mba4703 unit 2 activity 3 family business

MBA 4703 – M00474411 – UNIT 2 – ACTIVITY 3 – COURSEWORK ASSESSMENT

THE TORVALD KLAVENESS GROUP – CASE STUDY

Name: Capt. Jayakumar SankaranStudent No: M00474411Course: MBA – Shipping and LogisticsBatch: 2013 – 2015Module: MBA4703 Business Strategy

Activity 3: Individual coursework assignment.

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TABLE OF CONTENTS

1.0 Answer to Question 1






Appendix 1: Company details: Klaveness Ship Holding AS

Appendix 2: Company details: Klaveness Marine Holding AS

Appendix 3: Bibliography

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1. What are classic family business issues that all family firms must face?

In a family business, the emotions precede economics. Carlock identified five structural issues in a family business, which creates problem. (2010, When Family Businesses are Best). They are:

Control: Conflict of authority. Who is in charge?

Careers: Creation of jobs and assuming leadership.

Culture: Values, which drives the company’s Success.

Capital: Allocation of financial resources.

Connection: Keeping the family united.

There is a generational difference between members, say, Father and Son, which affects the business decisions. It is because both would look at each situation from their own perspective that is always different due to different time and lifestyle each has been brought up with. (2008, Overview of Family Business Relevant Issues).

Every business requires competent people with required skills, abilities and experiences in all departments so that the company prospers. If family members occupy key positions and turn out to be incompetent for the position, it will be detrimental for the company’s success. This happens because of uninterested family members are forced into the business or Nepotism, where vantage jobs and favours are given to relatives. When the key positions and roles in the company are given only to relatives, the competent non-family member has no future in the company and eventually they would leave the firm. (Stewart and Hitt, 2012).

Emotions have been found to influence a company’s result in terms of performance, decision making, negotiations, and people’s attitude.(Barsade and Gibson, 2007). Emotions get in the way of making important business decisions.

Compensation is one area where most of the problems originate in a family firm. If cash compensates a non-family member and a family member is compensated by kind or at the time of money crunch, family members don’t get paid at all, it causes conflicts and debates. In the family system, the wealth is distributed to the family members on a need basis or on equal basis whereas in the business system, the remuneration in the form of pay scale and bonuses is based on the role and contribution of each individual to the company. This will create havoc within a family business. (About.com/Tina Indalecio, 2014).

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Lack of Succession Plan: The first generation founder will have tough choice to make if the second-generation successors are not business minded or does not share the same vision as the founder for the company’s future. If the second generation is forced to take over the helm, more often than not, the attempt failed miserably due to lack of skill, quality and experience. (About.com/Tina Indalecio, 2014).

Family feuding and conflicts: Relationship conflicts will damage both the business unit as well as family unit. Fighting within a family will lead to insufficient monitoring of the business as key roles are with the family members, which will produce catastrophic results. Managing the status quo: When the family members get old, they do not want to take any risk in reinvesting for company’s sake as they wanted to maintain status quo thus blocking the growth of the firm. (About.com/Tina Indalecio, 2014).

The other problems such as lack of strategic planning, lack of uni-vision, lack of exit strategy and lack of control of operations due to non-cooperating family members are some of the other issues commonly faced by family firms. (About.com/Tina Indalecio, 2014).

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2. What insights can you gather on how family enterprises compete and think differently? (Compare the family business to the non-family owned business.)

Kachaner says, “Focus on resilience, not short-term performance”. This has what been identified as one of the key success factor for a family firm. The research of Kachaner et al reveals seven principles, which family firms follow to remain competitive and sustainable in all market conditions. First, they spend and save prudently avoiding avoidable spending’s like luxurious infra structures, unwanted business travels, stock grants and options which makes employees into shareholders. Second, they judiciously do the capital expenditure investments, though they miss out some business opportunities during the hay days due to their pragmatic approach in their low risk investments, they make it up during the rainy days by limiting their exposure. Third, they do not carry heavy debt, which handicaps them at the times of crisis being indebted to the investors. Fourth, they avoid large acquisitions, which brings along high profit with high risks. Instead, they concentrate on smaller acquisitions close to the core of their business to avoid endangering their long-term survival. Fifth, they diversify highly so that if one section of the business suffers, the other sections take over the burden. Sixth, they go more international. But, once they enter new market, they wait patiently to reap the benefits. Last but not least, they retain the talents better than any of their competitors do. They invest generously on human capitals. They invest on their trainings, giving them job assurances even at the times of crisis, which makes the employees more loyal, and feel more stable to the company. (2012, What you can learn from Family Business).

