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Indicate whether the statement is true or false.
1. A critical part of a family firm transfer from one generation to the next is to discuss decisions with potential heirs as
well as family members working in the company.
a. True
b. False
2. When considering the long term health of a company during the transfer of ownership, tax advantages should be the
primary concern.
a. True
b. False
3. Even if family members lack the capability to run the business, an entrepreneur should always select a successor from
this pool of talent.
a. True
b. False
4. Two major factors involved in grooming a son or daughter to enter the family business are the child’s aptitude and the
right to choose a career.
a. True
b. False
5. While recent surveys show that a majority of owners of family-owned businesses want to keep the business in the
family, owners think their main obstacle to doing so is their family’s desire to run the business.
a. True
b. False
6. The role of the entrepreneur’s spouse in family conflicts can sometimes be described as that of a mediator in business
relationships between the entrepreneur and the children.
a. True
b. False
7. Bequeathing equal shares of ownership to children in a family business will probably create havoc in the future
functioning of the business.
a. True
b. False
8. In-laws not working in the family business may have a bad attitude about the company because of only hearing one side
of an argument.
a. True
b. False
9. One sibling dilemma in a family business has been labeled the predator/parasite conflict.
a. True
b. False
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10. Some family businesses benefit from effective collaboration among brothers and sisters.
a. True
b. False
11. Family retreats are best handled by an outside facilitator, who can help develop an agenda and establish ground rules
for discussion.
a. True
b. False
12. When a parent retires completely and turns the firm over to a son or daughter, the firm ceases to be a family business.
a. True
b. False
13. A family business involving two or more children may experience either sibling cooperation or sibling rivalry.
a. True
b. False
14. Nonfamily employees in a family business may be caught in the crossfire between feuding family members.
a. True
b. False
15. A family retreat can bring family members closer together as well as strengthen the family business.
a. True
b. False
16. A company run by the great grandchildren of the founder would be considered to be managed by a cousin consortium.
a. True
b. False
17. When a senior generation member is planning for succession, planning should encompass family members, employees
and the owners.
a. True
b. False
18. When hiring non-family employees it is only fair to identify the positions, if any, that are reserved for family
members.
a. True
b. False
19. In the family business, family considerations affect only members of the family.
a. True
b. False
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20. A family firm’s special patterns and beliefs comprise the firm’s organizational culture.
a. True
b. False
21. In a family business, the family’s primary function is to ensure the profitability and survival of the business.
a. True
b. False
22. A responsibility of a junior generation member who desires advancement is to understand that a leadership position in
the company is earned and not a given.
a. True
b. False
23. A best practice for the family firm is to promote family members above other, more skilled employees, so that the
workers will understand who is in charge.
a. True
b. False
24. Husband-wife teams that own a business are popularly referred to as co-preneurs.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
25. Bret first opened his hardware store in 1946. His sons took over when Bret retired, and now Bret’s grandchildren run
the store. This type of family business is known as:
a. a sibling partnership. b. a franchise.
c. a cousin consortium. d. an owner-managed business.
26. Chip and Dale are brothers who have taken over their father’s business. This type of family business is known as:
a. a sibling partnership. b. a franchise.
c. a cousin consortium. d. an owner-managed business.
27. An issue that may become a problem for a couples-owned business is:
a. deciding who is boss. b. managing child care.
c. spending too much time together. d. establishing company goals.
28. John and his brother Jack started a produce farm 20 years ago and are thinking about retirement. Over time, their
children have worked at the farm and so the cousins have started talking about taking over management. At present, this
produce farm is an example of ____.
a. co-preneur managed business
b. cousin consortium
c. owner-managed business
d. sibling partnership
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29. One of the most frequent and stressful roles performed by the spouse who is not active in the business is to:
a. serve as the mediator between the entrepreneur and the children.
b. be a good listener.
c. mandate they are given a copy of the books each month.
d. All of the above are activities of the non-active spouse.
30. Which statement is true concerning using available family talent in the succession plan?
a. Younger family members working in the business should realize that mistakes early on in their careers should be
considered in their future advancement.
b. If the available talent is not sufficient inside the company, the owner must bring in outside leadership even if it is
not perceived as a favorable decision by the family at large.
c. If a younger family member would like to advance their career by working on a new direction for the company, a
negative decision by their parent means they should not discuss their ideas with the board of directors.
d. It is rare a younger member will have the skill set to rescue a struggling company; therefore they should not be
considered for a succession plan.
31. “The more you can do, the more is expected of you.” Josh already had his hands full managing just one of his father’s
retail stores. He didn’t doubt his ability to do well managing an entire region but still he was reluctant to accept the
assignment. He is likely afraid of:
a. failure. b. success.
c. commitment. d. disappointing his parents.
