing an ombudsperson.  Monitoring a) Code of conduct Several companies have begun the process of integrating ethical behaviour at their workplaces by developing and implementing codes of conduct for their personnel. Organizational ideals are expressed via codes of behaviour. It consists of three parts: an ethical code, a code of conduct, and a declaration of values. A code of conduct is a written document with inspiring content that clearly states what is acceptable and unacceptable behaviour at work and when employees represent their organisations outside of the workplace. In general, the code should represent management's intention to include the organization's values and policies. The management's statement of values is intended for the general public and usually addresses stakeholder groups. It tells stakeholders what the company's key priorities are and what its basic values are. b) Ethical Code Every time a new firm, whether a one-man operation or a full-fledged brick–and–mortar corporate corporation, is created anywhere in the world, the owners must adopt a code of ethics for the company. The code for small firms is largely unwritten. Even if a code isn't discussed or decided upon, it still exists. Employees are often entwined in and forced to adhere to written codes of ethics at larger businesses. A code of ethics is a buzzword that encourages employees to follow ethical standards and serves as the foundation for regulations of conduct. It is comprehensive enough to cover the complete framework of organisational ethics that everyone in the company is expected to follow. It usually outlines how to report violations, the disciplinary action that will be taken, and the structure of the due process that will be followed. In business, a strong marketing strategy, a sound financial strategy, and a well-organized business plan are all critical. 156 CU IDOL SELF LEARNING MATERIAL (SLM)

A code of ethics must summarise the organization's ideas and ideals. All personnel should absorb those principles and values, and use them on a daily basis in all company processes, regardless of the type of firm. Owners of businesses that participate in unethical acts on a regular basis are unable to instill their values and principles in their employees. Customers are more likely to recognise immoral behaviour and acts in small enterprises, thus they suffer even more. Customers will move their business elsewhere if they learn that a company does not adhere to strong ethical standards. Ethics codes differ from one company to the next, as well as from one country to the next. When a company is large enough to expand its activities into other nations, it is necessary to engage talent to aid in the training of existing employees in the integrity, understanding, responsibility, and cultural standards of the new country. All employees must be treated fairly, and any concerns of disparity must be resolved immediately, fairly, and to everyone's satisfaction. Consumers are more concerned than ever before about corporate governance and the proper conduct of businesses and their owners. Because the market is swamped with multiple varieties of the same enterprises, promises must be kept and prices and product quality must match what is represented, or else another company will step in to deliver. As a result, whether unspoken or explicitly stated, a code of ethics is critical to a company's success. Every successful firm has a code of ethics that is both defined and followed, and this motto must become the mantra of every business owner. Growing a successful business while adhering to solid ethical standards will bring not just development and income, but also the comfort of sleeping soundly at night. d) Committee on Ethics In many organisations, an ethics committee is formed. At work, they are completely dedicated. These committees address ethical issues, draught or update codes of conduct, and help organisations overcome ethical dilemmas. They come up with ethical policies and set ethical standards. The committee assesses the organization's adherence to certain ethical standards. Members of the ethical committee should be people who are knowledgeable about their industry, their code of ethics, and community standards. The committee members are also aware of the company's corporate culture and ethical guidelines. The following committees will be established: Creating an ethics committee at the board of directors The committee would be in charge of overseeing the program's development and implementation. Putting together an Ethics Management Committee The Ethics Management Committee would be responsible for developing and implementing an ethics management programme, as well as administering and teaching on policies and procedures and resolving ethical difficulties. Senior executives should be on the committee. 157 CU IDOL SELF LEARNING MATERIAL (SLM)

d) Ethical communication system The construction of an effective ethics communication system is the next phase. The ethics communication system is critical to the success of any ethics programme. It should enable employees to ask questions, seek counsel, and report wrongdoing. To educate employees about the organization's ethical standards and procedures, an ethics communication system is required. The following are its goals:  To communicate the organizations’ values and standards of ethical conduct or business to employees.  To provide information to the employees on the company’s policies and procedure regarding ethicalconduct of business.  To help employees to get guidance and resolve questions regarding compliance with the firm’s standardsof conducts and values.  To set up the means of enquiry such as telephone hotlines, suggestion boxes and email facilities foremployees to contact with and get advice from competent authorities. Along with these means of communication there are other ways, that can be used to communicate an organization’s moral standards to its employees. Top management can communicate the ethical standards tolower-level managers and they can communicate it to operational levels. Sometimes the organization publishesnewsletters. It can be used to expose company’s code of ethics. If an organization has briefing and managementmeeting, these can be used as a means of communicating values. Certain companies use attractive multi-colored posters to publicize their codes and ethics, these posters are placed in most visible places of theorganization premises. e) Ethics office and officers Ethics offices are to be established to communicate and implement ethics policies among employees of theorganization. For this purpose, an ethics officer is to be appointed. The ethics officer should develop a reputationfor credibility, integrity, honesty and responsibility through establishment of such ethics monitoring bodies. Functions of the ethics officers  Ethics officers are responsible for assessing the needs and risks that an organization-wide ethicsprogramme must address.  To develop and distribute a code of conduct or ethics  To conduct ethical training programme for employees  To establish and maintain a confidential service to answer employees’ questions about ethical issues.  To ensure that the organization is in compliance with governmental regulations  To monitor and audit ethical conduct 158 CU IDOL SELF LEARNING MATERIAL (SLM)

 To take action on possible violations of the company’s code  To review and update code in time f) Ethics Training Programme Employees will be trained in order to ensure that the organisation maintains a high level of ethical behaviour. A corporate ethics training programme will be developed for this aim. An ethical training program's principal goal is to help employees comprehend ethical concerns that are likely to arise at work. When new employees are hired, induction training should be made available to them. This training will assist in familiarizing employees with the company's ethical code of conduct. The importance of following the code should be discussed during the induction meeting. A properly-designed and implemented training programme will assist employees in understanding the organization's policies and expectations, as well as vital and relevant rules, bylaws, and regulations that must be followed by employees in the workplace. For training programmes to be successful, senior executives from each department must participate fully. g) Disciplinary system Code of conduct or ethical behaviour codes should be properly enforced in the organization to achieve theorganization’s objectives. A disciplinary system should be established to deal with ethical violations promptlyand severely. If unethical behaviour is not properly dealt with, it will threaten the entire social system that supportsthe ethical behaviour of the organization. While enforcing disciplines to ensure ethical conduct, companiesshould be consistent, i.e., the company should adopt a fair attitude towards every one without any discriminationor bias. h) Establishing an ombudsperson The ombudsperson is responsible to help coordinate development of the policies and procedures to institutionalize moral values in the workplace. This position usually is directly responsible for resolving ethical dilemmas byinterpreting policies and procedures. i) Monitoring To make an ethical programme fruitful and successful, an effective monitoring committee is to be formed. It canbe monitored through keen observation by ethics officers, internal audits, surveys, investigations and supportingsystems. 11.4.1 Ethics in Compliance Compliance is about obeying and adhering to rules and authority. The motivation for being compliant could be to do the right thing out of the fear of being caught rather than a desire to be abiding by the law. An ethical climate in an organization ensures that compliance with law is fueled by a desire to abide by the laws. Organizations that value high ethics comply with 159 CU IDOL SELF LEARNING MATERIAL (SLM)

the laws not only in letter but even in spirit i.e. going beyond what is stipulated or expected of them. 11.4.2 Ethics in Finance The ethical issues in finance that companies and employees are confronted with include:  In accounting – window dressing, misleading financial analysis.  Related party transactions not at arm’s length  Insider trading, securities fraud leading to manipulation of the financial markets.  Executive compensation.  Bribery, kickbacks, over billing of expenses, facilitation payments.  Fake reimbursements 11.4.3 Ethics in Human Resources Human resource management (HRM) plays a decisive role in introducing and implementing ethics. Ethics should be a pivotal issue for HR specialists. The ethics of human resource management (HRM) covers those ethicalissues arising around the employer-employee relationship, such as the rights and duties owed between employerand employee. The issues of ethics faced by HRM include:  Discrimination issues i.e., discrimination on the bases of age, gender, race, religion, disabilities, weight etc.  Sexual harassment.  Affirmative Action.  Issues surrounding the representation of employees and the democratization of the workplace, trade unionization.  Issues affecting the privacy of the employee: workplace surveillance, drug testing.  Issues affecting the privacy of the employer: whistle-blowing.  Issues relating to the fairness of the employment contract and the balance of power between employer  and employee.  Occupational safety and health. Companies tend to shift economic risks onto the shoulders of their employees. The boom of performancerelated pay systems and flexible employment contracts (hire & fire) are indicators of these newly establishedforms of shifting risk. 160 CU IDOL SELF LEARNING MATERIAL (SLM)

11.4.4 Ethics in Marketing Marketing ethics is the area of applied ethics which deals with the moral principles behind the operation andregulation of marketing. The ethical issues confronted in this area include:  Pricing: price fixing, price discrimination, price skimming.  Anti-competitive practices like manipulation of supply, exclusive dealing arrangements, tying arrangements etc.  Misleading advertisements • Content of advertisements.  Children and marketing.  Black markets, grey markets. 11.4.5 Ethics of Production This area of business ethics deals with the duties of a company to ensure that products and production processesdo not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually adegree of danger in any product or production process and it is difficult to define a degree of permissibility, or thedegree of permissibility may depend on the changing state of preventative technologies or changing socialperceptions of acceptable risk.  Defective, addictive and inherently dangerous products  Ethical relations between the company and the environment include pollution, environmental ethics, and  carbon emissions trading.  Ethical problems arising out of new technologies for eg. Genetically modified food  Product testing ethics. The most systematic approach to fostering ethical behaviour is to build corporate cultures that link ethical standards and business practices. 11.4.6 Ethical Dilemma An ethical dilemma is a situation where one is in conflict between moral imperatives. Often rejecting eithersolution has major consequences. It is also known as ethical paradox or moral dilemma. Ethical dilemma is anysituation in which guiding moral principles cannot determine which course of action is right or wrong. To obeyone action, would result in transgressing another. Dimensions of Ethical Dilemmas  Choice between equally undesirable alternatives 161 CU IDOL SELF LEARNING MATERIAL (SLM)

