The Complexity of Family Businesses

Our economy was started and is still driven by family businesses. Be it the baker around the corner or the global conglomerate. Family businesses are having a strong impact on our society because of their thinking in generations versus quarters. At the same time, they are some of the most complex companies to run because family ties and emotions mix with business decisions and rationality. 

I had the joy of working for and with many family companies around the world. Based on that work, I developed a framework – the Family Business Circles. The graphic itself shows how four very different areas of family businesses overlap in various ways.

The Family Circles

The areas are:

  • Family: The family itself is at the core of the business. But even there, it is often unclear who is part of the family and who isn’t. Who belongs to the family who doesn’t? Are spouses and partners part of the family? What about ex-partners? Are all children part of the family or only the “legitimate” ones?
  • Ownership: Being a family member does not automatically entail having shares in the family business. Who owns the family business and holds its shares? Have all family members a right to become owners? At what age do you get first shares? How is ownership divided between family members? How can ownership be passed on?
  • Governance: Bigger businesses require governance, often also legally. Is governance only exercised by family members? Who appoints outside directors? Are family members and non-family members equal on boards?
  • Management: Family members are often found in executive positions in family companies. They sometimes work across generations and with outside managers. Are family members automatically entitled to management roles within the family business? How are family members compensated for their work? How are they assessed versus non-family management? Are family members in management allowed to hold shares in the company?

Addressing each area raises many questions. I listed only some of them. As soon as you go into the overlapping areas, the number of questions and their complexity increases exponentially. 

In my experience, it is advisable first to create a shared understanding of the underlying values that hold the family and their companies together before attempting to answer any of these questions. Families similar to other groups and teams are fast in jotting down a long list of values. The real work starts by agreeing on a few fundamental values and by filling them with life. What does, for example, family mean? How can we experience family? How can the next generation experience family? Even the best value statements are living documents that will change over time. Because of that, it also requires all people involved to regularly take it out, reaffirm it, share examples of lived values, and adapt wherever applicable. 

The Family Business Circles are also embedded in society. What role does a family want to play in society? This question can quickly lead to very different viewpoints in a family, often along generational lines. But a shared view on the role in society is vital to answer the questions of the Family Business Circles.

I have raised more questions than answers in this blog post. But the answers are unique to each family. My advice is to establish a regular process of working through these questions and have events that keep the four areas of family, management, ownership, and governance separate. 

There is nothing worse than a family member’s birthday, which a few misused as an impromptu board meeting. Just think of the signal such behavior sends to a younger generation. Similarly, the logistics of an upcoming holiday celebration have no place in a board meeting. 

Lastly, an objective and independent outside view is not only helpful but probably crucial. As individuals, we only have a limited perspective on issues. This is also true for any group. The psychologists Joseph Luft and Harrington Ingham have shown that visibly with their Johari Window. Personally, I am always humbled to see the impact of different views on the same issue in my coaching work. It often helps clients – individually and in groups – to come to a breakthrough on their paths. This is even more true for very complex issues such as family businesses. 

The title image is from the HBO series Succession.