A simple tool for complex family businesses

There’s running a business and then there’s running a family business. If you’re part of one—or if your family owns one—you know that having family members in the mix complicates more than just the relationship side of things. It can impact the goals of the business, increase the number of stakeholders and change the decision-making and communication processes required.

The three-circle model is an excellent tool to help highlight and understand how the roles of ownership, business and family overlap in a family-run enterprise. There are plenty of ways this model can add value to your business.

To start, it offers the opportunity to consider your existing corporate governance structure within each circle. While you may have a board of directors in place, for instance, the three-circle model can help you determine if it’s effective or simply a board in name only. Similarly, it can help you find answers to other questions, such as whether the senior management team is getting the most out of your employees. Or if too much “shop talk” is spoiling family dinners.

The three circles also have the ability to act as three lenses, allowing you to see key business decisions through the eyes of different stakeholders while allowing you, the business owner, the opportunity to re-examine the changing roles of family members within the company. When your children were young, for example, your business decisions may have revolved around their needs as your dependents. As they grow older, however, they’ll likely have a greater stake in decision-making. Taking the time to consider everyone’s point of view is an important step in moving the company forward, as well as keeping the family peace.

As you use the three-circle model to make important business decisions, it’s equally important to clearly communicate these decisions. Again, the three-circle model can help in this regard by determining who needs to be informed. Too many times, pivotal decisions are made at the office and, only after the ball is rolling, are they mentioned in passing at the family dinner table. Taking the time to determine how the information will be shared—and to whom—can help avoid potential issues down the line.

As family businesses evolve into second- or third- generation enterprises, the days of the sole family owner, accountable only to him or herself and perhaps a spouse, are quickly fading. With siblings, in-laws and new generations in the mix, effective corporate governance becomes more critical.

To learn more about the three-circle model and other family business tools, contact a Grant Thornton Family Enterprise Advisor.

_{[1] John A. Davis. “The Three-Circle Model celebrated 40 years in 2018.” https://johndavis.com/three-circle-model-family-business-system/ (accessed March 10, 2020)}