If you are a member of a family-owned business, learn more about how we can assist you in your specific context here.

Have you ever broken a bone or had a major surgery? Did you notice how hard it was for your body to perform everyday functions when one part of your body was out of commission? It’s a good reminder that each part of the body has an important role to play, and we need each part to do its job in order to achieve our maximum potential.

As strange as it sounds, it is the same with a family-owned business! We often think of the family-owned business as a single entity. But, in reality, there are multiple components of it, much like parts of a body, that need to work together in order for that business and that family to achieve success.

Why does this matter? Because family-owned businesses matter to the American economy and, of course, to the families who own them and employees who work in them! According to the U.S. Census Bureau, family businesses – companies in which two or more family members exercise control, concurrently or sequentially – represent about 90% of American businesses. And these businesses account for half of the nation’s employment and half of the U.S. gross national product. And yet, many family businesses struggle to survive into the 2nd and 3rd generations. (Data from “Do Most Family Businesses Really Fail by the Third Generation?” by Josh Baron and Rob Lachenauer, Harvard Business Review, 19 July 20021.)

One factor that contributes to the failure of family-owned businesses is when their leaders neglect or blur the lines of the five vital roles in a family-owned business. The five key roles in a family-owned business are:

Family members
Owners/shareholders
Board of Directors
Executive Leadership/CEO
Employees

Before we discuss each of these roles, it’s important to point out that some people will play multiple roles, while some will only perform one. For example, it is common that not every member of the family is an owner. And certainly not every employee is a family member. But some people will hold up to four of these roles.

It’s critical to see these components as separate roles that each perform an important function. And it’s important to understand which hat you are wearing when making various decisions. Are you acting in your capacity as an owner? Or as a board member? Or as a leader of the company? Each has a different type of authority and responsibility.

Let’s look more specifically at the roles:

Family members create a shared purpose for the family and business, consistent with the family’s values.
Owners/shareholders elect the board of directors and clearly articulate the owners’ financial and stewardship expectations.
The Board of Directors governs the company, including hiring and overseeing executive leadership and managing risk, with the goal of achieving or exceeding shareholder expectations.
Executive Leadership/CEO provides operational leadership of the company, sets culture and strategy, hires employees, and establishes processes and priorities to accomplish the board of directors’ goals.
Employees follow the direction of executive leadership to accomplish the company’s mission in accordance with its values.

Much more could be said about each of these five functions in a family business. But the keys to success are building high trust, having clarity of authority, ensuring effective communication among the five components, and cultivating a mindset of stewardship.

When implemented effectively, the five key components work together to create a highly successful and sustainable family business. And that stewardship allows the family and its shareholders to achieve their goals, much like parts of a body that work together to accomplish great things.

“The greatest legacy one can pass on to one’s children and grandchildren is not money… but rather a legacy of character and faith.” – Billy Graham

Contact us if you would like to discuss how to more effectively steward your family’s business. You can learn more about our family-owned business solutions here.

Gray Wirth has served more than 30 years as a leader in corporate, nonprofit, small business, and military contexts. He has successfully led organizations ranging from 100 to 3,100 employees. Gray has lived and worked in five different countries, been a CEO, and accumulated more than 25 years of experience on nonprofit and for-profit boards. He brings experience in executive coaching, strategic planning, and advising boards of directors and business owners. As a Certified Exit Planning Advisor (CEPA®), Gray helps business owners plan in advance for future transitions to ensure that their business, personal, and financial objectives will be achieved. Gray is a U.S. Army veteran and holds a B.S. from Cornell University, an M.B.A. from Harvard University, and an M.A.R. from Westminster Theological Seminary.

Blog