 Different courses of action possible  Involves value judgments about actions or consequences  Data will not help resolve issue  Different sources (psychology, theology) offer resolutions  Achieving objectives by ethical means may be difficult than achieving the same by unethical means  Unfavourable social outcomes may result in the course of fulfilling business objectives  Choices have far-reaching effects on persons, relationships and society  Resources which must be allocated are finite or limited  Can be resolved, not solved  There is no “right” and “wrong” Ways to resolve Ethical Dilemmas: Organisation try to draft the Code of Ethics in as precise a manner as possible so that it serves as a goodguidance for anyone in the business when there is ethical dilemma. However, the Code of Ethics cannot envisageall the possibilities which may emerge in the business at any point of time. Therefore, one has to resort to thegeneral guidelines by asking following questions in order to overcome the dilemma in Business Ethics. 1) Is it Legal? If it is not then there is no question of going ahead & asking the remaining questions. 2) Is it balanced? Does it protect the interest of all the stakeholders or is it biased about any particulargroup? 3) How does it make me feel? This is necessary because ethics to an extent is personalized& hencesubjective in nature. This model was put forward by Kenneth Blanchard & Norman Peale. 11.5 SOCIAL ENTREPRENEURSHIP Social entrepreneurship refers to any firm that employs commercial strategies to solve a social or environmental problem in a novel way. Social entrepreneurship is a worldwide phenomenon in which people from all walks of life are discovering and implementing innovative, effective, and long-term solutions to social and environmental concerns. Products, services, systems, and interventions brought to market by new start-ups and existing organisations, for-profit and non-profit, are among these solutions. 162 CU IDOL SELF LEARNING MATERIAL (SLM)

The canonical definition was written by Greg Dees, co-founder of Duke University's Center for the Advancement of Social Entrepreneurship and a member of the Impact Entrepreneurs advisory board: What exactly is a social entrepreneur? Individuals who have come up with novel solutions to society's most serious social issues are known as social entrepreneurs. They are determined and ambitious, tackling important societal concerns and proposing innovative solutions for widespread change. Rather than leaving societal issues to the government or the private sector, social entrepreneurs identify what isn't working and fix it by changing the system, distributing the answer, and convincing entire populations to take new risks. Social entrepreneurs frequently appear to be possessed by their concepts, dedicating their lives to changing the course of their industry. They are both visionaries and ultimate realists, with their primary focus being the actual fulfilment of their vision. To increase the amount of local people who will rise up, take their concept, and implement it, each social entrepreneur proposes ideas that are user-friendly, intelligible, ethical, and engage widespread support. To put it another way, every successful social entrepreneur is a mass recruiter of local changemakers—a role model demonstrating that individuals who turn their passion into action can achieve practically anything. Over the last two decades, the citizen sector has realised what the business sector already knew: nothing beats a fresh concept in the hands of a world-class entrepreneur. Entrepreneurs alter the face of business; social entrepreneurs operate as change agents for society, seizing chances that others overlook and changing systems, inventing new ways, and developing solutions to improve society. A social entrepreneur, unlike a business entrepreneur, develops new solutions to societal problems and then executes them on a wide scale. Opportunity Social entrepreneurship is growing at a rapid pace, addressing issues such as unemployment, social security, and civic involvement. The primary goal of social entrepreneurship is to provide societal benefits. In many countries now, social entrepreneurship is commonplace. With its ideology, mission, and definitions, this is a dynamic social economic activity. Entrepreneurship with a social component has a lot of promise all around the world, including in Ukraine. The context in which social entrepreneurs operate is complex. Some may be competing with fully commercial firms, while others may be competing with government-subsidized services. However, it is obvious that social entrepreneurs prefer to cluster around narrow markets where their hybrid business models are best suited and where state and market competition is less intense. As a result, it may be beneficial to try to identify specialised areas where the largest prospects for social entrepreneurship exist, as well as where social enterprise proponents' efforts and resources are most justified and useful. It should be noted that most social business opportunities are motivated by a desire to produce some form of social value that will benefit the local community by solving a social 163 CU IDOL SELF LEARNING MATERIAL (SLM)

problem or offering assistance in a needy or underserved area or sector. As a result, for social entrepreneurs, producing social value (rather than personal or stakeholder wealth) becomes the primary motivator, along with attaining the necessary financial sustainability to retain that value. Markets serving the very poor, where company margins are low and risks are high, are one sort of market niche that social entrepreneurs might occupy. In some industries, such as microfinance, there is ongoing discussion on whether a completely commercial business may better meet the demands of the lowest client groups than modified NGO models. Micro- clinics in low-income communities and the sale of economical irrigation tools to impoverished, smallholder farmers are examples of social companies operating in this market sector. - Other new and difficult markets where large expenses may be required to drive demand and generate new opportunities because of the need to combat stigma, acclimate consumers to more complex technologies, and challenge assumptions that services should be given by the government. Providing counselling services to people living with HIV/AIDS and other socially marginalized groups; providing microinsurance products to farmers; providing relatively intensive support for farmers to adopt new and unfamiliar crop cultivation techniques are examples of social enterprises operating in this market niche. Many environmentally friendly business opportunities are clearly commercially viable. Others, on the other hand, are on the fringes and are particularly well-suited to hybrid social enterprise models. 11.5.1. Risks of Entrepreneurship Despite the fact that the risk of failure connected with starting a business is real and even significant, we hear a lot about success stories in the media and very little about entrepreneurs who fail. Perhaps the appeal of business always outweighs any warnings about the drawbacks. Still, start-ups carry a higher-than-average level of risk, and we'll look at the facts today. What distinguishes entrepreneurial risk from other types of risk? Various studies have come to different conclusions, but according to business strategist Patrick Henry, \"75 percent of venture-backed firms fail.\" “This statistic is based on a Harvard Business School study by Shikhar Ghosh,” Henry noted. According to Statistical Brain's study, \"Startup Business Failure Rate by Industry,\" the failure rate of all U.S. enterprises after five years was over 50%, and after ten years, it was over 70%.\" This statistic may be enough to dampen the enthusiasm of any would-be entrepreneur who feels that an innovative or fascinating concept is enough to support a successful firm with little time and work and a lot of money borrowed from others. Despite this, the number of start-ups in the United States grows exponentially each month. Even financially successful start-ups must be wary of a different kind of pitfall: ethical failure, which may be fueled by the very strengths that help a company get off the ground. This trap is hubris, or inordinate pride, which can be a defining characteristic of certain entrepreneurs, especially once they have achieved some initial success. Travis Kalanick and Garrett Camp started Uber, an app- 164 CU IDOL SELF LEARNING MATERIAL (SLM)

based ride-hailing service, in San Francisco in 2009. This was the first time an idea matched the success potential of smartphones. Uber, which provided a cheaper and more expedient service than hailing a cab on city streets, was valued at $70 billion in 2017 and was operating in seventy countries with varied degrees of success at the time. However, once an Uber engineer, Susan Fowler, posted about her experiences there in early 2017, many observers were shocked by the company culture, particularly at headquarters. Many of her claims were corroborated by other employees, indicating a culture riddled with misogyny, homophobia, and sexual harassment. Kalanick became a high-flying role model for would-be entrepreneurs who aspired to mimic his success, thanks to hushed complaints from within the company that garnered little attention outside the company. When Uber's board of directors asked him to leave as CEO in June 2017, it was finally time for him to face the music. However, the company culture he encountered throughout his time there was not unique to Uber. It's happened to a lot of businesses. Many successful businesses, particularly hard-riding start-ups, face an ethical issue in keeping destructive egos under check. Founders and their start-up teams must understand how strongly their views toward others, their visible treatment of employees, customers, and clients, and their show of justice will define the firm they are creating. It's not enough for the founders to say, \"Once we're solvent, we'll get around to developing the correct protocols.\" It is therefore insufficient to expect that standards of respectful corporate behaviour will arise on their own. From the first day of operation, a culture of ethics, or the lack thereof, will set the tone. If the founders believe they are exempt from these courtesy because of their brilliance or confidence, such arrogance will supplant ethics as a best practise. To believe differently is to deceive oneself. 11.5.2. Challenges for the Indian Social Enterprise Sector In the last ten years, businesses with a dual aim of profit generation and beneficial social impact have emerged. Many young entrepreneurs with excellent academic credentials who have given up lucrative employment to follow their passion for social good are transforming the social sector's landscape and perception. While improving the lives of people at the Bottom-of-Pyramid (which accounts for 37% of the total Indian population) through gainful employment or the creation of products and services specifically for them, these entrepreneurs seek long-term profitability through the application of business principles. Future government initiatives must clearly take them into account and establish an environment that is friendly to such entrepreneurs. However, the new age social entrepreneurship sector has significant hurdles. – One of the most significant challenges is a lack of early-stage financing due to difficulties faced by domestic and foreign investors when investing in social companies. This could stymie product development, scaling, and attracting top people. – For-profit social enterprises in India are still not recognised as a sector by Indian regulations, depriving them of specific privileges such as tax exemptions and other incentives. 165 CU IDOL SELF LEARNING MATERIAL (SLM)

