Family Business Case Study
By Oleksii Golovin
Sofit & Eurofasad
Introduction
Family business began in the beginning of 90’ by two brothers Oleg and Alexander. After
working for several years as photographers they decided to distribute photo tape, which
instantly became very successful venture. In order to expand they had to move to
Ukrainian capital Kiev. Because of a lack of useful connections they had no another choice
as to join another company Foxtrot through merge. Foxtrot has been developing fast in
electronics distributing, since 1998 it became the leader in Ukraine.
After the merge there were 7 executives. Three co-founders Vladimir Shulga, Valeriy
Makoveckiy and Gennadiy Vukhotsev owned 24% of shares each. Oleg and Alexander
received 24% of shares. Vladimir Romanenko was a financial director and Gosha Degam
who was responsible for political protection owned 2% of shares each.
Foxtrot was emerging extremely fast expanding its business interests to different sectors. It
started selling jewellery, cars, motorbikes, arts, lights and sports goods. Foxtrot opened a
bank UBRP and acquired the biggest chicken factory in Ukraine. While working in Foxtrot
Oleg started Eurofasad, which was manufacturing windows, distributing them, selling and
producing raw material for windows manufacturing. Nevertheless initial business of Oleg
and Alexander has been the most profitable in terms of ROE. In 2005 Foxtrot value
estimated 2,5 billion dollars from initial 200 thousand dollars won by Vladimir in casino in
1992.
Conflict
Gosha Degam was not satisfied with his 2% of shares therefore he started a campaign
aimed to decrease a number of shareholders which would increase his stake. He used his
good relations with Genadiy in his interests. Valerariy had ambitions to lead the Foxtrot,
which required from Vladimir Shulga to quit his position. Consequently two parties
emerged. One party consosted Gosha, Genadiy and Valeriy, who generated 50% of shares.
Opposition consisted from Oleg and Vladimir Shulga,sthey generated only 36% of shares.
Alexander and Vladimir Romanenko tried to be not involved, what led to a conflict between
two brothers. Romanenko understood that he has little chance to survive if he joined
Gosha, therefore he came to Vladimir and Oleg. Alexander eventually also joined them as he
knew that he would not stay in Foxtrot if his brother leaved the company as he would
became an easy target for Gosha to generate even more shares.
Consequently Oleg Alexander and Romanenko leaved the company taking Sofit (electric
supply and lighting), Eurofasad (windows) and some cash. Shulga denied any idea of
leaving Foxtrot, as he believed that he would find the way to retain his leadership. However
it did not work out.
New Business
Oleg and Alexander shared equal part in new holding, eventually the restored their
relations, however Oleg decided to start a new business on his own which was privatising
and selling land. At the beginning it was very successful but after financial crisis of 2008
things have dramatically changed. Most money for the business where generated from
bank loans with a very high interest rate (nearly 12-13%). After the crisis prices on land
dropped by more than a half. At the same time Eurofasad had increased it debt
dramatically for it’s expanding. The result was an extremely high debt, which was bigger
than current value of all assets. Technically they have been bankrupts. Before joining
Foxtrot Oleg and Alexander were nearly or technically bankrupts for four times, they were
to come through it due to the high level of development of Ukrainian economy, whereas at
this time this factor disappeared.
Alexander was good at cutting operating costs therefore he took Oleg’s place and started
running the company while Oleg tried to solve his land problems.
The company experienced restructuring. Some regional departments were closed. New
investor came to Eurofasad, he bought 10% from Alexander and 20% from Oleg. After this
Oleg has lost any personal interest in the company. In past it was working in joint ventures
with regional partners, whereas today it divided windows business with one of them so
today it has no regional partners, which gained more power to Oleg and Alexander. Sofit’s
CEO was fired due to low debt and refusal to apply cost cutting strategy. Alexander became
the CEO.
Personalities
Oleg – is the American kind of entrepreneur. He is emotional and always focused on
expanding. Oleg is a workaholic and he always led the tandem as an older brother. He was
passionate about photography, which resulted the decision to choose business. Oleg’s
managing style is very impulsive, he takes most decisions instantly. Now he regrets that he
spent so much time working.
Alexander – is very calm and reasonable person. He always hold Oleg from very risky
ventures, which saved company from bankruptcy for many times. Alexander is a family
focused, opposite to Oleg. His managing style is to deal with each issue reasonably, which
results in longer time for decision taking comparing to Oleg.
Oleksii – is Oleg’s son. Currently he is studying in EBSL. Oleksii has never worked for his
father. Once he was also selling land but his business intersected with Oleg’s only for
several times. He does not plan to work for his father’s company for at least next 5 years.
Oleksii wants to start his own business.
Olena – Alexander’s daughter. She is studying in UCL and is going to get married in
summer. Olena is planning to stay in the UK and not to be involved in family business.
Family Issues
The biggest issue family business is currently facing is Alexander’s plan to immigrate to
Vienna. He wants to decrease company in size so he would be able to control it using his
laptop from Austria. Oleg is not able to run the company in crisis time; therefore there are
not many options.
Second issue is a succession plan as there is no any idea who will run the company.
Alexander has three daughters. The older Olena is not planning to step in family business
whereas other two are to young, 10 and 12 years respectively. Oleksii wants to start his
own business.
Theories and frameworks
According to Denison et al (2004) culture in family owned business takes a complex
dimension because of the dominant role of the founder. The form of achieving success in
such firms is very personal. Therefore there are many issues arising in terms of succession
planning.
Oleg’s business approach was highly personal. He was the engine of the business therefore
his stepping down might affect company’s culture what is happening now as currently he is
not involved in business. The company is in stage of recession for last four years and this is
mostly due to Ukrainian economic stagnation. Some regional partners believe that this is
because of Oleg’s involvement. This harms company’s culture significantly as employees
loose faith in business’ future.
“Relationships in family businesses are dynamic and interdependent because what occurs
in the family may have effects on the business and vice versa” (Danes, Zuiker, Kean, &
Arbuthnot, 1999; Marshack, 1998; Stafford, Duncan, Danes, & Winter, 1999 in Danes et al
2002). This happened and continue happening in family business. After Alexander’s
attempt of not supporting Oleg in Foxtrot’s conflict, their relations have worsened. At that
time they did not speak with each other for more than 6 times. Today they have good
relations, but because they do not communicate enough business suffer.
FIRO model
Inclusion. Alexander is currently in charge of the business. He takes core decision in
assigning roles, therefore he changed key people, and for instance he assigned CEO position
in Eurofasad to his close friend Oleg Zemin.
Control. Alexander increased control in business which probably became the most
significant change as prior there was a little control, which was valued by employees and
Oleg.
Integration. Decisions are taken more collectively. The orientation is on low risks and
reasonable decisions. The period of cutting operating costs and stepping down of Oleg has
worsened relations and environment within company. The company faced many
challenges in motivating, as the whole environment seemed depressive.
Questions
1 If Oleg should come back to lead the company?
2 Which structure and size should be applied in order to save the company in these
circumstances?
3 Who should lead the company in future?
References
Denison D., Lief C. and Ward J., 2004. Culture in Family-Owned Enterprises: Recognizing
and Leveraging Unique Strengths. Journal: Family Business Review, Vol.17 issue 61
Danes S. et al 2002. Family FIRO Model: An Application to Family Business. . Journal:
Family Business Review, Vol. 15 issue 31