Managing the three "circles" of the family business
- chipalexandru
- May 17, 2023
- 2 min read
The Three-Circle Model is a framework developed by Renato Tagiuri and John A. Davis in the late 1970s to better understand the complex dynamics in family businesses. It was first published in their article "Bivalent Attributes of the Family Firm" in 1982 and later featured in the book "Generation to Generation: Life Cycles of the Family Business" by Kelin E. Gersick, John A. Davis, Marion McCollom Hampton, and Ivan Lansberg in 1997.
The model consists of three interconnected circles representing three distinct yet overlapping areas:
Family: This circle represents the relationships, values, and emotional aspects of the family involved in the business.
Business: This circle refers to the economic and operational aspects of the family business, including management, strategy, and business performance.
Ownership: This circle represents the legal and financial dimensions of owning the family business, such as shares, dividends, and succession planning.
The Three-Circle Model can provide valuable insights and guidance for family businesses when applied effectively. Here are some practical steps to apply the model in a family business context:
Identify roles and relationships: Begin by mapping the roles and relationships of each family member within the three circles—Family, Business, and Ownership. This exercise will help clarify each individual's responsibilities and involvement in the business and family.
Establish clear boundaries: Use the insights from the mapping process to create clear boundaries between family, business, and ownership roles. Encourage open communication about the expectations, responsibilities, and limitations associated with each role to minimize conflicts and misunderstandings.
Develop governance structures: Establish formal governance structures, such as a family council, board of directors, and/or shareholders' meetings, to address the unique challenges and dynamics in each circle. These structures can help facilitate decision-making, conflict resolution, and communication.
Create family policies: Develop written policies and guidelines for family involvement in the business, such as criteria for joining the company, compensation, and succession planning. These policies can help maintain consistency, fairness, and transparency.
Foster open communication: Encourage open and honest communication among family members to address concerns, share ideas, and resolve conflicts. Regular family meetings or retreats can help nurture trust and understanding in the family circle.
Plan for succession: Use the Three-Circle Model to identify potential successors and develop a well-thought-out succession plan that takes into account the family, business, and ownership aspects. This can help ensure a smooth transition and continued success of the family business.
Engage in continuous learning and development: Encourage family members to develop their skills and expertise in areas relevant to their roles within the family, business, and ownership circles. This could include attending workshops, participating in industry events, or pursuing formal education.
Seek external advice and support: Engage professional advisors, such as attorneys, accountants, and business consultants, to help navigate the complexities of the family business. These experts can provide unbiased guidance and insights to address issues specific to the intersections of the Three-Circle Model.