This article tells of the changes experienced by a family business, through restructuring under outside professional management, until being taken over by a multinational company. Evidence was collected from interviews, annual reports and media articles. As a family business, the company exploited lower agency costs and sustained its profitability. Debt levels remained low. Under external professional managers, profitability declined and debt levels rose sharply. Informal communication networks were no longer utilized, and the professional managers were subject to criticism for excessive spending, inappropriate skills and a lack of industry knowledge. The board of directors began to function less effectively. Poor performance led to restructuring under three different CEOs, yet costs continually increased, profitability declined, and a takeover bid was successful. However, all responsibility, of course, cannot be placed on the new professional managers, who inherited responsibility for some decisions made prior to their period of stewardship. Also the family did not adequately plan for successful transition to professional management.
Ernest Adams Ltd: the demise of a family business
Abstract
This article tells of the changes experienced by a family business, through restructuring under outside professional management, until being taken over by a multinational company. Evidence was collected from interviews, annual reports and media articles. As a family business, the company exploited lower agency costs and sustained its profitability. Debt levels remained low. Under external professional managers, profitability declined and debt levels rose sharply. Informal communication networks were no longer utilized, and the professional managers were subject to criticism for excessive spending, inappropriate skills and a lack of industry knowledge. The board of directors began to function less effectively. Poor performance led to restructuring under three different CEOs, yet costs continually increased, profitability declined, and a takeover bid was successful. However, all responsibility, of course, cannot be placed on the new professional managers, who inherited responsibility for some decisions made prior to their period of stewardship. Also the family did not adequately plan for successful transition to professional management.Preview Only. This article cannot be rented because we do not currently have permission from the publisher.
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Ernest Adams Ltd: the demise of a family business
Robb,Alan J.; Shanahan,Yvonne P.; Lord,Beverley R.
Follow Accounting History
, Volume 11 (3): 357
SAGE – Jul 1, 2006
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