Let’s look at some of the things that world-leading family businesses do to keep things clear & achieve the best results.
The best family businesses have clearly defined & separated their family from the family business & ownership of family assets.
This sounds complex but it can be simplified using the three-circle model of the Family Business System.
The three-circle Model of the Family Business System was developed at Harvard Business School by Renato Tagiuri and John Davis in 1978.
By clearly defining the 3 areas, you then need to answer 5 questions for each circle:
- Who is the Leader?
- What are the Priorities?
- What are the Rules of Engagement
- What Meetings do they have?
- What Decisions do they make?
Let’s delve into a little more detail on each of these.
The leaders of each circle are responsible for the remaining 4 areas; Priorities, Rules of Engagement, Meetings & Decisions.
In the Ownership Circle, the leader must be defined by the family, but it is likely to be the Chair of the Board, the Head of Family Counsel, or the Head of the Family Office.
In the Family Circle, we need to have a CEO or Chief Emotional Officer.
And for the Business Circle, this is the Integrator or CEO & they will be the tiebreaker in all key decisions. As with all business roles, this role needs to be filled by someone who Gets, Wants & has the Capacity to do the role.
In the Ownership Circle, there are no set rules about what the priorities are. However, the main things are to maximise the opportunities & minimise the risks for both the family & the business Circles.
In the Family Circle, the priorities are ensuring fairness amongst the family, maintaining harmony & maintaining family wealth.
And in the Business Circle, it’s about ensuring that you have a strong, multi-generational business that is profitable.
Rules of Engagement
In the Ownership Circle, the rules of engagement are defined by the group & are consistently followed.
In the Family Circle, the rules of engagement should be that you were born into this family & you have a seat here regardless. You can’t be kicked out for who you marry, your choices in life etc.
In the Business Circle, the rules of engagement are simple. You must have the Right People in the Right Seats, based on living by the Company Values & GWCing your role (see below). There can be NO exceptions.
Capacity to do it
In the Ownership Circle, there should be regular owner meetings, both monthly & quarterly.
In the Family Circle, once per month is a great start with an Annual Family Reunion.
In the Business Circle, there should be a Meeting Pulse of Weekly Level 10 Meetings, Quarterlies & Annual Planning days at each level & department of the business.
The Ownership Circle is responsible for identifying opportunities & managing risk so it should be considering decisions such as:
- Do we keep owning this business / property?
- Do we buy more?
- Who is our Visionary for each of our businesses?
- What is our family member employment policy?
- Financial decisions over a certain amount
The Family Circle is all about keeping the family harmonious & fair so it should be deciding things such as:
- Where do we go on holiday?
- How do we spend out family money?
- What amounts do we spend on family birthday gifts (with all being equal /fair) etc?
Finally, the Business Circle is responsible for ensuring that you have a strong, multi-generational business that is profitable & so they get to decide on:
- The V/TO (The Vision Traction Organiser or 2 page plan) for the Business
- Choosing the Leadership Team for the business
- Who works here?
- How do they get remunerated?
- How do we spend our money up to a certain $ amount?
What if you feel the lines are being blurred?
If you ever feel like someone is blurring the lines between these circles, then a great way to get people thinking about the correct circles is to say, “That is a great issue for X Meeting”, (Where X is the correct circle – Ownership, Family or Business).
How do you get someone to think about the correct hat to wear?
To ensure that someone is wearing the right hat, ask the simple question, “Which hat are you wearing right now?”.
Debra Chantry-Taylor is an FBA Accredited Family Business Advisor & EOS Implementer.
EOS (The Entrepreneurial Operating System) was designed specifically for family businesses. Its model, process & tools will help you work through the Business Circle & helps with making the right decisions in the Family Business.
It will help you gain Clarity, Vision & Results.
Take the free organisational check-up to see how your business performs against each of these 6 key areas & get a full report along with free tools to help you get stronger - click here.
And if you’d like to read more about how to simplify these 6 key areas, feel free to download our free e-book - click here
Business Action is focused on helping Entrepreneurs lead better lives, through creating a better business. We have a small team of accredited family business advisors, EOS Implementers & Leadership coaches, as well as access to a huge range of advisors through our Trusted Partners Network - www.businessaction.co.nz
In celebration of all the fabulous family businesses out there & the award winners from this year, we say congratulations to all of you.
The views expressed in this content are those of the author, who is also responsible for any errors and omissions. Family Business Association provides this article for your information only. The content of the article should not be taken as advice. If you wish to explore this topic, please consult an advisor who you consider to have the expertise to provide specific advice in relation to your family business.