32. Kinder’s Deli has been in business for three generations. A place was found for every Kinder child to work in the
shop. The name Kinder meant fine deli meats. This family’s commitment is based on:
a. family control. b. identification with the firm.
c. binding social ties. d. emotional attachment.
e. renewal of family bonds.
33. A benefit of strong family relationships is the greater willingness of family members to:
a. adopt new operating methods when needed.
b. act generously in compensating nonfamily employees.
c. sacrifice salaries and dividends when necessary.
d. emphasize short-run profits.
34. Which statement is the most correct about in-laws and possible complications in a family business?
a. Rarely do in-laws impact the business since they are only indirectly involved and have limited decision making
responsibilities if at all.
b. In-laws may impact the business if they are employed in the firm and are responsible for decision making.
c. There will be a complication only when in-laws are competing against another family member for a promotion.
d. In-laws will impact the business as they increase the number of persons who are either directly or indirectly
involved in the family business.
35. Jim, the founder of a family business specializing in real estate, is contemplating turning the business over to his five
children. One possibility, the founder believes, is to divide ownership equally among the children. This action would:
a. be next to impossible as gaining consensus from that many people is difficult.
b. be inherently unfair if any of the children work in the company.
c. potentially hinder the future functioning of the business.
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d. require a possible change in corporate structure since the company deals in real estate.
36. Steve, Harry, and Chris, who own and operate a family auto parts store, are experiencing tough times during a
downturn in the local economy. To help the store survive these conditions, the brothers agree to each take a 25 percent
reduction in salary for a one-year period. This decision:
a. demonstrates a weakness of financial management.
b. illustrates an important advantage of a family business.
c. reveals a lack of customer orientation in a family business.
d. reflects a lessening of entrepreneurial ambition in second-generation businesses.
37. A family business constitution is sometimes labeled a _____.
a. business plan
b. by-law guide
c. family creed
d. succession plan
38. To protect the interests of both the family and the business in a family business, the owner should:
a. recognize a basic obligation to supply the family with employment of some type.
b. refuse to hire family members but, instead, reward them with generous dividends.
c. personally make all personnel decisions affecting family members.
d. identify the positions, if any, that are reserved for members of the family.
39. As the only son, Eduardo’s father expected to one day turn over management of the business to him despite Eduardo’s
protests that he wanted no part of it. Following graduation from college, Eduardo realized he did not want his father to let
some outsider take over the business. Eduardo’s commitment is based on:
a. family control. b. identification with the firm.
c. binding social ties. d. emotional attachment.
e. renewal of family bonds.
40. A family retreat is designed to:
a. bring family members together to openly discuss business matters.
b. focus on business matters while avoiding extensive communication.
c. control the lines of communication.
d. announce the latest policy decisions and other changes in the business.
41. A family council is most effective when:
a. it is viewed as another type of casual get-together. b. works behind the scenes
to maintain harmony between family and nonfamily employees.
c. it comprises both family and nonfamily members. d. it provides governance
to the organization and engages in strategic planning and family succession planning.
42. Betsy had always had decisions made for her, first by her parents and then by her husband. So when her father asked
her to take over the family business, she was afraid of:
a. failure. b. success.
c. commitment. d. disappointing outsiders.
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43. Sibling rivalry in a family business:
a. rarely affects nonfamily members in the firm.
b. may create disagreements about business policy.
c. is unusual if roles are determined before the siblings join the business.
d. is often good because it spurs business competition within the organization.
44. In a family business, the interests of the family and the interests of the business are best described as:
a. overlapping.
b. conflicting.
c. coinciding.
d. having no relationship with each other.
45. Jan and Jill started a business 20 years. Jill recently stepped down; her daughter Jenny has agreed to start managing
the company with Jan’s help; and the eventual goal is for Jenny to run the entire company. This process between Jan and
Jenny is called ____.
a. sibling partnership
b. family consortium
c. mentoring
d. Two of the above are true.
46. A document that states the principles intended to guide a family firm through times of crisis and change, including the
succession process, is called the:
a. business plan
b. articles of incorporation
c. family business constitution
d. corporate by-laws
47. Bella decided to hire a nonfamily member as her successor instead of selecting one of her children. What might
explain her decision?
a. Bella didn’t think her children wanted the job. b. Bella wanted to
bring in new skills and expertise.
c. Bella’s children could never agree on anything. d. The
competition had stepped up its game.
48. An inherent problem for couples involved in a family business is that
a. conflicts in the business tend to carry over into family life.
b. hours of work may become longer for one person.
c. uneven division of labor, i.e., one person is only responsible for the menial tasks.
d. some husbands find their masculinity threatened when their wives are better managers.
49. Allan opened a hot dog stand in Central Park, New York City. He owns it and operates it six days a week, year
round. What kind of business is this?
a. A sibling partnership b. A franchise
c. A cousin consortium d. An owner-managed business
50. From the children’s standpoint, one common reason that they may be reluctant to join the family firm is a desire to
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a. make a difference in another industry.
b. prove their abilities without family assistance.
c. make a higher rate of pay.
d. help the parent avoid favoritism.
