Three-Circle Model of the Family Business System
The Three-Circle Model of the Family Business System was developed at Harvard Business School by Renato Tagiuri and John Davis in the 1970s.
It quickly became, and continues to be, the central organizing framework for understanding family business systems, used by families, consultants and academics worldwide.
This framework clarifies, in simple terms, the three interdependent and overlapping groups that comprise the family business system: family, business and ownership. As a result of this overlap, there are seven interest groups present, each with its own legitimate perspectives, goals and dynamics. The long-term success of family business systems depends on the functioning and mutual support of each of these groups.
NEW YORK, New York –– I wrote this article while on a plane bound for Frankfurt over the weekend. It is an eight-hour flight from New York and long flights allow me to reflect on a lot of initiatives related to my role as Business coach and Family advisor especially when dealing with international clients based in Asia and North America.
It has been a punishing week after flying a record eight times in the US and Canada in less than 10 days. At the end of this grueling two weeks of family business coaching work and doing research, I would have logged 10 flights and more than 30,000 miles crossing Asia, US, Canada and Europe.
On the flipside, I can say it has been a truly gratifying trip as well. The sessions and the new learnings galvanized my resolve to continue pursuing alliances with global Family Business advisors who have made significant contributions in the field of governance, succession and ownership.
My visit in Europe for a few days will be my last stop before Singapore then finally back to my home destination in Manila.
So why is my firm setting its sights in Europe? W+B has been invited to explore setting up shop a few times this year. When we researched and scanned the huge EU for advisory opportunities, the numbers that confronted us were staggering.
Collectively, I can highlight several reasons why family enterprises are naturally bound to fail if governance and succession are not introduced early in the business:
a. Giving Equal Power and Ownership to the next generation family members will breed conflict and rivalry
b. Family + Money+ Emotion = Conflict
c. Informal Rules = No Governance
d. Shift from Single Family to Multi Family System
e. Complexity of Issues required formal decision making mechanisms
In a report by EFB, the umbrella federation of family businesses across Europe, family owned businesses provides some startling contribution to the European economy:
● They represent around 50% of Europe’s GDP
● More than 14 million business are classified as family owned businesses
● They contribute 60 million jobs
Similarly, in a researched material prepared by my firm, we also found out that just like Asian enterprises, many family-owned businesses belonging to EU countries were unsuccessful in managing inter-generational transmissions and vanished after the first generation.
Recalling my Family Business engagements in London more than a couple of years ago, I discovered that the continued drop in numbers of family businesses transitioning from the second to the third generation already showed worrisome figures.
Germany topped the list with 24% left in the second generation and down to single digit in the third generation. Not a single family business survived the fourth generation.
Still reeling from its exit from the European Union, the United Kingdom came in a close second with less than 30% left in the second generation and a mere 12% going into the third generation with zero left in the fourth generation.
The trend was similar for French family enterprises but they fared better posting an above average 8% somewhat overcoming the third generation curse. The single digit survival rate however is still bad news for family enterprises.
These numbers are alarming and are in no way different from family businesses in Asia.
If they remain unchecked, the percentage of failed businesses will continue to free fall and more jobs will be lost as a result of family businesses breaking apart.