MNE3704 Assignment 5 (COMPLETE ANSWERS) Semester 1 2025 - DUE 8 May 2025; 100% correct solutions and explanations.

MNE3704 Assignment 5 (COMPLETE ANSWERS) Semester 1 2025 - DUE 8 May 2025; 100% correct solutions and explanations. Question 1 Read the case study and then answer the questions that follow. Two family businesses on different paths Good governance decisions can unlock the long-term vitality of a family business — and poor ones, or none at all or it can lock a family into years of conflict and potential demise. Consider the hypothetical case of two family businesses that took sharply different approaches to the challenge. José, an entrepreneur with only a primary education, was the founder of an energy company. As the company matured and his sons grew over the years, José eventually held 31 percent of the shares. His son Lorenzo, an active participant in the business, held 29 percent, and his other sons Alejandro and Emilio owned 20 percent each. All the while, the business went through a gradual evolution to more sophisticated management and internal structures. As José aged, Lorenzo sought to solidify the company’s future by establishing a formal corporate governance model. Finding the right specialists and formalising the ideals that would guide the organisation was challenging. Perhaps the biggest initial challenge, though, was getting father, founder and dedicated traditionalist José to go along. This was the first time anyone outside the family stood to have a say in the company’s direction. Based on his track record as a top executive, Lorenzo was able to convince José it was time. Initially, the move toward formal governance included only a board of directors made up of shareholders. Soon, the company brought on external corporate governance consultants and finally appointed a professional CEO — not a family member, but an executive employee of long standing. The transition wasn’t without awkward moments. Some of José’s informal and not entirely appropriate administrative techniques came to light and had to be adjusted. As the principle of good governance gathered momentum, the company adopted new policies and practices. It also set forth a formal process to plot the eventual CEO succession. Eventually, the company that had begun at José’s dining room table had an independent board and an audit committee. José was still active in the business, but now he got to take vacations. His other sons had CONFIDENTIAL Page 3 of 4 MNE3704 ASSESSMENT 05_2025 time to learn the business on a formal footing, and he was able to make planned transfers of his ownership stake in a way that preserved business value. A new trust was in place to help facilitate the family’s future prosperity. Today, the sons are the company’s day-to-day leaders. José drops in now and then, and attends board meetings, but he also travels the world knowing his business and family legacy is secure. On contrast, the other story concerns a tourism business with operating units in several states. The majority shareholder and sole head of the business, Jerry, has a wife, two sons, and two daughters. His children were all married. Only Edgar, his older son, worked with Jerry in the family business. Without warning, Jerry had a brain seizure and died at age 65. Edgar immediately took over as CEO, but Jerry’s widow, who never had any interest in business, inherited a 95 percent stake in the company. The four adult children shared equally in the remaining 5 percent — and with different interests, and different understandings about what the company meant to them, it wasn’t long before petty rivalries erupted into open conflict. Edgar and his brother wanted to solidify the business for the long term. Their sisters wanted their mother’s standard of living to be the top priority — a standard funded by cash taken out of the company. The mother wanted family peace but didn’t know how to make that happen. She blamed Jerry’s poor planning for the impasse the family found itself in. Turmoil and lack of clear direction took its toll on business performance. Sales fell off, longtime clients turned elsewhere, and the family had to sell off several operating units to keep the business solvent. After a contentious family retreat, Edgar convinced the family to search for governance specialists and professional C-level business leaders from outside the family. They have agreed to create and empower a board of directors, and an uneasy truce reigns. But considerable damage has happened already, and the family can only hope its belated commitment to governance will be effective in preserving what’s left. Questions: 1.1 Define the concept of family governance and explain how