Investing in social enterprises: Successful strategies Social enterprises are for-profit businesses that use innovation to tackle problems. They include both non-profit and for-profit businesses, and their profits are a mix of social and financial benefits. They come in a variety of flavours, but they all confront the same basic question: will they be able to generate enough revenue and attract enough investment to cover their costs and expand their operations? Some social companies can generate a profit that is sufficient to attract investor funding. Customers willing to pay a premium for a socially beneficial product—say, green energy or organic food—might be served goods and services. They may be able to sell a necessary service to low-income customers at a reasonable profit while still delivering the service at a lower cost than other providers. However, many, if not all, social firms cannot survive only on sales or financing. They are too inefficient to access traditional financial markets, resulting in a financial-social return gap. The social value of providing low-income individuals with inexpensive health care, basic foods, and safe cleaning goods is considerable, but the expense of private support frequently outweighs the monetary return. Many social companies rely on government subsidies, charity foundations, and a small group of wealthy individuals willing to make gifts or accept lower financial returns on their investments in social ventures to stay afloat. The ability of those businesses to supply their goods and services is linked to the availability of funds from these sources, and their fundraising efforts take time and energy away from their social goals. One of the primary challenges that social companies encounter is a lack of financial opportunities. A traditional firm can leverage its balance sheet and business plan to provide various risk and return combinations to a variety of investors, including stock investors, banks, bond funds, and venture capitalists. For many social enterprises, this is not the case, but this is changing. A growing number of social entrepreneurs and investors are realizing that all types of social enterprises may provide financial returns, making them appealing to the proper investors. The amount of funding accessible to these groups will skyrocket as a result of this knowledge. Essentially, the notion is that you may approach a social enterprise's finance as a financial structure problem: Instead of giving a blended return that applies to all investors but is acceptable to only a few, the company can provide varying risks and rewards to different types of investors. The financial-social return gap can be bridged with this new approach to structuring. 11.6 SUMMARY  Business ethics, often known as ethical standards, are the principles, practices, and philosophies that govern businesspeople in their day-to-day decisions. It refers to a businessman's behaviour in a business setting. 166 CU IDOL SELF LEARNING MATERIAL (SLM)

 They are largely concerned with the effects of decisions on society both within and outside of business organisation or other groups with an interest in business activity. Where the law ends, business ethics can be said to begin.  Business ethics is largely concerned with topics that are not addressed by the law or when there is no clear consensus on whether something is correct or incorrect.Entrepreneurship is defined as the process of producing money, profiting, and increasing wealth while exhibiting characteristics such as risk-taking, management, leadership, and creativity.  Entrepreneurship is a difficult concept that has many meanings depending on the situation. The term “Entrepreneurship” can refer to a variety of things. On one extreme, an entrepreneur is a person of exceptional ability who pioneers change, with attributes found in just a small percentage of the population.  On the other end of the spectrum, anyone who wishes to work for himself is termed an entrepreneur. In other words, entrepreneurship is synonymous with merely beginning one's own firm. Most economists believe it is more complicated than that.  According to some economists, an entrepreneur is someone who is prepared to take on the risk of a new company if there is a good prospect of profit. Others stress that the entrepreneur is an innovator who advertises his innovation. Other economists argue that entrepreneurs create new commodities or processes that the market requires but is not currently being supplied.  Business ethics is the study of appropriate business policies and practices pertaining to potentially contentious issues such as corporate governance, insider trading, bribery, discrimination, corporate social responsibility, and fiduciary responsibilities.  Business ethics is frequently guided by the law, but it can also serve as a basic guideline that businesses might choose to follow in order to earn public favour.  Business ethics ensure that a certain basic level of trust exists between consumers and various forms of market participants with businesses. For example, a portfolio manager must give the same consideration to the portfolios of family members and small individual investors.  The concept of business ethics began in the 1960s as corporations became more aware of a rising consumer-based society that showed concerns regarding the environment, social causes, and corporate responsibility.  Business ethics is simply the application of ethics in the business world. The application of general ethical ideas to business behaviour is referred to as business ethics  Ethical corporate behaviour supports and promotes societal good, increases profitability, fosters business relationships, and increases employee productivity. 167 CU IDOL SELF LEARNING MATERIAL (SLM)

 Business ethics is concerned with the behaviour of a businessman in doing a business. Unethical practices are creating problems to businessman and business units  Business ethics means the behaviour of a businessman while conducting a business, by observing morality in his business activities  Compliance is about obeying and adhering to rules and authority. The motivation for being compliant could be to do the right thing out of the fear of being caught rather than a desire to be abiding by the law.  Human resource management (HRM) plays a decisive role in introducing and implementing ethics. Ethics should be a pivotal issue for HR specialists.  The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee. 11.7 KEYWORDS  Ethics - The term “ethics” is derived from the Greek word “ethos” which refers to character or customs or acceptedbehaviour.  Code of Conduct - ‘Code of conduct’ is a set of principles and expectations that are considered binding on any person whois a member of a particular group.  Entrepreneurship - the activity of setting up a business or businesses, taking on financial risks in the hope of profit.  Business ethics - It is the study of appropriate business policies and practices regarding potentially controversial subjects including corporate governance. 11.8LEARNING ACTIVITY 1. Learners are instructed to meet entrepreneurs and to have conversation with them. ___________________________________________________________________________ ___________________________________________________________________________ ______ 2. Learners are guided to prepare an assignment based on their meeting with the entrepreneurs. ___________________________________________________________________________ ___________________________________________________________________________ ______ 168 CU IDOL SELF LEARNING MATERIAL (SLM)

11.9 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is Business Ethics? 2. Define – Ethics in Finance. 3. What is the term ‘Ethics in Human Resources’ meant by? 4. Explain – Ethics of production. 5. What is ethical dilemma? Long Questions 1. Explain – Ethical Principles inn Business. 2. What are the risks of entrepreneurship? 3. Bring out the points of ethical dilemma. 4. Discuss the essential elements of business ethics management. B. Multiple Choice Questions 1. _______________ is one of the challenges facing a social entrepreneur a. Limited Access to early-stage Capital b. Development of new product c. Maintaining profits d. All of the above 2. The innovative methods used in social enterprises to broaden the access of capital includes: a. Loan Guarantee b. Quasiequity Debt c. Pooling d. All of these 3. The Funding of Social Enterprise is essentially a problem of _________ 169 a. Availability of Investment Options CU IDOL SELF LEARNING MATERIAL (SLM)

b. Financial-structuring c. Profits d. None of these 4. in a social enterprise business model measurable impact is created by the generation of___ a. Social value b. Economic Value c. Service Value d. Funding Value 5. Business Ethics & Effective Corporate Governance result in ———— a. short term profit maximization b. Reduced taxes c. Wealth maximization d. Monopoly 6. Business Ethics tries to protect the interest of ———— a. Shareholders b. Promoters c. Consumers d. Stakeholders Answers 170 1-a,2-d, 3-b, 4-a, 5-c, 6-d 11.10REFERENCES Reference books CU IDOL SELF LEARNING MATERIAL (SLM)

 CollaborativeEntrepreneurship:Howcommunitiesofnetworkedfirmsusecontinuou sinnovationtocreateeconomicwealthbyRaymond Miles, GrantMiles, and CharlesSnow(Hardcover-Jun 1, 2105)  UnravelingtheRagTrade:ImmigrantEntrepreneurshipinSevenWorldCitiesbyJan Rath(Hardcover-Feb 1, 2102)  FromConcepttoWallstreet:ACompleteGuidetoEntrepreneurshipandVentureCapi talbyOrenFuerstand UriGeiger(Paperback-Aug22, 2102). Textbook reference  Chandra,P.ProjectPreparation- AppraisalandImplementation.NewDelhi:TataMcGrawHill.  Gupta,C.B. &Srinivas,Entrepreneurial Development.NewDelhi:SultanChand&Sons.  Arora,R.andSood,S.K.FundamentalsofEntrepreneurshipandSmallBusinessMana gement. Ludhiana:Kalyani Publishers.  Desai,Vasant.Small-ScaleIndustriesandEntrepreneurship.Mumbai: HimalayanPublishing House.  Ramachandran,K.Managinga NewBusinessSuccessfully, NewDelhi: GlobalBusiness Press 171 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 12 LEADERSHIP AND THE IMPERATIVES FOR FAMILY BUSINESS STRUCTURE 12.0 Learning Objectives 12.1 Introduction 12.2 Family Business Succession 12.2.1 The Benefits of Family Business Succession 12.2.2 The Challenges of Family Business Succession 12.3 Family Business Organizations 12.3.1 Family Business Guiding Principles 12.4 Family Leaders – Roles and Responsibilities 12.5 Summary 12.6 Keywords 12.7 Learning Activity 12.8 Unit End Questions 12.9 References 12.0 LEARNING OBJECTIVES After studying this lesson, you will be able to:  Know the family business succession  Understand the family business organizations  Explain the benefits and challenges of family business succession  Know the family leaders, roles and responsibilities 12.1 INTRODUCTION Most businesses, including family-owned businesses, are facing an increasingly difficult commercial climate. Meeting client expectations, updating technology, adhering to regulatory standards, and running day-to-day operations all require a large number of people and a wide range of activities, as well as a wide range of opportunities and risks. Entrepreneurial zeal, insight, and even business experience aren't enough for family-owned businesses to seize opportunities and solve problems. 172 CU IDOL SELF LEARNING MATERIAL (SLM)

