FAMILY DYNAMICS / GOVERNANCE

The Many Facets of Ownership

Tom Garrity

August 30, 2023

This article is the third one in the” 20-Year Look Back” series by Tom Garrity, founder and managing partner of Compass Point Consulting, as he shares insights and reflections on two decades of supporting family business owners. Catch up on posts one and two if you missed them.

Often overlooked or avoided, understanding the facets of ownership can make or break a family business.

For decades, the widely accepted Venn diagram depicting the Family Business model had just two parts: one circle representing business and another representing family with an overlap in the middle. However, this model did not accurately account for the multiple interests present in a family-owned business. Something was missing.

In 1978 the 2-circle illustration of family business evolved when Harvard business professor Renato Tagiuri and then-graduate student John Davis added a third circle – Ownership – to better account for the distinct groups that existed in a family business.

With the addition of Ownership, the 3-circle model more accurately captured the seven facets of ownership:

1. Family members who work in the business AND have ownership (Founders & Next Gen)
2. Family members who are owners BUT do not work in the business (Family Stakeholders)
3. Family members who are not owners BUT do work in the business (Family Employees)
4. Family members who NEITHER own nor work in the business (Spouses, Children, etc.)
5. Non-family who are owners BUT do not work in the business (Non-family Stakeholders)
6. Non-family who are owners AND work in the business (Non-family Leadership)
7. Non-family who work in the business BUT have no ownership (Employees)

Sound complicated? Well, it can be. Not only from a management perspective but from a family dynamic as well. The ownership realm is where a lack of understanding and/or proper management can allow tensions to build that weaken family bonds.

There are a few things to consider when assessing the groups within your organization:

• Family and Ownership can be like oil and water
  • The perspectives are different depending on where you stand. Neither are right, they just are. A commitment to communication and transparency is a trait of enduring family businesses.
• Generational Ownership requires governance
  • As family businesses move into the second, third, and beyond generations, setting boundaries (limits that provide clarity) is another trait of enduring family businesses.
• Ownership is not the same as leadership
  • Just because you are an owner doesn’t mean you are equipped to lead the company. Company leadership should always be based on competency and the needs of the company.
• Generational Ownership needs a board
  • More family, more mouths to feed, market complexities, insular thinking, bigger stakes…the list is endless. The primary roles of the board are to help the CEO become a better CEO; ensure CEO succession; provide feedback, advice, and counsel to the strategic plan, financial performance, challenges, and opportunities; ensure the owners’ goals are met; and provide connections.
• Ownership demands and EMP preparation
  • Owners need to be aligned around a strategy to provide direction and guardrails for the executive team. Additionally, one of the key roles of ownership is thoughtful Emergency Management Planning (EMP) for what I call “the 5Ds of Life.” These are five different types of life events that can disrupt, and even derail, business growth and the family’s legacy.

After 20 years of working with family businesses, I have discovered an absolute truth about ownership that many family owners are missing. Ownership is both physical and emotional.

Physical ownership equates to shares of the business, something to be bought or sold. That’s the definition of ownership that most people think of. What people overlook is the emotional aspect of ownership. The personal accountability that each group in the 3-circle model has in understanding their role in the business. Owners model the organizational health of the business. If there is confusion, back-biting, politics, etc., look no further than the ownership group.

Only when this understanding and active accountability around Ownership exists can the family and business thrive harmoniously.