About CFEG: Thought Leadership
Our thought leadership is a cornerstone of our approach. From over 30 years of working with families and family enterprises in over 60 countries, our conceptual understanding of families and their enterprises runs deep.
Families seek our assistance not only because we are strong problem solvers for their complex issues, but also because we know the most about how family systems function, what leads to their long-term health and success, and how to implement enduring change in them.
Our deep understanding of family enterprises is illustrated in our insights, writing, education, frameworks and grounded recommendations, which we regularly develop as we improve upon what is known about family enterprises and how they succeed for multiple generations. Visit our Library to read our latest insights.
The Three-Circle Model of the Family Business System was developed at Harvard Business School by Professors Renato Tagiuri and John A. Davis in the 1970s. It describes and explains the family business system at a single point in time, helping us to understand the important characteristics of the business, family and ownership group and how these groups interact to influence the performance of the business and the family. It is the dominant paradigm for understanding family business systems worldwide.
This framework clarifies, in simple, graphic terms, the three interdependent and overlapping groups (family, business and owners) that comprise the family business system. As a result of the overlap of these groups, there are seven interest groups, each with its own legitimate viewpoints, goals and dynamics. The Model reminds us that the views of each sector must be respected and integrated in order to set direction for the family business system. The long-term success of family business systems depends on the functioning and mutual support of each of these groups.
The Three-Circle Model was first published in the Family Business Review in 1982 in Tagiuri and Davis' classic article Bivalent Attributes of the Family Firm.
John Davis reflects on the significance of the Three-Circle Model:
Its durability is because it is simple, has immediate face validity and captures enough complexity in family business systems to help researchers, academics, managers and families think more clearly about the strengths and challenges of these systems.
Before the Three-Circle Model, when the family business field first started, the few thinkers about family businesses were focused almost entirely on the business itself. Before too long, there was an understanding that family dynamics were influential in the business and vice versa, so researchers thought about two circles: family and business. People were already starting to think about a system where what happens in the family influences the business and vice versa.
However, they ignored the importance of ownership factors. The addition of the third circle (Ownership) allowed much more attention to other issues that couldn't be explained by the first two circles. Linking the family, business and ownership circles fully defined what a family business system is, which is the interaction of all three of these subsystems.
The simple insight of the Three-Circle Model was revelatory for our family. We finally understood that these three groups are related, but distinct with their own perspectives, and that if one circle is unhealthy in its approach, it will affect the others.‐5th Generation Family Business Leader
Family companies in any country can be categorized based on the stage of family and ownership. An analysis of family business system development in 1997 led Gersick, et al to create the Three Stages of Development of the Family Business, first published in the book Generation to Generation: Life Cycles of the Family Business. This framework illustrates the typical categories and path that a family company moves along over time. It provides a way to understand the strengths and challenges of family companies at each stage so we can be more prescriptive about how families can prepare for the future.
Most family businesses start at the Controlling Owner stage with one owner (or one owner and his/her spouse) having ownership control. A family business can stay at the Controlling Owner stage for many generations if ownership remains consolidated in one person or a married couple. At this stage, the family is typically small, and family relationships can be intense. The business is almost always in the center of the family's life. The founder is impressive, builds a lot of value and is typically at the center of activity, often regarded as indispensable.
Because families tend to pass ownership equally to the next generation, family businesses typically move next to the Sibling Partnership stage. Now brothers and sisters control the business together through ownership. Families at this stage are larger and more diverse, and businesses are larger and more complex, typically. The company relies on a sibling team to work together effectively. Family relationships can be less connected as siblings create their own nuclear families. Sibling tension around power and fairness, balancing dividends with reinvestment, and building professional systems in the business are common issues at this stage.
Next, family companies typically move to the Cousin Consortium stage as ownership control passes to a group of cousins. The family is larger, more diverse, and the business is larger and more complex. Typically few family members are employed in the business at this stage. Non-family members often manage the business while the family gravitates to board roles. With a large family, maintaining unity and organization in the family is critical. In addition cousin families often face the issues of accepting branch differences, managing the psychological impact of wealth on families, maintaining aggressive reinvestment in the business, and redefining the family mission for a large family.
Because we know the typical path of family businesses, we can identify the common challenges and critical tasks for families to address at each stage. Getting in front of these issues and addressing them early reduces tension in the future and makes room for greater prosperity.
Read more about the Stages of Development of the Family Business in Generation to Generation: Life Cycles of the Family Business.
A family's company is typically its most important asset and dominant activity. While central to a family, its company is only one aspect of what a family holds dear. Professor John Davis developed the concept of the family enterprise to describe the full scope of activities that families engage with-the activities that define them, that shape them and that they perpetuate. When families enlarge their lens to take into account all activities in the family enterprise, it allows for more thorough, coordinated strategies and long-term continuity. Read more about the significance of the family enterprise.
A family enterprise is the collection of a family's meaningful activities and economic interests that help to identify, support and unite the family. These activities need to be well led, managed and governed so that problems do not spread to other activities or to the family itself. The objective for a family is to organize and manage its family enterprise so that the entire enterprise is productive, meets the goals of the family and can be continued into the next generation. Once families define their family enterprise, they begin to understand their family mission as extending beyond the family business.
Learn how we assist families with their family enterprises through our Advisory Services and Education Programs.
The three ingredients for the long-term survival and success of family enterprises is distilled by Professor John Davis in his latest capstone framework of family sustainability. In order to endure for generations-in a sustainable manner-families need to grow their financial assets while maintaining unity and building talent. These three factors are vital for ongoing family success, and are skillfully managed by many of the leading families around the world. Read more on this subject in this article.