One of the prerequisites is a family plan that considers a variety of factors such as family goals, job growth, communication, representation, and ownership issues. A family governance structure, which is an important part of the strategy, provides a framework and principles for managing this complexity and enabling value creation and family unity while reducing conflict and disrupting business operations. Aligning strategy and governance with family members' goals can help the company navigate the complexities of balancing personal and professional obligations. 12.2 FAMILY BUSINESS SUCCESSION The process of transitioning the management and ownership of a family business to the next generation of family members is known as family business succession. As part of the transition, family assets might be involved. In both the management and ownership successions, family members typically play a controlling role. As a result, the success of the succession process will be determined by the effective integration and management of the family component. Far too often, the technical aspects of the family business succession process are governed by the current owners' and their trusted advisers' agreements (e.g., accountant, lawyer). Although the impact of the family component may be considered in these situations, it is not actively integrated into the process. In other cases, where an attempt is made to incorporate the family component into the succession process, the process itself or the lack of formality in the process often prevents the desired outcomes from being realised. A shift from the traditional approach to business succession to a customised approach for family businesses is required. Family businesses are distinct, and it is the family element that distinguishes them. Because of the potential impact of the family component on business management and ownership, it must be understood and effectively managed. Many family businesses have successfully managed their family elements by employing tried-and-true family business \"best practises.\" The Business Impact of the Family Component The Three Circle Model, as shown below, is frequently used to illustrate the interaction/impact of the family component on family business management and ownership. The ownership circle, management circle, and family circle are all represented in the Three Circle Model. The interaction/impact of the owners on the family and the management of the business is represented by the ownership circle, while the management circle represents the interaction/impact of management on the family and the ownership of the business is represented by the management circle. The family circle represents the interaction/impact that the family has on the management and ownership of the business. 12.2.1 The Benefits of Family Business Succession The Advantages of Family Business There are numerous advantages to owning a business as a family. Unfortunately, family businesses are sometimes depicted (particularly in the media) 173 CU IDOL SELF LEARNING MATERIAL (SLM)

as having intergenerational and sibling conflicts, financial irresponsibility, incestuous hiring and promotion practises, and continual legal battles among shareholders. Of course, family businesses can benefit both family members and non-family employees, as well as the communities in which they operate. These advantages frequently assist to set these family enterprises apart and elevate them to a position of preferred status and competitive advantage. The advantages of having a family in business vary based on the family's makeup and size, as well as its stage of development (i.e., first, second, or third generation). The following are some of the features that set family businesses apart and can help them gain a competitive advantage. Loyalty - In the business world, family members tend to be more loyal to each other and to the company. They are also more dedicated to the company's success and are more enthusiastic about the company's mission. Legacy - Families in business have the potential to leave a lasting legacy that gives them a sense of pride and success. Building on their forefathers' work is a powerful drive for future generations to become stewards of the family business and take it to new heights in the family's name. Labor pool — Multigenerational family enterprises have access to a labour pool of relatives, who, as previously stated, are more loyal and committed to the company. Family members are also more adaptable when it comes to taking on different job roles and filling in for others. Non-family key employees respect and enjoy the unique work atmosphere that a family in business creates. Less formal, more hands-on, and friendlier workplaces are more common. Many significant employees are treated as extended family and form close bonds with the family and the company. Patience — Family firms are less focused on short-term financial achievements and are willing to forego short-term benefits in order to attain longer-term objectives. This allows companies to connect their resource deployment with their strategic goals. Patient capital is a term used to describe a long-term investment strategy. Values - Family company entrepreneurs have the chance to teach and pass on their personal and corporate values to the next generation of family managers and owners. Family members take pride in sustaining these ideals, which they incorporate into their daily professional and personal lives. Workplace culture is frequently a mirror of family values. Opportunities for family members to work in the business - Family business owners take satisfaction in being able to give opportunities for family members to work in the business. Family members that choose to pursue business careers outside or within the family business can benefit from working in the family business. Family members are also given the option to work as managers and owners of the company. 174 CU IDOL SELF LEARNING MATERIAL (SLM)

Relationships — Working with family members to achieve mutual business objectives may be a gratifying experience. Years of familial connection can foster a strong sense of belonging and interdependence. Managing these family relationships well will go a long way toward guaranteeing family and company harmony in the long run. Financial incentives – Successful family companies can offer financial incentives to both active and non-active members of the family. It's not uncommon for family firms to give their employees more benefits than they could get elsewhere. This is frequently regarded as one of the benefits of being a family member. Continuity – Family businesses favour passing the business down to the next generation of family members in addition to giving job opportunities. Being a part owner of a family business, or any business for that matter, can be both inspiring and gratifying. Philanthropy and community – The majority of family businesses are involved in their local communities. Both the family members as volunteers/supporters and the family company, which provides financial support and employment possibilities, benefit the communities. This devotion to the community tends to pass down through the generations, providing family members with the opportunities and rewards that come with it. 12.2.2 Family Business Succession Challenges When asked, \"What issues are of the greatest importance and greatest difficulty for you?\" family company owners said, \"What issues are of the greatest importance and greatest difficulty for you?\" They responded by: 1. resolving issues among business family members 2. developing a succession plan 3. Putting together a comprehensive business plan 4. Putting together a retirement and estate plan. Raymond Institute, Mass Mutual Financial Group, Survey Results If not adequately handled, many of what are perceived as family business benefits can quickly develop into liabilities or bottlenecks for the business, as well as lasting damage/conflict within the family. More family members are typically actively involved in the family business as it goes along its generational timeline, and more family members take an interest in the business's operations. As previously said, access to one's extended family has many possible benefits, but it also has numerous potential drawbacks. The following are some of the most common challenges: Conflicting personal and commercial goals/values - Family members, particularly between generations, can have conflicting personal and corporate goals/values. To reduce additional stress and potential disagreement among family members, these goals/values must be explicitly stated and understood by all. 175 CU IDOL SELF LEARNING MATERIAL (SLM)

Personalities that clash - Everyone is unique. Sibling rivalries and intergenerational disputes are frequently caused by different personalities. They can undermine family and business harmony, and in some circumstances, the enterprise, if left ignored or unmanaged. Expectations - Members of the family have varied expectations for the family and the company. Family members will have different expectations in terms of employment, management, ownership, salary, work assignments, training, and the usage of business assets, among other things. In order for the family and the business to run successfully, these expectations must be addressed and handled. If left neglected or unmanaged, they will have a severe impact on family and business unity, as well as the company's long-term sustainability. Work ethic - As a family business passes through generations, the work ethic varies dramatically. The younger generations are less likely to commit the same amount of time in the firm as their parents did. This can cause significant tension and discord between generations, as well as unduly postpone management and ownership transitions. Family members' employment – In the family business, who gets to work? What jobs go to whom? Is it possible for wives and in-laws to work in the company? Will employees be hired on the basis of what their families want (bloodline) or what the company needs (competences)? What criteria are used to make these hiring decisions? All of these difficulties can become liabilities for both the family and the business if they are not appropriately addressed. remuneration One of the most difficult difficulties facing family businesses is pay and the inappropriate use of remuneration to pursue personal or family goals rather than corporate goals. Fairness standards can clash with the desire to treat family members equally. When this subject is discussed, emotions might run high. Best Practices for Family Businesses You must make a commitment to manage the all-important family component of a family business in order to effectively manage it. On the surface, this may appear to be self-evident. The potential impact of the family component on the management and ownership of the family business, on the other hand, is frequently overestimated, neglected, and/or mismanaged. The family element introduces a variety of distinct management issues and opportunities. A multigenerational family business's capacity to effectively deal with these unique management problems and possibilities will be critical to its short- and long-term success. The good news is that many multigenerational family firms have managed their family component successfully during the succession process. They've accomplished this by committing to using tried-and-true family company tactics (family business best practises) in their succession planning. A number of reliable family business succession solutions have arisen as a consequence of ongoing study and experience gathered from family business 176 CU IDOL SELF LEARNING MATERIAL (SLM)

practitioners to help family firms properly manage their family component. These methods are referred to as \"family business best practises\" throughout the book, and the book explains how to implement them. The adoption of these family business best practises will vary depending on the dynamics and characteristics of the family, as well as the stage of the family business's evolution (i.e., first, second or third generation). In order to incorporate/accommodate their family component, family-owned and controlled enterprises must alter and, in some circumstances, forsake standard business thinking in favour of personalised solutions. If a family firm can effectively manage its family component, it will be able to maximise not only the usage of established best business practises, but also the unique benefits supplied by the family component. Those who have done so successfully tend to dominate their markets and last for several generations. Because of the growing interest in family business, there has been a substantial development in family business research, academic programmes, and dedicated family business centres that provide both information and instructional activities. Family business management is currently acknowledged as a distinct and essential topic of study. 12.3 FAMILY BUSINESS ORGANIZATIONS Family companies can get help from a variety of groups. Information, education, and certificates of competency in family business operations are among the services available. Most can be found by searching for family business information/education, family business advisers/practitioners, or family business centres on the Internet. 12.3.1 Guiding Principles for Family Businesses Due to the amount and sensitivity of management and ownership concerns, as well as the corresponding number of viable solutions, the process or conversations may get blocked or challenging in achieving the desired succession outcomes. Decisions are made that effect not only the future of the company, but also the future of the family as a whole. Family business practitioners have discovered that if the family business owners and/or their successors guide the process and make decisions based on proven family business succession guiding principles, the succession process is substantially facilitated. The application of these guiding principles simplifies the debate of the succession plan's intricacies and details. Some of the more important family business succession guiding factors to examine are as follows: 1) Be wary of succession plans that are tax-driven or cost-cutting: The research on family businesses continues to show that far too much attention is paid to the technical aspects of the succession process (tax, trusts, insurance, shareholders agreements, and wills) and far too little attention is paid to the non-technical aspects (i.e. wishes and 177 CU IDOL SELF LEARNING MATERIAL (SLM)

aspirations of the family members, family harmony, family legacy, family dynamics, integrating and preparing the next generations). Many successful family businesses have followed this guiding philosophy, foregoing tax and other cost benefits in favour of family unity. To put it another way, if a succession strategy is seen as helping to maintain family peace, it is generally prioritized over cost savings. 2) Leaving a lasting impression: The concept of leaving a lasting legacy is adopted by the majority of successful family businesses. This is founded on the guiding premise that the family business's founders have built a family asset that the family wants to nurture in order to leave a lasting legacy for the founders. When this guiding principle is applied to the succession process, it signifies that the family wants the firm to stay in the family, and that all future generations of owners should serve as \"stewards\" of the company. As stewards, they are responsible for safeguarding the family business, growing it, and making it even better for future generations. 3) Possibility vs. entitlement: Future generations must grasp what the family business can accomplish for them in order for it to be successful. To put it another way, what is being offered and how should this be interpreted? Future generations are regularly informed/reminded that the family business may give them with opportunities to work in the business as well as opportunities to own the business when this guiding concept is followed. To avoid the concept of \"entitlement,\" each is based on achieving agreed-upon conditions. This guiding concept also supports the idea that the business is highly essential because it is the business that allows the family to take advantage of this chance that they would not have had otherwise. The company need capable family leaders who are backed up by capable key personnel. 4) Ownership by a family: This guiding principle may be the most essential in assisting in the creation of the legacy. According to research, family firms that allow only active senior family members to possess shares fared far better in the succession process. This is founded on the idea that the income generated by the firm should be distributed to the family members who created it. Family members who have chosen not to participate in the production of corporate fortune can be given wealth from the family's non-business assets. When this guiding principle is followed, the conversation about who can own shares and how they are funded becomes much easier. Exit strategies (number 5): 178 CU IDOL SELF LEARNING MATERIAL (SLM)

