Avoiding collisions at the intersection of family and business

Imagine that you’re the CEO of a successful, third-generation family business and your niece, Casey, has just applied for the vice-president of marketing position, which is about to be vacated.

Casey has been employed by the company for more than a decade; while she has performed well and is viewed as a potential senior manager, there might be other viable candidates for the VP position within and outside the company. Soon after Casey applies, your older brother, Casey’s father, calls you and says, “Of course Casey will get the position, right?”

What do you do?

Family business leaders and their advisers routinely face tricky issues like this at the intersection of family and business.

We have found that focusing on family business issues through three lenses – simultaneously and proactively – yields better understanding and more effective solutions.

The three lenses are based on the Three-Circle Model of the Family Business System (Renato Tagiuri and John Davis), which consists of three distinct yet overlapping domains/roles in the family enterprise: family, business and ownership.

Let’s consider each lens separately.

Family lens: This lens is about the family – its mission, values and culture. Looking through it will sharpen focus on preservation of family relationships, including actions that promote continuity and harmony. Yet overuse of the family lens can increase fear of upsetting established hierarchies and can play into the sense of entitlement some members may have. 

Business lens: The business lens focuses on improving enterprise operations to boost profitability and support the family and owners. Looking through this lens, then, will result in prioritization of reinvestment in growth opportunities for the business. Using this lens, is Casey qualified for this role with the business based on merit alone, considering her business skills and acumen? At the same time excessive focus through a business lens may mean insufficient fostering of family leadership development and an ultimately weaker emotional connection between the family and the business because of a failure to promote family values and culture within the enterprise.

Ownership lens: This lens focuses on the needs of owners. Owners will generally want strong leadership and governance of the business, to promote profitability and increase the enterprise’s value. But this lens involves inherent tension between “growth and harvest,” because some owners may emphasize reinvesting in company growth for the long term (in line with the business lens, as noted above), while others may seek more immediate liquidity in the form of dividends. 

Consider these tips for applying the three lenses to family business challenges.

•Recognize the complexity of family enterprise. Family business issues are complex because of the three overlapping domains emphasized here.

•Communicate, communicate, communicate. Maintaining strong, open lines of communication across the three constituent groups – family, business  ownership – is critical to effective decision-making and inter-group harmony. Communication is not just about the decision, as important as that is; it is also about informing the broader group of stakeholders, including family members and non-family employees. A three-lens perspective can be useful in crafting the structure and content of such high-stakes communications.

•The big-picture goal is your North Star. You can’t know which lens to prioritize without knowing what the overarching vision or goal is. As we discussed earlier, the goals of maintaining continuity versus achieving an exit or liquidity event will involve different emphases on different lenses, and most likely result in different decisions. Always keep sight of the big picture to guide your use of the three lenses.

•Be proactive. The three lenses are useful in dealing with unexpected or emerging issues, but can also be marshalled to develop proactive policies such as those related to family employment or compensation. A well-reasoned, well-communicated set of policies, values and principles can go a long way to head off the challenges and stress related to tricky family business issues.

•Be creative. Smart use of the three lenses may help uncover creative solutions that may not have been initially evident. For example, viewing the should-we-hire-Casey example through the lenses may reveal that while it’s not the best time for Casey to occupy the marketing VP role – because it’s not best for the business – there may be an alternate management role she could hold productively while being developed for the executive position in the future.

There are no hard and fast rules about using the three lenses. Our main advice is to practise applying them to issues large and small. Doing so will ensure you bring even the trickiest family businesses into sharp focus, gaining insights to support the most effective decision-making possible. 

Wendy Sage-Hayward is a senior consultant at the Family Business Consulting Group. Michael Louie, CPA, is a partner with D+H Group LLP.