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Pyramid of Family Ownership Success

Posted on April 30, 2015 by Pat O'Connor

In the spring of 2014, I enrolled in the Family Enterprise Advisor Program (FEA). The new FEA designation is offered by the Institute of Family Enterprise Advisors (IFEA), who partnered with leading universities to create a proven curriculum specifically designed for professional advisors working with business families and family enterprises. One purpose of the FEA program is to provide a toolbox of skills that professional advisors can draw upon when working with complex family businesses, and when collaborating as part of a multi-disciplinary team.

The FEA program introduced me to a planning model titled “Pyramid of Family Ownership Success,” which illustrates clearly why, at Blackwood, “we start in a different place.”  The Pyramid has 3 distinct levels of planning: 

Base Level: Guiding Principles & Aspirations – A family’s purpose, mission, and values form the foundation of the pyramid.  If this foundation is weak, it will eventually lead to problems with the structures and plans constructed on top of it.  For families to build a strong foundation, they must start with a process to gain clarity around the emotional or soft issues that many family businesses avoid. 

Second Level: Family & Business Culture - This level focuses on the relationships, quality of communication, and transparency of decision making within the family and their business. To what extent are relationships supportive, open, and trusting? Does the family base business decisions on merit rather than emotion or family status? This is another area many enterprise families avoid, because relationships can be threatened, but for a family enterprise to thrive, open communication around relationships, trust, and decision making needs to happen. 

Third Level:  Governance Frameworks - If sufficient time has been spent in the first two levels to clarify purpose, mission, and values and then help the family to communicate, families can develop and implement governance structures with confidence. Here families often create family councils.  This can lead to the creation of family constitutions which deal with policies and guidelines for issues such as family employment, joint investing, and managing conflicts of interest.  This stage may also involve transitioning from a family-dominated board of directors, to an advisory board with several outside directors. 

The article, “Planning for Continuity in Family Business: Where, Oh Where, to Begin?” by Amy Schuman at The Family Business Consulting Group, explores a case study in which an enterprise family implemented all three levels of the Pyramid of Family Ownership Success. Every time the family faced a tough decision, the family referred back to their underlying Purpose/Values/Vision Statement, which enabled them to find a path forward that all members supported. 

This is a great real-life example of how “starting in a different place” allowed a family enterprise to greatly enhance their chances of a successful transition to future generations.