During a business school case session, a participant asked what seemed like a simple question:
“Is this a family business?”
The class began with standard definitions: family ownership, board control, multiple family members in management roles…Then someone made a remark that transformed the discussion:
“A family business is one where the family actively strives to make it a family business.”
This observation captures an essential nuance: simply inheriting shares doesn’t make you a family business. A family-owned firm is the result of a conscious choice and a continuously renewed commitment to remain one.
Structure versus effort
Family businesses can be understood from two complementary angles:
1 – Structural definition: a family controls ownership and several family members exert significant influence over the firm’s direction, whether as company leaders, board members or shareholders.
2 – Intentional definition: family members dedicate significant time, energy and resources to functioning as a “family in business.” They engage in dialogue, establish governance structures, articulate shared values, invest in ongoing development and serve as stewards of the company’s legacy.
The first definition responds to “what we are” while the second relates to “how we make it reality.” A company can be entirely family-owned and still not function as a family business without collective efforts and a shared vision.
This shared vision entails both the desire to own a business and the commitment to being a family. Yet how often do we neglect the family dimension?
The dual-engine model: family and business
The family business is like a two-engine airplane:
- The family engine: healthy relationships built on trust and clear values, the capacity to tackle difficult conversations without damaging relationships, preparing next-generation leaders and nurturing a sense of belonging, love, service and generosity.
- The business engine: strategy, a competitive business model, financial discipline, professionalization, attracting, retaining and developing talent (both family and non-family), and the agility to adapt to market changes.
Without both engines running well, the plane can’t stay airborne. By definition, a family business requires a dual commitment to function effectively: to be both a good family and a good business.
The critical role of governance
The two engines of family business must be connected via a robust governance system. Governance isn’t bureaucracy; it’s a set of rules, forums and processes that enable family and business to work smoothly.
- The family structures itself through family meetings, a family council, an established protocol or constitution, employment and compensation policies, and entry and exit guidelines.
- The business is rigorously governed through a board of directors or advisory board, independent directors, strategic planning and clear metrics.
- Bridges must be built between them: people and governance structures that align the family’s vision with decisions made by the board and leadership team.
When this system works well, a virtuous cycle emerges: a strong family strengthens the business; a thriving business develops better people.
Three questions to ponder
1 – Why do we call ourselves a family business? Simply because of our ownership structure or because of the deliberate effort we make as a family?
2 – What are we doing to nurture the “family engine”? Do we create forums for dialogue, education, conflict resolution and building a shared culture? Are we actively instilling values of love, service and generosity?
3 – Would an external analyst evaluating just the business—without knowing it was family-owned—consider it a strong company? If you can’t answer with a resounding “yes,” the “business engine” needs attention.
A family business isn’t defined by legal documents. It’s defined every day through our efforts to sustain the business and our commitment to loving, serving and being generous with one another as family.
In the first article of this two-part series, we examined the defining characteristics of a family business. In the next installment, we’ll explore how to cultivate a family culture rooted in love and service.
Homepage image: Andreea Avramescu on Unsplash