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3. What is your diagnosis or interpretation of the situation they face?

“King dies but the Kingdom goes on” an Indian proverb aptly suits Torvald Klaveness’ vision. He was wary of the fact that only 30% of family business succeeds into the second generation and a mere 10% succeed into the third generation. (Davis and Harveston, 1999). He did not want such situation to happen to his company. The result was the Shareholders’ agreement and establishment of an independent council, which was beyond family member’s control. All his actions were aimed at three things; Preserving the company, enhancing individual’s growth and protection of wealth. He desired his family’s presence in both the Ownership and Management. However, put a condition that, to be a shareholder of the company, the member should work in the company in the capacity of a director. One could become Director, only if they had the ability and education and significant work experience through the ranks. He meticulously planned the successors of the company, which he founded, to uphold his values, which was, “dedication to quality, reputation and trust”. He was fair and wanted both his sons to have an opportunity to lead the company provided they are capable. At the time of original agreement in 1976, Trond was only 12 years old and was not sure whether he would be able to lead his company in the future. Tom lived up to his father’s expectation and was nurtured under father’s guidance. Eventually, the baton was passed from TK to Tom Erik Klaveness. Meanwhile, Trond proved as desired by his father with top class education and diversified work experience and rose through the ranks and finally became executive vice president in 2002 when he was 38 years old. Tom could have held his position until he become 67 and passed the baton to one of his daughters in which case Trond and his sons could never be able to lead the company. However, Tom Erik who was 55 then, did not want to put his entire life in the business. At that time, his daughters were not ready to take over. Eventually, Trond replaced Tom Erik at the helm in 2006. Every father would like their own sons and daughters to succeed them, so as Trond. However, he felt that it would be unfair to Karianne and Kristine. He felt that “direct succession is a safer bet than indirect succession”. In March 2011, they formalised an agreement to split the group into two separate entities so that every heir can live their dreams and can take along Klaveness’ legacy into future generations. (2002, The Torvald Klaveness Group: From Old Traditions to Future Innovations). However, it is uncertain whether the Klaveness family will enter into the fourth generation.

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4. From your cultural perspective and your family experience, what recommendations would you offer the Klaveness family?

Strictly from my Indian cultural perspective where family comes before anything else; a patriarchal society where there is male domination; a society which encourages family interdependence; a society where elders are treated as a God of knowledge and wisdom, (Adams, 2009). I would offer the Klaveness family the following recommendations:

Though an ideal joint family system is not practiced anymore, kinship ties still exist. The traditions, skills, business secrets, knowledge, values and know how’s passed between generations. We can see the resemblance of the founder’s work ethics in successive generations. (Davis and Harveston, 1999). Similarly these skills and values should have been passed from Tom Erik to Trond then to Kristine and Karianne and so on.

There has to be an inherent trust between the siblings and cousins. As per the original shareholders agreement, there can be only one decision maker and that could be the elder one. After Tom Erik, it could be passed to Trond while the other family members should actively participate in the support role in the management positions. When the time comes, Trond could hand over to either Karianne or Kristine who should support and sacrifice for each other so that one stays at the helm and the rest support the leader. Later, at the right time, the baton could be passed on to the offspring’s of Trond and the legacy should continue.

As Heraclitus said, “Change is the only constant in life” (Www.goodreads.com, 2014), the business owners should be ready to face and tackle the changes from time to time. As the company gets diversified, it is imperative to have non-family members along with family members groomed from interpreneurship up to the management ranks. This way the family stays united and the business stays healthy, generations after generations like Kongo Gumi of Japan (Bloomberg Business Week, 2007), which lasted for forty generations.

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5. Identify the changes that occurred in the group’s ownership structure, after 2010.

Since 2006 until March 2011, Mr.Trond Harald Klaveness was the CEO of the entire group. However, on Mar 2011, the shareholders formalised an agreement to split the group into two separate entities. They are Klaveness Ship holding A/s and Klaveness Marine Holding. The Ownership of former is under Trond Klaveness and the latter is under Tom Eric Klaveness and his daughters. In Sep 2011, the split was fully implemented. (Klaveness, 2014).