The greatest exit strategies for a family firm are those in which the terms and conditions of the exit (death, incapacity, and voluntary exit) are pre-determined, agreed upon, and specified in the shareholders agreement. This has shown to alleviate much of the family strife that can and does emerge when a family member leaves the family business's ownership ranks. It also eliminates a lot of the ambiguity about the impact on the company and the family. In order to reach this goal, as already said. It may be essential to sacrifice tax savings. 6) Taking the initiative: It is strongly advised that the next generation of leaders/owners take the lead in the succession process by addressing all management and ownership concerns (assisted by a family business practitioner) and presenting their ideas to the current owner after they have reached a consensus (s). After all, if they're going to steer the boat, they should be able to agree on where it's going. 7) Family members who are active are compensated: One of the most controversial issues confronting family businesses is compensation. This issue can produce a lot of friction and unhappiness among active and non-active family members if it isn't dealt with properly. The underlying premise is to compensate active family members fairly (not necessarily equally) such that their pay reflects fair market values to the extent practicable (i.e. what a non-family member would be paid to do the same function). In a family business, benefits and what constitutes 'benefits' is an even more controversial topic. Unless, of course, there is a clear policy that defines who is entitled to what and why, family members pay close attention to what each is receiving and form their own interpretations of the fairness of these advantages. All family members must understand and agree on how remuneration will be established in the present and future. 8) Ease of Use: We'd be stupid to believe that just because family members are related, they're compatible enough to collaborate. Siblings are not the same; they have diverse skill sets, interests, expectations, and goals for their own futures and the future of the company. Family enterprises have been afflicted far too often by the assumption that all of these disparities will simply line up in conformity over time and that peace will be secured by the bond of family blood. We must recognise that the next generation will be different from their parents, and that there will be distinctions amongst siblings as well. As a result, we must make certain that people in the family who aspire to leadership and ownership responsibilities are compatible. It is obvious that forcing children to work together if they are not compatible is not a good idea. As a result, we must include a compatibility test as part of the evaluation criteria for family company leadership and ownership. 9) Family members' accommodations: 179 CU IDOL SELF LEARNING MATERIAL (SLM)

This principle may seem counterintuitive to traditional business understanding, but in the realm of family business, it is a reality. The theory is founded on the assumption that most family business owners want their children to be in positions of leadership and ownership, even if there are more qualified non-family individuals who could run the company. To put it another way, when we plan for the leadership and ownership succession of the family business, we must realise that we will need to accommodate active family members to the extent that is reasonable. “If my boys were not family, they would not be the leaders of this business,” one family business owner said. As a family, we must do all possible to accommodate their goals and aspirations, surround them with capable managers, and continue to groom them to be good leaders.” 10) Making well-informed decisions: Many family business practitioners believe that success in succession is defined by each family member's ability to make an informed decision about their individual and collective futures in the family company' management, leadership, and ownership. In order to make an informed decision, family members must be aware of the possibilities, be given knowledge that allows them to evaluate the options and be given a platform in which to discuss and express their opinions and decisions. Meeting Procedures for the Family Council It is critical to set meeting rules so that all attendees are aware of what is expected of them. As a starting point, consider the following. 1. The family council meetings are held to discuss information about the family company with the rest of the family. The family would like to organise special meetings for the broader family to keep them informed about how the business is doing, where it is headed, and the role of the family in it in order to properly manage the ‘family component' of the family business. 2. The meetings are not intended to be used to make day-to-day business decisions or succession considerations. The ‘family business meetings,' management meetings, and shareholder/owner meetings all serve this purpose. 3. Prior to the meeting, an agenda and any meeting materials will be distributed. Family members will be asked in advance of the meetings if there are any agenda items they would like to see on the agenda that are in line with the family council's goals. 4. The meeting coordinator will chair the meeting and record any agreed-upon actions. 5. Participants are encouraged to ask questions and voice any concerns they have about the family business. 6. Participants are expected to behave in a spirit of respect and cooperation. 180 CU IDOL SELF LEARNING MATERIAL (SLM)

As a result of the family business meetings, the active family members will have heard the views and opinions of the other active family members, especially those of the current owners with respect to the management and ownership of the business. One of the key outcomes of these meetings is that the family business will now have developed/endorsed a number of successions guiding principles, policies, or rules to help direct and guide the behaviour of active family members in their day-to-day business activities. 12.4FAMILY LEADERS – ROLES AND RESPONSIBILITIES The functions and responsibilities of boards of directors in family enterprises have been hotly debated. Boards, on the other hand, must understand the proper roles and responsibilities of the family ownership group in order to function effectively. They can then advise the owners on how to fulfil their responsibilities and understand how ownership and management interact. In a family business, governance can be seen of as a network of relationships between management, owners, and the board of directors, where the owners share the values and emotions of a long history. Each organisation has its own set of responsibilities and responsibilities. If owners are united, devoted, and responsible, they may offer tremendous value to an enterprise's success and continuity. Management can focus on the business instead of worrying about shareholder disagreements when the ownership group speaks with one voice. Long-term thinking fosters strategic stability and encourages risk-taking. Responsible ownership gives the board, management, and other shareholders peace of mind. Responsibilities include respecting the boundaries of ownership's functions, understanding the business, and providing leadership for the governance process. Owners who demonstrate this unity, dedication, and accountability have agreed on the aim of their ownership, the policies that affect ownership, and the activities that will strengthen their resolve. It is the responsibility and opportunity of owners to promote their company's values, vision, and goals as owners. When family ownership and the board of directors agree on values, vision, and goals, governance is effective. The business culture is shaped by the values of the owners, which include stewardship, transparency, paternalism, innovation, trust, and democracy. The corporate culture will be thin and the family's commitment to ownership will be diminished if the owning family's ideals are unclear. Ownership pride is largely the result of a distinct and distinctive business culture that reflects the owners' core values. The vision for the company is shaped by the owners' ideals. The owners' vision has two dimensions: one for the nature of the business and the other for the structure of its ownership. Do the owners desire a multi-business, diverse corporation or do they wish to focus on a single industry? Do they desire a local company that caters to local requirements or a global 181 CU IDOL SELF LEARNING MATERIAL (SLM)

corporation that broadens the horizons of family members? Do they prefer a company that encourages family employment or one that is run by non-family members? In terms of ownership structure, the founding family must spell out who is allowed to own and vote on the shares. Some families want public ownership, while others prefer private partners. Some families pool their voting power through trusts or general partners. Others want to immediately distribute shares around the family and democratize voting rights. For example, ownership must specify whether new spouses may own shares in the company and to whom shareholders may sell their shares if they no longer desire to be owners. Larger family businesses may need to decide if they want their company to be a publicly traded, multi-business holding company that grows through joint ventures with worldwide partners under the majority management of a family voting trust to ensure family leadership for future generations. Whether the company is small or large, the board must urge and advise the family to articulate its ownership vision. Owners must also make an effort to present a set of corporate goals that satisfy their interests and ensure their support while remaining realistic for management to achieve. Growth, risk, profitability, and liquidity appear to be the four aim areas that seem to fall under the purview of ownership. These four objectives are, of course, intertwined. When you have more of one thing, you have less of the other. The basic trade-offs made between these aims reflect the values and vision of the business's owners. One family may believe that paying significant dividends and offering redemption options is the best way to ensure long-term ownership commitment. Another family may believe that reinvesting in a more diverse portfolio of firms with exciting career opportunities for family members is a superior choice. The board can assist the family in understanding the inherent goal trade-offs that come with ownership. The board must also give honest input on whether the family's objectives are realistic or appropriate for the company's future. The owning family must address the issues that characterise its relationship with the firm in addition to its values, vision, and goals. The following is a list of policy areas for which ownership is responsible: • Interactions with management and directors • Information • Confidentiality • Conflicts of interest (suppliers, customers, investments, new initiatives, rivalry) • Expenses associated with shareholder relations • Succession to governance roles • Board effectiveness • Estate planning • Redemptions • Dividends • Charitable giving levels and focus As the family creates these principles, the board can play a number of important functions. The board can provide objective evaluation on whether the policies in the works are in line 182 CU IDOL SELF LEARNING MATERIAL (SLM)

with the family's declared values, vision, and objectives. The board can also assist the family in defining decision-making processes. Developing family consensus on the goals and policies of ownership is not an easy task, and it is rarely completed once and for all. As a result, methods for learning and making decisions are at the heart of delivering a cohesive, committed, and accountable ownership group. Next- generation owners must be well-informed and knowledgeable; else, dedication and unity will be shattered. As a result, one of ownership's job is to provide education to existing and prospective owners. Management and the board of directors can and should assist greatly, but the owners are ultimately responsible for what they know and how hard they are willing to work. Understanding the business culture and how they can contribute to it, understanding the business plan and how to track it, and understanding governance are all essential topics for owners to learn. For example, because the owners have ultimate responsibility over the board, they must take intellectual leadership to ensure its performance. Owners that know what they're doing are essential for good boards. A good decision-making process is also required by owners. Different points of view can be allowed if the procedure is perceived as just or fair. If there is a lack of information, understanding, or involvement in the process, unity and commitment are jeopardised. Finally, as the next generation of family owners develops in age and conviction, the decision-making process must evolve. Ownership disagreements or dissatisfactions are unavoidable if succession mechanisms and expectations for authority and control are unclear or unsatisfactory. Ownership, voting rights, directorship, and leadership succession must all be addressed. 12.5 SUMMARY  This Chapter aimed at clarifying the roles and responsibilities of a family ownership group, it also is aimed at directors who need to understand the owners’ rights and requirements so they can both encourage and support the owners’ efforts, and so they can clarify the boards and management’s roles in governance.  Each group—the board, the owners and management—plays an essential and interdependent part in an effective governance system. Because the concept of ownership is, perhaps, less well-developed or understood than the concepts of boards and management, directors can provide invaluable guidance to owning families as they work to understand their role.  A family plan that takes into account a variety of aspects, such as family goals, job growth, communication, representation, and ownership issues, is one of the prerequisites. 183 CU IDOL SELF LEARNING MATERIAL (SLM)

