Intention | Part II: A New Approach to Family Business Governance

Intention | Part II: A New Approach to Family Business Governance

by | 'Sep 15, 2017' | Contributor Articles | 0 comments

Did you read Part I of “A New Approach to Family Business Governance?”

Part II – The Power of Intention

Intention refers to a mind-set which shapes a family’s relationship with their business and affects how it needs to be governed. There are four broad types of Intention:

  1. Creating: The desire to use the resources in the family business to pursue entrepreneurial adventures, either through diversifying an existing business or investing in new ventures.
  2. Managing: The desire to have one or more family member in hands-on control of running the business.
  3. Governing: The desire to have family oversee and monitor others who run the business, who may or may not be their relatives.
  4. Investing: The desire among a family to co-invest together in order to generate the best financial return.

Intention is not developmental

Intention can exist in any of the ownership types that are regularly referred to in the family business world; controlling owner (CO), sibling partnership (SP) and cousins’ consortium (CC). This developmental model suggests that governance in a family business follows a predictable pathway as ownership and leadership passes down the generations, from CO to SP to CC.

Each type of Intention, however, can apply to each of these stages. For example, assume there are four identical sibling partnerships.

  • One group of siblings wants to focus on diversifying a business that was inherited by starting new ventures through which the siblings can explore the range of their own entrepreneurial talents (Creating Intention).
  • Another group desires to be hands on in control of managing and building on what they have inherited from the first generation (Managing Intention).
  • In the third case, the siblings want to oversee and monitor external managers rather than being actively involved in day-to-day management (Governing Intention).
  • And the final group of siblings want to co-invest, because they like doing this together, in order to seek the best financial return (Investing Intention).

Each of these sibling partnerships will need to be governed differently to reflect the different type of Intention that they have in relation to their business activities.

It is also worth mentioning that there is not an inevitable, developmental-type progression across the generations of a family business that must start with Creating and move through Managing, then Governing to eventually become Investing. For example, in one generation a family who started a business with the entrepreneurial desire that is core to the Creating Intention could shift straight to an Investing Intention after selling their business and setting up a family office to look after their new wealth.

Intention does not describe a business activity

In the above example of the family office the family, however, had a choice; they could easily have adopted either a Managing or Governing Intention.

The Managing Intention would have entailed a family member being in charge of running the family office, whereas the Governing Intention would have engaged the family in overseeing and monitoring whoever runs the family office on their behalf.  Just because the family office is involved in the business of investing does not mean that the family inevitably has to have an Investing Intention in relation to this activity.

This illustrates that Intention is not a description of the type of business in which a family is involved; it is a description of the mind-set they bring to the business in which they are involved.

Intention and talent

Over generations Intention needs to be matched with the ability and interests of the owning family. For example, the wish to be a family with a Managing Intention depends on family members having the talent to fill the key executive roles in the business. If the family lack such ability, the following choices or trade-offs arise:

  • Stick with a Managing Intention and accept a diminished financial return because those running the business are not in some ways up to the job.
  • Sell and reinvest in another business that suits the family’s talents so that a Managing Intention can prevail without having to accept a sub-optimal return.
  • Continue the existing business by becoming a Governing or an Investing Family; in other words change the Intention and how the business is governed rather than changing the business.

For more on how owners set the direction for their enterprise, check out “Aligning Shared Purpose and Strategy” from our Family Business Basics series.

Don’t miss our interview with Ken discussing family business governance Intention on More at Stake: The Family Business Podcast.