The companies under Klaveness Ship holding AS (See appendix 1)

Klaveness Cement Logistics AS(Sweden) – 100%

T Klaveness Shipping AS(Norway) – 100%

KCL Ship holding AS(Norway) – 100%

Baltrader Schiffahrtsgesellschaft GmbH & Co. KG (Germany)– 60%

The companies under Klaveness Marine Holding AS (Klaveness Marine, 2014)

Klaveness Invest AS – 100%

Klaveness Ship Investments AS – 100%

Klaveness Marine Finance AS – 100%

T Klaveness Property AS – 100%

The business areas of the above companies are Shipping & Offshore, Real estate, Energy and Cleantech and Treasury. (See appendix 2)

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6. What effect will these changes have on the group’s competitiveness in the global shipping industry?

With the demerger, the Klaveness family has experienced, “ a new management, new strategy and a regrouping around the core business of shipping”. A firm, which can produce or offer the same quality of goods or services at a lower cost is said to be more competitive. (Porter, 1985). True competitiveness is measured by productivity (return on sales, asset and equity) (Michael Porter, 2005). The ROE of Klaveness Ship Holding has been experiencing a downward trend from 10% in 2010 before the demerger to 4% in 2011 and -4% in 2012. However, this was mainly due to the bad market condition. The Productivity when the group was united and when it was split would be varied due to change in organizational structure. Competitiveness to survive and prosper in the global shipping industry depends on strategic capabilities. (Michael Porter, 2005). With the change in organizational structure, the roles and responsibilities of the family members as well as non-family members changes, which affects the productivity and hence competitiveness. However, a thing to note here is that the division did not happen within a SBU but it was within group of sectors. Hence the size of each SBU remained the same before and after the split. Tom’s style of operation is quite different than his brother Trond’s. Tom’s approach was to maintain low-risk profile whereas Trond’s approach was more aggressive and more result oriented. (2002, The Torvald Klaveness Group: From Old Traditions to Future Innovations) Now each group will have less number of SBU’s to focus on and they can diversify further which will enhance the group’s competitiveness.

In a changing and competitive global shipping industry, having a management with learned and talented non-family members will increase both the companies’ competitiveness in the global stage.

It is evident from annual reports, that the increase in the employees, expansion of Human Resources internationally, a commitment on Social responsibility and risk assessments, structured traineeship and a high retention rate of employees will add to company’s competitiveness. (2013, Annual Report 2012).

The formula for the group’s competitiveness has always been their founding principle since 1946 that, “through seeking new and innovative ways of providing cost-efficient and predictable transportation services to customers”. (2013, Annual Report 2012). As long as both the divided groups uphold the founder’s principle, they remain competitive in the global shipping industry.

Conclusively, the partition of the group has avoided many foreseeable roadblocks in enhancing competitiveness in their business. The only question is whether the company will remain as a family business or not when it enters the fourth generation is to be seen.

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APPENDIX 1: KLAVESSNESS SHIP HOLDING AS

Parent Company: Klaveness Ship Holding AS

Subsidiaries:T Klaveness Shipping AS – 100%

Banasol Inc* - 50% Banastar Inc.* - 50% Cabiu Bangor Inc. * - 100% Cabu V Investment Inc.* - 95% Cabu VI Investment Inc.* - 81%

* Indirect ownership through T Klaveness Shipping AS

KCL Shipholding AS -100%

Klaveness Cement Logistics AB-100%

Baltrader Schiffahrtsgesellschaft GmbH & Co. KG-60%

Source: http://klaveness.com/company/facts-figures/

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APPENDIX 2: KLAVENESS MARINE HOLDING AS

Shipping and Offshore:Asian Offshore I – 25%Dyvi Cable Ship – 16.5%E-Tanker – 32%Global Cable II – 12.5%Industrial Shipping – 15.25%Marineline Chemical – 7.5%Med Ethylene – 30%Norwegian Car Carriers ASA – 29.8%Rem Vision – 20%SBS Torrent / SBS Typhoon – 35%Seminyak – 51%Sentosa Offshore – 20%Singapore Offshore – 1%UACC Bergshav Tanker / UACC Ross Tanker – 32%Vestland Seismic – 25%

Real Estate:Harbitzalleen 2A – 100%Drammensveien 133 – 100%Landøyveien 2, Nesbru, Asker – 100%Prime Office Germany AS – 40%Verkseier Furulundsvei Invest AS – 66.3%Blomsterstykket, Vollen – 50%Nordliveien, Lørenskog – 33%Bergerveien 24, Billingstad, Asker – 60%Åsenveien Eiendom AS – 37.5%KombiEiendom Invest AS – 32.5%

