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

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

by | 'Sep 15, 2017' | Contributor Articles | 1 comment

Part I – The Concept of Intention

In family business governance, structures like an owners’ council are of benefit as a family and their business become more complex over time. This begs the question, however, what should the council do?

The concept of Intention offers an innovative approach to answering this question, one that is firmly rooted in the realistic view that governance structures need to be designed in the image of the owning family.

What is Intention?

The concept of Intention pulls back, or zooms out, from what a family has or what they do in terms of their business activity and offers them an opportunity to reflect on the mind-set that they bring to what they have or what they do.

In this use of the term, Intention refers to a mind-set directed towards the family business, which shapes the family’s relationship with the business and keeps their attention fixed on it. So far we have identified 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 those 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.

Example of Intention

Family businesses A and B seem identical. When transitioning from being owned by two brothers and a sister in the second generation (G2) to a group of six cousins in G3, each family decided to divide ownership equally among the cousins and one of G3 became the CEO. Each family feels that they could benefit from an owners’ council to keep the owners as a group engaged with the business. Family A

Family A are relieved that a family member will be in charge of running their business as they would feel uncomfortable appointing non-family to such a position of trust and responsibility. Indeed, if none of the family wanted to take on this leadership role the family would likely sell the business and reinvest in other types of business that they have an ability to manage. That is just how they see the world and if challenged they would answer, ‘it gives us peace of mind.’Family A has a Managing Intention. For

Family A has a Managing Intention. For them the owner’s council is a forum where they can meet and stay in contact with each other, which is important. They also want to take practical steps through the owners’ council to develop the next generation’s interest in the business, so that they can learn what ‘ownership’ means to this family. During meetings of the council those attending receive information from their relative who is CEO and in charge of running the business, but the owners’ council sees no need to be actively involved in decision-making because the family CEO is trusted to look after everyone’s interests.

In contrast, the six shareholders in family B want to be more actively involved in supervising their business without having to be involved in day-to-day operations. While they are happy to have one of their relatives in charge of running the business, for them peace of mind is knowing that the business is performing well, which includes the shareholders having some powers to oversee and monitor their investment.

Family B has a Governing Intention. Their owners’ council is where the shareholders can be present and effective in a governing role which includes making certain decisions rather than relying entirely on the family CEO.

While a family member is in overall charge of the businesses in examples A and B, the two families have different mind-sets – or Intentions – in relation to their business. Logically, the different Intention of each family shapes how the business needs to be governed, including the role of an owners’ council.

Role of the Owners’ Council:

Family A – Managing

A social forum for owners to keep in touch and receive some information about their business and an opportunity to educate the next generation of owners.

Family B – Governing

Social and educational purpose but also the forum where owners meet the board and take control of some key decisions.

Be sure to read Part II of “Intention: A New Approach to Family Business Governance” 

Check out our interview with Ken discussing Intention in family business governance on More at Stake: The Family Business Podcast.