Decision Tree Glossary

3 Circle Model: A successful family enterprise requires an understanding that there are 3 key and very separate interested parties who need to be considered in relation to succession planning of a family enterprise, including 1) Family Members, 2) Owners, and 3) the Business (or Management). The 3 Circles overlap, to create a Venn diagram with 7 potentially different perspectives. The 3 Circle Model was designed by Professors Renato Tagiuri and John Davis in 1978 at the Harvard Business School.

Business Strategy: A sound formal business strategy, the design of which must be delegated to competent management.  The business strategy should be in writing and understood by management and the Board.

Corporate Governance: A system of rules, policies, and best practices that dictate how a company’s board of directors manages and oversees the operations of a company to ensure accountability and objective decision making.

Continuity: Having a plan to deal with difficult situations, so your organization can continue to function with as little disruption as possible. Whether it’s a business, public sector organization, charity, or your family, you need to know how you can keep going under any circumstances.

Estate Planning: The planning around what you own and how you own it, and naming of whom you want to receive the things you own after you pass. It is the preparation of tasks that serve to manage a person’s assets in the event of their incapacity or death. This includes the bequest of assets to heirs and the settlement of estate taxes.

Facilitator:  A person who helps a client understand their environment and helps create action of forward movement.  Facilitators assist individuals or groups (families) to work together to achieve their goals and to think more clearly, efficiently, and systematically.

Family Assembly: A general meeting of family members who are eligible to participate in governance.  It is often used as a family circle governance tool when there are many members of a family made up of various generations in the family circle.

Family Champion: A family member who acts as a catalyst to help other family members become more effective. The Family Champion is a visionary catalyst who brings new energy into the family enterprise to support and develop the family ownership advantage.

Family Constitution: A very important document for every family enterprise to create for the benefit of current and future generations to define how it will govern itself. It is a formal written agreement, developed by the family for the family, articulating several very important elements, which may include: the family mission statement, formal by-laws, family values, family policies (Board Membership, senior leadership, employment of family members, etc), code of conduct, philanthropic goals, goals and frequency of family meetings, mechanisms for dispute resolution, and confidentiality considerations.

Family Council: A very useful governance tool for growing families, of several generations, to have an organized governance method to elect competent representation and define and exercise voting rights. The family council may be elected at a meeting of the family assembly.

Family Enterprise: A Family Enterprise, often with multigenerational ownership, comprises all of the human, social and financial capital of a family unit, including the operating business, financial assets, real estate, heirloom assets (like cottages, art and the like), philanthropy, deferred assets (like life insurance), and human/non-financial assets that each member of the family personally contributes.

Family Enterprise as a System: A family enterprise is much more than a family business, as it comprises the holistic dimensions of the family unit, together with all aspects of the family wealth, including the operating business and /or family office, financial assets, real estate, heirloom assets (e.g. cottages, art, horses and the like), philanthropic interests, deferred assets like life insurance, and human/non-financial assets such as the human, intellectual, social, and spiritual values of the family members. 

Family Meetings: Refers to a regularly scheduled forum with a formal agenda and possibly run by an outside facilitator, where family members meet and discuss key matters that relate to both business and family. Meetings are meant to facilitate relationship building and erase the distinction between those who work and do not work in the family business.

Family Office: Generally, family offices begin as an extension of the family business as the services to the family members expand due to having investments as a result of a sale of the business or profitability of a business that now pays its shareholders dividends that accumulate year to year and its management is required.  A Family Office may consist of the family investment office once the family operating business has been sold off.

Family Values: Family values refer to the moral and ethical principles traditionally upheld and transmitted within a family, such as honesty, loyalty, faith, and anything that is permanent and a beacon. They are cultural and pertain to the family’s structure, function, roles, beliefs, attitudes, and ideals.

Family Vision: Refers to the mental image of where an enterprising family expects its enterprise to be at some point in the future, based on common goals and aspirations of family members. It may take form of a documented description of what the family intends to accomplish long term.

Familiness: The specific result of the structural coupling of family and enterprise, which can bring forth a particular identity and “unique advantage” for the family enterprise that has grown historically and incorporates different content relations such as particular abilities to innovate, and human and social capital.

FEA: The Family Enterprise Advisor (FEA) qualification denotes a specialist family enterprise advisor designation, for a person who has completed the rigorous classroom and team project training requirements and passed the oral and written exam qualifications established by Family Enterprise Canada.

Financial Literacy: Having the skills and knowledge to make informed decisions about managing your money. Understanding basic financial concepts lets people know how to navigate the financial system.

Genogram: A Family diagram (tree) that maps out your family and their involvement in the family business, using a specific set of defined symbols and format to tell the family relational story. A pictorial display of a person’s family relationships and medical history. It goes beyond a traditional family tree by allowing the user to visualize hereditary patterns and psychological factors that punctuate relationships.  It can be used to identify repetitive patterns of behavior and to recognize hereditary tendencies.

Governance: A system to help you make better decisions. To document your family governance is to bring awareness to how you already make decisions. Then expand by asking “What’s been working for us and what hasn’t, and what changes do we want to see in how we make decisions better together?”