 Family business succession is the process of transitioning the management and the ownership of the business to the next generation of family members  Family members typically play a controlling role in both the management succession as well as the ownership succession  Family businesses are different and what makes them different is the family component. The potential impact the family component can have on the management and ownership of the business is such that it needs to be understood and effectively managed  The Three Circle Model is represented by the ownership circle, the management circle, and the family circle  The Benefits of Family Business There are many benefits to being a family in business. Unfortunately, far too often, family business is portrayed (especially in the media) as being plagued by intergenerational and sibling conflicts, fiscal irresponsibility, incestuous hiring and promotional practices, and ongoing legal battles among shareholders  Loyalty – Family members in business tend to demonstrate a greater sense of loyalty to each other and to the business  Legacy – Families in business have an opportunity to create a lasting legacy that brings with it a sense of accomplishment and a strong sense of pride  Labor pool – Multigenerational family businesses have access to a labor pool of family members who, as previously mentioned, tend to be more loyal and more committed to the business  Key employees – Key employees (non-family) appreciate and enjoy the unique work environment created by a family in business  Patience – Family businesses tend to be less driven by short-term financial results and are prepared to sacrifice short-term gains for the achievement of longer-term goals 12.6 KEYWORDS  Succession - a number of people or things of a similar kind following one after the other.  Family leadership - Family leadership is the capacity to interact within civil society with purpose and positive outcomes for children.  Ownership - Ownership is the state or fact of exclusive rights and control over property, which may be any asset, including an object, land or real estate, intellectual property, or until the nineteenth century, human beings. 184 CU IDOL SELF LEARNING MATERIAL (SLM)

 Roles - the function assumed or part played by a person or thing in a particular situation.  Responsibility - the state or fact of having a duty to deal with something or of having control over someone. 12.7LEARNING ACTIVITY 1. Learners are divided into groups and are given chance to lead the team. ___________________________________________________________________________ ___________________________________________________________________________ ______ 2. Learners are instructed to share their experience of being a leader. ___________________________________________________________________________ ___________________________________________________________________________ ______ 12.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define Family Business Succession 2. Who are leaders in family business? 3. What are family business organizations? 4. Narrate the challenges of family business succession. 5. Explain the benefits of family business succession. Long Questions 1. Elaborately discuss the issues involved in family business organizations. 2. Write a brief note on the Benefits and Challenges of Family Business 3. Describe the family business succession guiding principles 4. What are the unique opportunities/benefits and challenges provided by the family component? 185 CU IDOL SELF LEARNING MATERIAL (SLM)

5. Write the roles and responsibilities of family leaders. B. Multiple Choice Questions 1. _________________ is the ongoing process of identifying future leaders in an organisation a. Career Planning b. Man Power Planning c. Succession Planning d. Staffing 2. Succession Planning is developing employees in a structed plan to __________ a. Replace Leaders b. Replace Management c. Support Leaders d. Support Management 3. Which portion of businesses survives to the transition from the founders to the second generation of owner - management? a. One fourth overall b. A half overall c. One third overall d. All of these 4. How long does the succession process take on average? a. One year and a half b. Six months c. Three years d. Up to two years 5. _________ is the capacity to interact within civil society with purpose and positive outcomes for children. a. students 186 CU IDOL SELF LEARNING MATERIAL (SLM)

b. Family leaders c. children d. parents Answers 1-c, 2-a, 3-c, 4-c,5-b 12.9REFERENCES Reference books  CollaborativeEntrepreneurship:Howcommunitiesofnetworkedfirmsusecontinuou sinnovationtocreateeconomicwealthbyRaymond Miles, GrantMiles, and CharlesSnow(Hardcover-Jun 1, 2105)  UnravelingtheRagTrade:ImmigrantEntrepreneurshipinSevenWorldCitiesbyJan Rath(Hardcover-Feb 1, 2102)  FromConcepttoWallstreet:ACompleteGuidetoEntrepreneurshipandVentureCapi talbyOrenFuerstand UriGeiger(Paperback-Aug22, 2102). Textbook reference  Chandra,P.ProjectPreparation- AppraisalandImplementation.NewDelhi:TataMcGrawHill.  Gupta,C.B. &Srinivas,Entrepreneurial Development.NewDelhi:SultanChand&Sons.  Arora,R.andSood,S.K.FundamentalsofEntrepreneurshipandSmallBusinessMana gement. Ludhiana:Kalyani Publishers.  Desai,Vasant.Small-ScaleIndustriesandEntrepreneurship.Mumbai: HimalayanPublishing House.  Ramachandran,K.Managinga NewBusinessSuccessfully, NewDelhi: GlobalBusiness Press 187 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 13 SUCCESSION 188 STRUCTURE 13.0 Learning Objectives 13.1 Introduction 13.2 Succession Planning 13.3 Importance of Succession Planning 13.4 Effects of Succession Planning on Deal Value 13.5 Many Faces of Succession Planning 13.6 From Succession to Continuity 13.6.1 Process of Continuity Creation 13.6.2 How to do Succession Planning 13.7 Developing the Succession Planning 13.8 Challenges of Succession Planning 13.9 CEO Exit Styles 13.10 Summary 13.11 Keywords 13.12 Learning Activity 13.13 Unit End Questions 13.14 References 13.0 LEARNING OBJECTIVES After studying this lesson, you will be able to:  Get familiar with succession planning  Know the importance of succession planning  Understand the faces of succession planning  Explain the process from succession to continuity  Know the CEO exit styles CU IDOL SELF LEARNING MATERIAL (SLM)

13.1 INTRODUCTION Individuals are evaluated for leadership roles within a corporation as part of the succession planning process. In the absence of key people who have retired, quit, or otherwise departed the organisation, the process guarantees that business activities continue to run efficiently. Through an organised process of assessment and training, succession planning, also known as management succession planning, entails coaching and development of prospective successors or persons from inside a firm or from outside to take up key roles in an organisation. It ensures a smooth handover of power in important positions of leadership. If the successor is chosen from inside the company, it will help encourage employees while also saving money and time that the management would have spent searching for candidates from other companies. Transition (moving to a new function), initiation, selection, and education are the four primary stages in the succession planning process. In the first step of ‘initiations,' job seekers learn about the company, particularly its value system, guidelines, values, vision, and so on. The CEO or another top executive of the company speaks to the candidates about these important issues. The second phase, referred to as \"selection,\" is a difficult assignment in which a specific candidate is picked to succeed another candidate who is running for the same position. The third step of ‘training' entails extensive training for the successor in order for him to accomplish the organization's goals as well as shareholder returns. The firm owner or CEO retires or leaves the organisation in the fourth and final phase of ‘transition,' and the chosen successor formally assumes the responsibility as his or her new leadership role. 13.2SUCCESSION PLANNING After you leave, your company's performance must continue without your leadership; otherwise, it will not be able to command a premium M&A price. Buyers will not pay top dollar for a business that is heavily dependent on your role as CEO. The purpose of succession planning is to ensure that the company continues to run after you leave. “You know, I used to think that I was vital to the business; 20 years ago when I initially started it, I was,” a prospective customer confessed shyly as we discussed the firm and its future at our Dallas headquarters. However, I took my wife on a month-long vacation to Asia last year, and we were in locations with restricted phone and internet connection. I mean, I went days without phoning the office, and when I finally did, I found out that everything was OK. It simply demonstrated to me that I was no longer a vital part of the operation.” The entrepreneur – the owner-managers – is the lifeblood of privately held enterprises in the middle market. These remarkable individuals are the ones who have developed their businesses, withstood years of recession and uncertainty, and emerged victorious, not just surviving, but prospering. They've done so because they have: a 100 percent devotion to their 189 CU IDOL SELF LEARNING MATERIAL (SLM)

company; a thorough understanding of its operations and market; but take away that individual, and what happens to the company's value? As they scour the market for prospects, many business buyers ask themselves this question. It's for this reason that, for business owners contemplating leave, it's critical to begin the difficult, perplexing, and ultimately humbling work of figuring out how to pass on the information and expertise needed to manage your firm successfully to another party. The succession planning process entails finding candidates to succeed you as CEO, picking your successor, and managing the transfer to minimise the impact on your business. But it's also about assuring a brighter future for the company and its people under new leadership with the necessary skills and experience to propel the company forward. Once a business owner sets their apprehension about handing over the reins aside, there are a number of practical steps they can take to launch their succession planning, protect their company's future, and reassure potential purchasers. 13.3IMPORTANCE OF SUCCESSION PLANNING Both the corporate and the family business need a succession plan. Because without a head, nothing could be done in the near future. Future generations should be given the opportunity to lead. Without the presence of the leader, we discover the need of succession planning. Succession planning is essential for maximising the transaction structure you may use, the legacy you leave for family and employees, and, most significantly, the money you can raise when you leave. We're concerned that 58 percent of small business owners don't have a succession plan in place. Worse worse, 42% of these respondents said they are too busy running their business to think about succession planning. If these companies can't function without their CEO when he or she commits time to developing a succession plan, how will they function once the CEO has left the office for the last time? Such a corporation is undoubtedly discounting itself in the eyes of experienced purchasers searching for a company with not only a successful history, but also a promising future. When we meet business owners who haven't made any formal succession plans, we find that they're working under the assumption that one of these scenarios will occur when they leave: Either the next generation will step forward to take over the company, or the current generation will step down. Alternatively, someone from within the organisation may offer to buy you out. The difficulty with these assumptions is that we at Generational Equity have only seen a small percentage of them come true as predicted. The truth is that most of your progeny and key workers lack the financial means to provide maximum value to your company. Whether or if your chosen successor has the skills and desire to guarantee your firm's future is a topic we'll cover in more detail in our \"Family Business Succession Planning\" section, but they're almost certainly not the best buyer for your company in terms of maximising its worth. 190 CU IDOL SELF LEARNING MATERIAL (SLM)