51. Living over the workshop made it easy to involve the children in the daily business decisions. They knew from the
time they could write they were expected to work in and eventually manage and own the business. This family’s
commitment to the business is based on:
a. family control and influence. b. identification with the firm.
c. binding social ties. d. renewal of family bonds to the firm through dynastic
succession.
52. Mayer’s philosophy of never using debt to finance operations or expansion was born during the Great Depression and
passed on to his sons when they joined the family business. Today the multi-million dollar organization proudly follows
Mayer’s practice under the leadership of Mayer’s great-grandsons and -daughters. This family’s commitment is based on:
a. family control and influence. b. identification of family members with the firm.
c. binding social ties. d. emotional attachment of family members.
53. Family retreats, which open lines of communication,
a. use the founding entrepreneur as a communication facilitator.
b. avoid discussing sensitive issues for best results.
c. involve family members but not in-laws.
d. may result in formation of a family council to continue discussion.
54. After college graduation, Terrence was expected to begin working in the family business but instead he continued to
lead the playboy life, always postponing his decision about working for his father. Terrence probably has a fear of:
a. failure. b. success.
c. commitment. d. disappointing others.
55. The recruiter from IBM made William an offer almost too good to be true. The problem was William’s dad, who
always expected William to join him in running the family business. William’s difficulty in accepting either offer may be
based on the fear of:
a. failure. b. success.
c. commitment. d. disappointing his father.
56. Liam’s mentor had worked with him for several months to prepare him for the promotion. Now that the offer has
been made, Liam is hesitant. His hesitation is likely based on:
a. fear of failure. b. fear of success.
c. fear of commitment. d. fear of disappointing his mentor.
57. Jane and Joe are experiencing a strain with their family relationship after running their family business for 5 years.
Which issue might be the most likely underlying cause of the tension?
a. Jane is the CEO while her husband is the CPA.
b. Joe started the business but has stepped down from the CEO position.
c. Jane and Joe’s roles have not been carefully defined as the business has grown.
d. Their difference of opinions about a business matter is spilling over into their family time.
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58. In preparing for succession, the senior generation has certain responsibilities. One of these is that:
a. the estate of the senior generation should be settled and audited.
b. the senior generation should hold the next generation accountable for their actions.
c. the business should have a formal audit of the financial statements.
d. the next generation should develop long term plans for leadership and be held to these plans.
59. In considering the role of younger family members, the best philosophy is to recognize that
a. a child should have a right to a job in the business if he or she desires.
b. no family member should be hired at any level.
c. children should have a right to choose their own careers.
d. sibling rivalry will always be an issue with second-generation managers.
60. Bob and his sister Betty are co-owners of their late parents’ business. Bob actively manages the business; Betty
supplies only capital from her inheritance but does not work in the business. They squabble over the distribution of profits
from the business. Bob likely sees his sister as a ___________ while Betty views her brother as a _____________.
a. predator, parasite b. co-owner, employee
c. parasite, predator d. stockholder, manager
61. What step is best for parents to decrease succession conflict among children active in the firm and those who are not?
a. Letting those not involved in the company have a larger portion of an inheritance outside of the company and
allow those involved in daily operations have more ownership of the business.
b. Letting the next generation reach a consensus about management of the company.
c. Changing the ownership of the company so common (voting) stock is only given to those active in the company
and others receive preferred (nonvoting) stock.
d. Making decisions based on tax considerations, not what is best for the next generation or the business.
62. To avoid a stifling atmosphere for nonfamily employees in a family business, the owner should:
a. promote only nonfamily members.
b. avoid all special consideration for family members.
c. make clear the extent of opportunity for nonfamily members.
d. minimize discussion about future management changes.
63. A nonfamily employee of a family business complains that the recent promotion of a family member was unfair. The
owner should:
a. enter into a discussion of the roles and opportunities for both family members and outsiders.
b. clarify that family members always have the inside track, even though this fact is disappointing to the bypassed
employee.
c. get the employee to think more positively by describing other attractive features of the employee’s job.
d. acknowledge that a tension always exists and that it can never be dealt with satisfactorily.
64. A parent might attempt to resolve a transfer of ownership by giving active children in the firm’s management _____
stock and giving nonactive children _____ stock.
a. preferred, common
b. growth, speculative
c. common, preferred
d. more, less
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65. Senior management will be more receptive to the junior generation advancing if the junior generation
a. decides what time is best for their personal lives.
b. prepares for ownership by concentrating on learning “big” picture skills as opposed to basic management skills.
c. designs life plans for themselves and the business that involves what happens if the business fails.
d. proactively shares their preparation for advancement and asks for advice for implementation.