Energy and Cleantech:Clean Marine – 49%Optimarin AS – 23%DeepflexInGrainZiebelEnergy VenturesAlderNorgesInvestorCubera Secondary

Treasury: 50%

Source: http://www.klavenessmarine.com/

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APPENDIX 3: BIBLIOGRAPHY

2002, Colleen Lief. (The Torvald Klaveness Group: From Old Traditions to Future Innovations) [pdf] Switzerland: Intrnational Institute for Management Development. Available at Http://oasisplus.mdx.ac.uk/webct/urw/lc1093157633011.tp1093157662011/displayContentPageTargetedResource.dowebct?tocID=-1&tocLinkID=-1&pageID=-1&newWindow=true&relativePath=/content/resources/Klaveness%20Group.pdf [Accessed 2nd Jan 2014].

2008, Irene Mandl. (Overview of Family Business Relevant Issues) [pdf] Vienna: Austrian Institute for SME Research. Available at http://Ec.europa.eu/enterprise/.../family_business/.../familybusiness_study_en.pdf [Accessed 5th Jan 2014].

2010, Randel S. Carlock. (When Family Businesses are Best) [pdf] France: Insead. Available at http://Flora.insead.edu/fichiersti_wp/inseadwp2010/2010-42.pdf [Accessed 5th Jan 2014].

2012, Nicolas Kachaner. (What you can learn from Family Business) [pdf] London: Harvard Business Review. Available at http://Hbr.org/2012/11/what-you-can-learn-from-family-business [Accessed 15th Jan 2014].

2013, Torvald Klavness Ship Holding. (Annual Report 2012) [pdf] Norway: Torvald Klaveness Ship Holding AS. Available at http://klaveness.pingbull23.com/files/2013/04/Klaveness-Annual-Report-2012.pdf [Accessed 14th Feb 2014].

About.com/Tina Indalecio (2014) 5 Common Threats to a Family Business [Online] Available at http://Http://familybusiness.about.com/od/managementandoperations/a/commonthreats.htm [Accessed 7th Jan 2014]

Adams, L.C. (2009) THE CULTURAL DETERMINANTS OF SUCCESS IN INDIAN OWNED FAMILY BUSINESSES. Unpublished Dissertation. Port Elizabeth: NELSON MANDELA METROPOLITAN UNIVERSITY.

Barsade and Gibson, -. (2007) 'Why does affect matter in Organization?' Academy of Management Perspectives [Online] 1, (Feb) 36-59. Available at http://www.researchgate.net/publication/228960683_Why_does_affect_matter_in_organizations/file/9fcfd50ed6e8457d83.pdf [Accessed 7th Jan 2014]

Bloomberg Business Week (2007) The End of a 1,400-year-old Business [Online] Available at http://Http://www.businessweek.com/stories/2007-04-16/the-end-of-a-1-400-year-old-businessbusinessweek-business-news-stock-market-and-financial-advice [Accessed 5th Feb 2014]

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Davis and Harveston, -. (1999) 'In the Founder's Shadow: Conflict in the Family Firm' Family Business Review [Online] XII no.4, (Dec) 311-323. Available at http://fbr.sagepub.com/content/12/4/311.short [Accessed 7th Jan 2014]

Klaveness (2014) Company History [Online] Available at http://Http://klaveness.com/company/history/ [Accessed 10th Feb 2014]Klaveness Marine (2014) Company History Archive [Online] Available at http:// http://www.klavenessmarine.com/Company/Archive/company/history/ [Accessed 10th Feb 2014]

Michael Porter (2005) What is Competitiveness? [Online] Available at http://Http://www.iese.edu/en/ad/anselmorubiralta/apuntes/competitividad_en.html [Accessed 2nd Feb 2014]

Porter, M.E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. 1st ed. New York: The Free Press.

Stewart and Hitt, A. (2012) 'Why Can’t a Family Business Be More Like a Nonfamily Business?' Family Business Review [Online] 25, (1) 58-86. Available at http://Http://fbr.sagepub.com/content/25/1/58 [Accessed 7th Jan 2014]

Www.goodreads.com (2014) Quotable Quote [Online] Available at http://Http://www.goodreads.com/quotes/537168-change-is-the-only-constant-in-life [Accessed 5th Feb 2014]

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mba4703 unit 2 activity 3 family business

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