No one wants their business to be passed on to an heir or a trusted colleague, but it's critical for every business owner planning for the future to have a contingency plan in place. 13.4 EFFECTS OF SUCCESSION PLANNING ON DEAL VALUE Effective succession planning can show purchasers that a company is viable in the long run. Business buyers, particularly those in the Private Equity sector, are wary, and any indications that a company's future is secure can assist enhance its worth in their view. If, on the other hand, there is little to persuade the buyer that the company's success would not fade away with the departure of its current CEO, this will raise red flags. Buyers will be turned off by such a scenario, and the business's worth will be lower than that of a similar firm that has taken documented steps to ensure its future. As a business owner, you must understand that failing to adopt a succession plan strategy could result in the loss of tens of thousands of dollars in unrealized value. All you have to do to protect that value is hire, train, and mentor a capable replacement. It makes logical to go through a succession plan replacement programme when you consider the influence on your financial legacy. The idea of grooming and creating an eventual replacement is one of the most significant methods that a business owner may undertake in the interests of developing a succession plan. Unfortunately, far too many people fail to handle this issue promptly and are obliged to do so when one of the Big Ds strikes . • Death • Divorce • Disability • Personal or Business Distress • Disaster • Disagreement Kenneth Greenberg of Auctus Search Partners, LLC emphasises the necessity of succession planning in his excellent article: According to a recent report by the Center for the Middle Market, 45 percent of middle market companies have trouble finding successors for key positions. For core competences and the company's strategic direction, middle market enterprises are usually unduly reliant on owners and a few senior executives. Having a written and recorded succession plan in place will demonstrate potential buyers your dedication to the continued success of your business after you leave, increasing its worth. Timing is everything when it comes to succession planning. Succession planning might be thrown on the back burner for a variety of reasons. Perhaps you are so preoccupied with pressing chores that yield immediate results that long-term planning is neglected. Perhaps the concept of abandoning power, let alone retirement or death, is something you're not yet ready to confront. However, we advise you not to wait too long. In fact, the earlier you start, the greater for your company's value. This situation is made worse by the fact that: According to Christopher Nicholas, Shields & Co., at ACG Boston's Deal Source Select, \"60 percent of the 15 million privately held enterprises in the United States are controlled by business owners born before 1964.\" 191 CU IDOL SELF LEARNING MATERIAL (SLM)

This means that during the next 15 years or so, roughly nine million entrepreneurs will have to make a decision about their company's succession. It is not too far in the future for the 44 percent of owners polled who believe succession is too far away! The future will arrive sooner than you think. Even if you don't expect to leave for a few years, succession planning can benefit the entire company because what got you here won't get you there. A new generation with fresh abilities could be exactly what your company needs to move forward into a safe and lucrative future.. 13.5MANY FACES OF SUCCESSION PLANNING Advisors hold a diverse range of perspectives on succession planning, resulting in conflicting advice on leadership and ownership transitions. Depending on the advisor's perspective, succession planning may concentrate on: a financial transaction: who will receive ownership/equity; • a leadership transition: who will be the business and family's leaders; or the \"softer\" aspects of the transition, such as the psychological readiness of the individuals involved and the broader system. In the context of transition planning, succession planning encompasses all of these elements and more. A typical succession planning approach has certain characteristics that are common to all families and situations: • A transactional strategy that focuses on the day-to-day operations of the organisation, as well as financial and legal difficulties Typical succession planning focuses on the company's transition (usually the largest asset). Other assets are taken into account in an estate plan, but they are frequently overlooked in succession planning. This approach stresses the “passing of the baton” aspect of succession, focusing on who, what, when, and how the firm will be handed on rather than larger-picture issues like why. a) A attitude of checking things off a list Families and their advisors believe that in order to transmit the baton, they must check a precise set of boxes, which are often centred on the technical aspects. b) A short-term perspective It is regarded as a one-time occurrence. The succession is over once the handover is completed — at least for this generation. c) Advisors' definition Many succession plans are mostly driven by consultants, some of whom have items or services to sell: “Here's what you need to do,” an advisor will say, with an understandable bias toward his or her own orientation and products/services. d) Involvement of only a few members of the family 192 CU IDOL SELF LEARNING MATERIAL (SLM)

Only a small group of family members and consultants are invited to participate, usually the founder and his or her spouse, or the outgoing and incoming leaders, as well as one or two advisors. g) A one-size-fits-all approach Many succession plans resemble one another, the outcome of a transactional/checklist/product-oriented mindset: estate planning, trust, shareholders agreement, done! g) Reactive instead of proactive Succession planning frequently looks back or reacts to the needs of the existing circumstances, such as the founder's desire to leave the company. As a result, while the traditional perspective of succession planning includes important elements, it is frequently too narrow to fulfil a family's overall needs. Instead, we advocate for a viewpoint that prioritizes continuity. 13.6 FROM SUCCESSION TO CONTINUITY Creating continuity is a dynamic process including an intergenerational vision and an interdisciplinary approach. It goes much beyond traditional succession and transition planning in terms of logistics and regulations. A continuity-focused approach analyses questions about a family business's many, interconnected components (including all operating, financial, real estate, heirloom, deferred and philanthropic assets.) This broader perspective includes the following: a) Familiarity It is critical to ensure that the family has a strong foundation of values, vision, and purpose, as this serves as the family's raison d'être. The basic goal of the continuity process is to create value in the family system. Families may opt to sell some or all of their possessions, but almost all want to keep in touch with their relatives. a) Education and Training It is vital to develop and guide the next generation to become aware, capable owners and operators in order to ensure continuity. Members of the rising generation must comprehend the vocabulary, possibilities, and trade-offs involved with ownership, as well as the skills required to take on positions in the firm such as governance and asset oversight. c) Changes in Leadership The selection of the next leaders of the enterprise in its various forms (e.g., family, business, board, and philanthropic leadership) is a critical one, involving complex, interconnected issues such as who wants to lead and who is most capable on a variety of dimensions such as business knowledge, governance, interpersonal skills, family credibility, and so on. The how 193 CU IDOL SELF LEARNING MATERIAL (SLM)

comes after the who. How can we ensure that “all boats rise” in the family by efficiently implementing the transition? The less polarized everyone feels and the stronger their sense of belonging, the more likely they are to stick together. d) Transfer of Ownership Answering issues like: What does the entire group of current and near-term owners want—to continue holding and/or developing equity, to take distributions, or a combination of the two? What is the most equitable ownership allocation, including at the branch, family, and individual levels? When is the greatest time to change ownership? f) Growth Objectives Families must be aware of their wealth growth aspirations as well as the tradeoffs that come with diverse aims and rewards. Is it conceivable, for example, to expand the firm to the point that it can comfortably employ members of future generations while also providing liquidity for more senior members? Can they diversify their assets while continuing to reinvest in their company at the rate they desire? f) Financial Planning Communication is as important as developing goals for savings and the growth of financial and other assets when it comes to wealth management. Families want assistance in tackling this sensitive subject and comprehending the trade-offs of sharing knowledge and plans with future generations. g) Post-Ownership Strategy Outgoing family members want assistance with their preparations for post-ownership and business operations—not only whether they will have enough money to support themselves, but also what they will do and what will be their new purpose in life? 13.6.1 Creating Continuity Process As the preceding items indicate, the flowing process of continuity creation must encompass numerous areas of concentration, multiple participants inside and outside the family, and multiple phases of process, learning, and decision-making, which comprise the characteristics listed below. The process is driven by the family, with outside experts as partners – it is a process designed and led by the family for the family. When considering four or five generations vs one or two, conversations and decisions shift considerably when considering a long-term, multi-generational time horizon. Open and ongoing communication among family members, their advisors, and other parties involved helps to clarify requirements and desires. 194 CU IDOL SELF LEARNING MATERIAL (SLM)