66. The family endured great hardships together in the old country but vowed they would always watch out for each other
in America. Together they built a thriving business; it was the Muellers against the world. This family’s commitment is
based on:
a. family control. b. identification of family members with the firm.
c. binding social ties. d. renewal of family bonds through dynastic succession.
67. As the spouse of the founder of Stonyfield Farm, Meg Cadoux Hirshberg serves the family business in a typical but
critical role of
a. making impartial decisions on controversial business matters when her husband, Greg, asks.
b. filling the role of a company director so as to provide balance in family matters.
c. mediating family disputes.
d. supporting Greg through the many hours the business requires.
68. Brandon always came in second—in birth order, in school and sports, and in his father’s heart. When his older brother
decided not to take over the family business as expected, Brandon was paralyzed with fear. This paralysis was likely
based on:
a. fear of failure. b. fear of success.
c. fear of commitment. d. fear of disappointing his friends.
69. A common problem for a founder in passing the business on to a daughter or son is:
a. introducing the child to outsiders such as bankers.
b. finding a suitable position for the son or daughter within the business.
c. arranging the transition from part-time to full-time employment.
d. deciding whether the child has the necessary temperament and ability.
70. Patricia, a nonfamily employee of a family business, is concerned about competing with family members for future
career opportunities. To protect her personal interests, she should:
a. align herself with the CEO to hopefully know when new positions will become open.
b. ask that the owner/manager clarify the extent of opportunities considering her skill set.
c. seek assurances that she will receive first consideration for promotion, ahead of family members who are not as
qualified.
d. be realistic enough to leave the firm and seek employment in a nonfamily business.
71. Fran and Bob (who are married) own and manage a cleaning service. A potential advantage of this arrangement is
that:
a. differences of opinion about the business won’t carry over into family lives since they will see each other more
hours daily.
b. it affords the opportunity to share more of their lives and build something together.
c. the business isn’t likely to dissipate their energies as they can each work on separate sections.
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d. they can count on working fewer hours in the business.
72. The close relationship of business factors and family concerns in a family business has been described as:
a. separation of domains.
b. a generational gap.
c. an example of blood being thicker than water.
d. overlapping.
73. A founder’s core values may become part of the family business culture because:
a. the founder typically knows what is best for the company’s culture.
b. others in the firm absorb traditions and values established by the founder.
c. the values coincide with modern management theory.
d. family members follow family traditions without excessive analysis.
Enter the appropriate word(s) to complete the statement.
74. ________, the act of employing relatives, is often associated with favoritism.
For each definition, select the term that best fits.
a. co-preneurs
b. cousin consortium
c. family
d. family business
e. family business constitution
f. family council
g. family retreat
h. mentoring
i. nepotism
j. organizational culture
k. owner-managed business
l. sibling partnership
m. socioeconomic wealth
75. The practice of employing relatives
76. A business in which children of the founder become owners and managers
77. An organization in which either the individuals who established or acquired the firm or their descendants significantly
influence the strategic decisions and life course of the firm
78. Couples teams who own and manage businesses
79. A gathering of family members, usually at a remote location, to discuss family business matters
80. The process by which a more-experienced person guides and supports the professional progress of a new or less-
experienced employee
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81. Non-financial factors in a family firm that affect the commitment of family members to the business
82. A statement of principles intended to guide a family firm through times of crisis and change
83. An organized group of family members who gather periodically to discuss family-related business issues
For each definition, select the term that best fits.
a. cousin consortium
b. family
c. family business
d. family council
e. family creed
f. family of attachment
g. family of origin
h. family retreat
i. organizational culture
j. owner-managed business
k. sibling partnership
l. socioemotional wealth
m. transfer of ownership
84. The new, separate relationship formed when an individual partners with another person plus the family connections
acquired with the partner
85. Patterns of behaviors and beliefs that characterize a particular firm
86. A group of people bound by a shared history and a commitment to share a future together
87. A business in third and subsequent generations, when children of the siblings take ownership and management
positions
88. Passing ownership of a family business to the next generation
89. A venture operated by a founding entrepreneur
90. A statement of principles intended to guide a family through times of crises and change
91. The relatives who form your world in your childhood
92. Explain the role of the entrepreneur’s spouse as it affects a family business and show how it can be made most
effective if the spouse does not have an active part of daily operations.
93. Explain the concept of family and business overlap in a family business.
94. Identify the six positives of a family business and explain why these are positives.
95. The socioemotional commitment of family members to a firm occurs along five dimensions; what is the acronym for
these dimensions and what do the letters in the acronym stand for?
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96. What could a founder do to make a succession plan successful? Using the Three-Circle Model of Family Firms,
identify issues the founder should discuss with each group.
97. Discuss guidelines for a successful family business retreat.
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Answer Key
1. True
2. False
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26. a
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52. d
53. d
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