Additional Tool: Family Business

Family Business Dynamics

Subject: Overview of Key Considerations in Family Businesses

Source: Excerpts from "Understanding Family Business Dynamics 👨_👩_👧_👦.mp4"

Date: October 26, 2023

Executive Summary:

This document summarizes a framework for understanding and navigating the complexities inherent in family businesses. The presenter uses the Three-Circle Model (Family, Ownership, and Business) to illustrate the various roles and potential conflicts that arise when these spheres intersect. The framework emphasizes the importance of recognizing these roles, addressing the unique issues associated with each, and maintaining a clear separation of responsibilities, especially for owners. The document stresses that while the presenter's company has expertise in the "Business" circle, family dynamics require external expertise, often in the form of a family council. Ultimately, the success of a family business hinges on prioritizing the needs of the business and establishing clear communication and governance structures.

Key Themes and Ideas:

1. The Three-Circle Model: This model is central to understanding family business dynamics. It identifies three distinct, but overlapping, spheres: Family, Ownership, and Business. The intersection of these circles creates different roles and potential conflicts of interest. The presenter asks, "So my understanding is with the three circles now We end up with seven types of players in the room based on which circle they are. Are they ownership only? Are they family only? Are they business only? Uh ultimately resulting in these seven roles."
2. Seven Types of Players & Associated Issues: The intersection of the three circles creates seven distinct "player" roles, each with specific concerns:

• Owner (Non-Family, Non-Employee): Focus on investment returns and exit strategies.
• Quote: "If you are an owner, not family, not employee, you want information about your investment, your return on investment, and how or when can you exit."
• Family Member (Non-Owner, Non-Employee): Concerns about family relationships, potential employment, ownership opportunities, family image, and leveraging the business for personal goals.
• Quote: "If you are a family member, non-owner, not employee, you are concerned about family relationships. Can I work here? Can I own shares? How does the community perceive this family? How can I leverage? Can I leverage this business to achieve my goals?"
• Employee (Non-Family, Non-Owner): Focuses on career goals, nepotism, fair compensation, and the impact of family dynamics on the workplace.
• Quote: "And if you are in the business, does it match with your career goals? How does nepotism play here? Am I being fairly compensated as a family member or a non-family? family member, how is this family business uh impacting the workplace and environment?"
• Individuals in any two circles will experience the combined issues associated with each circle.
• Individuals in all three circles (Family, Owner, Employee) need to balance all competing interests.

1. Influence and Hat Switching: The presenter highlights the importance of recognizing how roles influence behavior and communication. It's crucial to be aware of which hat someone is wearing – e.g., "Are you talking to me as your bigger brother or as my boss? Which one is it?"

• Quote: "As you said, are you talking to me as your bigger brother or as my boss? Which one is it?"

1. Family Council/Assembly: The presenter acknowledges that family dynamics are outside the scope of their company's expertise. A family council or assembly is recommended to address family-specific issues. The presenter notes, "If you have a big enough concern, you probably need a family council, family assembly to go deal with the family stuff outside of issues."
2. Owner's Box (and Role of Owners): Emphasizes a clear distinction between ownership and operational roles. Owners should not be involved in the day-to-day business unless they are hired for a specific role. Owners have entitlements (distributions, benefits, say on big expenditures) and obligations (participation in governance, funding, and bank/insurance/tax decisions). Owners must be a "united front" outside of official meetings.

• Quote: "Owners are not in the day-to-day business. They sit above the line outside the organization."
• Quote: "Must commit to not being no politics within the organization. Commit to a 50-50 clear communication with that leadership team and be a united front outside of your same page meetings."

1. Prioritizing the Business: The "greater good of the business must come first." This principle should guide decision-making in family businesses.

• Quote: "Ultimately, the greater good of the business must come first."

1. Accountability Chart & GWC (Get it, Want it, Capacity to do it): Mentions that accountability charts and the GWC principle might be used as needed.

Actionable Insights/Recommendations:

• Utilize the Three-Circle Model to map roles and identify potential conflict areas.
• Establish clear guidelines for family members working in the business, including performance expectations and compensation.
• Consider forming a family council/assembly to address family-specific issues and ensure open communication.
• Clearly define the role of owners and ensure they understand their responsibilities and limitations.
• Prioritize the needs of the business in all decision-making processes.
• Implement clear communication channels and decision-making processes.
• Address nepotism concerns head-on.

Further Discussion:

• Explore best practices for family councils and governance structures.
• Develop a framework for addressing conflict and ensuring fair treatment of all employees (family and non-family).
• Examine exit strategies and succession planning.

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