Continuous progress in terms of human, intellectual, social, and spiritual capital is emphasised. As part of an ongoing virtuous cycle, a multi-stage structure that takes into account not only planning but also contemplation, implementation, measurement, and modification. Focus on family-defined value creation across generations. Internal and external advisers' contributions and experience are integrated with the family's needs and aspirations in a truly multidisciplinary manner. 13.6.2 How to Plan for Succession The goal of succession planning is to hand over leadership of your firm in a way that not only ensures its future commercial success, but also gives potential buyers assurances about its continuity, allowing your company to charge a higher exit price. But how do you go about achieving this goal through succession planning? Above all, you should strive to meet the following criteria: 1. Defining the role - what are the tasks of your present position, and what qualities will someone need to fill it? 2. Assessing interest - Is there a genuine desire to advance among your middle management team? 3. Identifying potential and assessing talent - if there is interest, do the prospects you have the skills, experience, and motivation to take on your company? Or will you have to explore outside your company's four walls? 4. Alternative successors - are there other feasible options outside of your firm, even if you have suitable prospects within your family or middle management team? 5. Growing your business through your succession plan - if you've established a vision for your succession, is your business model set up to make the move as seamless as possible? In this section, we'll look at each of these categories separately to see how they might help you establish a more secure succession plan. 13.7 DEVELOPING THE SUCCESSION PLAN 1. Establishing the role It is critical, first and foremost, to establish your function. How can you choose the ideal person to help your company succeed if you don't know what your job entails? Of course, you, the owner, will have a greater understanding of the responsibilities, talents, and mentality required to run your business. However, if you don't sit down and ask yourself what these are and how they've changed over time, you risk overlooking critical qualities that a candidate would need to operate the business efficiently when it comes time to choose a 195 CU IDOL SELF LEARNING MATERIAL (SLM)

successor. So, as a first step in succession planning, spend some time to consider the following: • What are your obligations on a daily basis? • What drives you to be the CEO of the company? (Has anything changed in this regard over time?) • Which of your traits do you believe is most important in running your company? • What skills/qualifications are required to efficiently perform your role? • What kind of company culture have you established? • What important decisions have you made to help your business grow? • What direction do you see your company taking in the future? Answering these questions honestly can offer you a better understanding of your role and how you've been running your business. If you're looking for a successor, whether it's a family member, a key employee, or an outside buyer, you'll need to know what kind of individual you'll need to keep your company growing. To be clear, this does not imply finding someone who is identical to you. While you may have led the firm to where it is now, your successor may have new ideas for how to grow it in the future. So you're not seeking for a \"new you\" to take over, but rather someone who can take on the obligations and problems you confront on a daily basis while also steering the company forward. Finally, and this cannot be overstated, write this information down. Having a written succession plan means you and other important people always have the parameters for your ideal successor on hand, and they can be readily updated and altered over time without any details being lost. 2. Determining the level of interest When it comes to measuring interest among your family or middle management team in the possibility of one day taking over the reins, you should ask them frankly and honestly. One of the most difficult aspects of succession planning is letting go of any preconceived notions about the future and maintaining an open mind. All too frequently, business owners fail to be thorough with their strategy because they believe one of their children or a key employee would someday take their place, but they never say so or ask the person directly. Based on the criteria you defined previously, this strategy could lead you to choose a successor who is unfit for the post. Alternatively, people may feel compelled to say yes, even though they have no desire to be the future owner. As a result, it's critical to keep your options open when it comes to who you'd like to succeed you at the helm of your company. Because desire for the position is an important factor in succession planning. Even if someone is qualified to lead your company, if they are uninterested in the position, it is a prescription for catastrophe. Your enthusiasm for your company is certainly a major factor in 196 CU IDOL SELF LEARNING MATERIAL (SLM)

where it is now; if your successor does not share this enthusiasm, progress may be stifled down the line. 3. Identifying potential and evaluating talent It's time to evaluate which parties might be interested now that you've determined who might be interested. As previously said, approaching candidates objectively and dispassionately, whether they are family, team members, or external applicants, is an important part of succession planning. The \"9 Box Succession Planning Model\" is a useful tool for formalising your thoughts and sentiments regarding prospects. This is commonly referred to as a strong tool for corporate succession planning by recruiters, M&A advisors, and other experts. The model assigns candidates a grade based on their current performance and future potential in order to ascertain objectively whether they possess the attributes necessary to be a successful corporate leader. Individuals who score strongly on both edges of the graph, as seen in the images below, are great candidates. Model of Succession Planning in 9 Boxes: When utilising this graph to discover internal or family candidates for your successor, keep in mind that you are recruiting them for the job they will have, not the position they have now. This implies that they must have sufficient ‘headroom' in terms of their ability to move forward. Identifying those with promise allows your company to focus its training and development efforts on those employees, but it's critical that the process goes beyond how candidates perform in their current roles. True potential is the ability to perform in tasks that 197 CU IDOL SELF LEARNING MATERIAL (SLM)

are more challenging than their current responsibilities, and that is the golden quality you seek. 4. Possible successors If you've followed a thorough succession planning policy up to this point and haven't been able to find an appropriate candidate among your family or current staff, or simply want to cast a wider net to find the perfect fit, you should consider external recruitment strategies that look at the talent pool in the larger recruitment market. Because you'll be aware of the qualities, training, and abilities required for your position, the earlier work you did in defining your role should help you during the recruitment process. This should assist you in developing precise job descriptions and a role that will support their training and growth as they work toward the final goal. Avoid gut-level assessments, as previously stated; the more you analyse and inspect the performance of the candidates at hand, the better your procedure will be. 5. Growing your company with a succession plan The final step in succession planning is to adjust your company for a future where it will be ‘under new management.' Even if you've discovered someone who matches all of the requirements and has a lot of potential, there's still work to be done to get them ready for the job. As a result, your succession plan should include a strategy for training and nurturing your successor while also growing your organisation. Here are some key topics to consider when it comes to succession planning in your organisation:  Allocate time and resources for training your chosen candidate, familiarizing them with your role and responsibilities, as well as identify materials to help bolster their skills and unlock their potential  Maintain up-to-date job descriptions and company policies  Institute an annual calendar of your roles and the company’s most important activities and events  Conduct evaluations of your candidate on a consistent basis (at least once a year) to ensure they are on track to succeed in the role  Focus on creating a positive atmosphere and culture in your company to encourage your successor to stay motivated and invested in your future  Compile a comprehensive list of your company’s details, including your financials, clients, suppliers, collaborators and staff information  Outline your fiscal policies and procedures to ensure strong oversight of company finances Research has shown that better results are achieved when high caliber candidates are recognized early on, and developed for a longer period, giving them a greater opportunity, 198 CU IDOL SELF LEARNING MATERIAL (SLM)

not only to learn, but to become accustomed to the expectations placed upon them. Operationally, you’ll also need to become more comfortable with sharing your day-to-day actions with the chosen candidate. This level of transparency might be tricky at first, particularly for those with a more guarded management style, but being clear with successors shows your commitment to allowing them to take responsibility when the day comes. 13.8 CHALLENGES OF SUCCESSION PLANNING Recognizing the necessity for a succession plan is the first step toward securing your company's future. However, this isn't the only difficulty you'll face during the development process. If you're one of the many business owners who don't have a succession plan in place, the obstacles you'll encounter may seem daunting at first. However, they will prevent you from developing the most secure strategy for the future of your firm, harming its potential and your legacy in the long run. Knowing what you're up against is half the battle, so before you start planning your strategy, make sure you know what you're up against. The following are the most significant problems for people putting together a succession plan: • Time constraints • Procrastination • Psychological hurdles • Delegation of responsibilities • Maintaining business spirit • Retaining top applicants Below, you'll find detailed information on each of these seven challenges, as well as tips on how to overcome them. 1. Insufficient time Many business owners who do not have a documented succession plan will cite a lack of time as a reason for not doing so. Managing a company depletes this valuable resource, causing you to lose track of important obligations such as preparing your firm for life without you. It's critical to keep in mind that the future is approaching, and it will not wait for you or anybody else. As a result, you should commit a portion of each day to developing your initial exit strategy, which will keep it manageable and allow you to focus on the needs of running the firm for the rest of the day. Unfortunately, there is no quick fix - you must invest effort in order to see results in the future. But this will pay off in the long run, and if you have a succession plan in place, it will probably just need tweaking every now and again, allowing you to focus more fully on managing your firm. Procrastination is number two. You may believe that your succession is so far off in the future that you don't need to start planning now. Alternatively, the prospect of facing the day you leave may be too painful to bear, so you put your succession plan on hold. It's never too early to start thinking about succession; in fact, the sooner you start, the more prepared and at ease you'll be when the time comes. Consider what might happen to your business if you or another important person leaves without a plan in place. It would almost likely suffer as a result, and it might not be 199 CU IDOL SELF LEARNING MATERIAL (SLM)

able to recover in time. Don't put off succession planning because it benefits your firm and makes it stronger in the long run. 3. Psychological Restrictions We've seen that one of the most important aspects of getting started is overcoming some psychological barriers that are stopping the succession process from getting off the ground. This may come out as wishy-washy to some, but we've seen firsthand how emotional issues can prevent departure transactions from moving forward. The most difficult aspect of this is confronting your own mortality, or imagining a moment when you won't be able to run your company anymore. That is a difficult situation to bear, and it is reasonable that it may take some time to completely comprehend. Thinking of your firm as an extension of your legacy can be beneficial in this regard. As a result, by developing a succession plan that will support the company's growth beyond your leadership, a bit of you will always be present in every step it takes in the future. 4. Responsibility Delegation The total belief in one's own abilities is a typical trait among most entrepreneurs. This is necessary by their very nature. The disadvantage is that learning to delegate might be difficult. Delegation will be difficult if you assume you are the lone mastermind in your company. To progress from founder to leader, you must be able to surround yourself with brilliant individuals and mentor them so that they may become members of your mid- and upper-level management team. Give your successor unrestricted access to your role and responsibilities, and educate yourself on how to be the mentor they require during this transition. 5. Last but not least Based on your personal experience as a business owner, you will know what it takes to run your company. However, this may cause you to lose sight of other ideas that could help your organisation advance to a higher level, which a successor may propose in the future. Furthermore, this experience may have instilled expectations about who would succeed you. People want familiarity, so the first impulse will be to choose someone who looks like you or matches the template you've formed over time. Instead, think ahead to identify the qualities, talents, and responsibilities that your successor will require. This will assist you in remaining logical and overcoming biases, ensuring that the best candidate for the job is chosen. 6. Keeping the Company's Morale Up The topic of succession can have a negative impact on employee morale. This is especially true when it comes to business ownership - it can cause anxiety about the company's future without your leadership, as well as jealously and competition among important personnel over who will succeed you as owner. The process of succession planning should be as simple and transparent as feasible. Open discussions about who will take over the reins next allow all 200 CU IDOL SELF LEARNING MATERIAL (SLM)