Governance Formalization: There must be strong governance systems built in all of the 3 circles, with a willingness to not rely solely on family members where stronger skills/expertise can be obtained through the use of external parties (i.e. as board members, management, or advisors).  To build the best, you must work with the best.

Homeostasis: Homeostasis is equivalent to staying with the status quo, sticking to routine, moving forward mindlessly, doing things out of habits.  Because of the existence of homeostasis, a family unconsciously holds back to change. 

Interchanging life cycle: When you take a step back and look at all the cycles that are in play simultaneously no wonder the dynamics of family business are complex. As you try and navigate all the cycles:

• Your personal journey & family phase,
• The business stages,
• Your ownership distribution,
• and the industry’s evolution

 All of these cycles have an influence on you, your family and your business.

Mission Statement: A family mission statement encapsulates your idea of family goals and aspirations of a good life) and lays out your family’s purpose, goals, and standards.

Multidisciplinary Team: Consists of a variety of experts who support family enterprises in the continuity process including estate planning specialists, accountants, attorneys, wealth managers, insurance specialists, family therapists, coaches, business strategists, and others. Each of these experts serve a specific need for a family enterprise in their continuity journey. No one advisor can possibly serve all the needs of a family enterprise. A variety of services are generally needed, including establishing governance practices to developing a shareholders’ agreement to building policies that help manage the relationship between family and the business.

Ownership Alignment: The owners must acknowledge that the family enterprise has an importance that is far greater than the interests of them as individuals, and that the synergy of the ‘familiness’ advantage only materializes through a philosophy of alignment.  Success can only be achieved by an attitude of Us and We, and not I.  This requires tools such as the family constitution (outlining the values, vision, and mission statement), and well worded shareholder agreements.

Paradox: A statement or proposition that, despite sound (or apparently sound) reasoning from acceptable premises, leads to a conclusion that seems senseless, logically unacceptable, or self-contradictory.

Philanthropy: The act of giving back, which often contributes to building a legacy.

Process: A series of actions or steps taken in order to achieve a particular end.

Quarterback: A trusted advisor who can look over all that is going on and at stake and consider all the perspectives.  The quarterback helps connect all the dots to help visualize all the moving pieces.

Shareholders Agreement: A “rule book” document for the shareholders in a business (and the underlying business itself) to prevent disputes if the number of shareholders increases as the next generation becomes involved in the business. The agreement is a contract between shareholders and provides protection around ownership and sets out procedures to be taken in relation to certain decisions, for example, provisions relating to the composition of a board of directors.  Can include provisions to deal with death or disability, disputes, divorce, buy-sell, retirement, and voting considerations.

Succession Planning: The planning process for the successful integration of the next generation into the enterprise and transitioning of ownership and leadership.

Transgenerational Wealth: Refers to assets passed down by one generation of a family to another. Those assets can include stocks, bonds, and other investments, as well as real estate and family businesses.

Triangulation: Triangulation happens when one or both people involved in a conflict try to pull a third person into the dynamic, often with the goal of deflecting the tension.  In the end, reaching no means of resolution and sometimes even make the conflict worst.

Trust: A fiduciary relationship in which one party (the trustor or person who creates the trust), gives another party (the trustee or person in charge of the trust), the right to hold title to assets for the benefit of a third party, the beneficiary. Trusts are established to provide legal protection for the trustor’s assets, for example, to avoid or reduce inheritance or estate taxes.

Family Trust and its 3 Components: By understanding the behaviours that underlie trust, leaders are better able to elevate the level of trust that others feel toward them. Here are the three elements.

• Positive Relationships – Trust is in part based on the extent to which a leader is able to create positive relationships with other people and groups.
• Good Judgement/Expertise – Another factor in whether people trust a leader is the extent to which a leader is well-informed and knowledgeable. They must understand the technical aspects of the work as well as have a depth of experience.
• Consistency – The final element of trust is the extent to which leaders walk their talk and do what they say they will do.

Types of Owners

• Operating Owner: Involved in the day-to-day operations.
• Governing Owner: An active overseer but not involved.
• Active Owner: Not employed and take a genuine interest.
• Passive Owner: Collect dividends and make no conscious decision to stay an owner.
• Investor Owner: Like a passive owner, but if satisfied with the returns then makes a conscious decision to retain ownership.
• Proud Owner: Not knowledgeable about the business or engaged in it, and still proud to be an owner.
• Good Owner: Works on the business, not in the business.

Types of Ownership Structures

• Controlling owner: The advantage is there is one owner.  Decisions are made quick. There is no one else to be accountable to.  On the other hand, there can be great issues passing the baton, letting go and passing ownership on.
• Sibling partnership: There must be an understanding of the different way to make decisions. Siblings must also understand where they are in the Three Circle Model. A good practice is to give opportunity to siblings to make little decisions together to build confidence for when big decisions need to be made.
• Cousin consortium: At this stage the family is bigger than any one individual.  This stage of ownership works best when there is a focus on the collective and there is a level of humbleness amongst the individuals.
• Family Syndicate: Once the ownership passes down beyond the immediate cousins, to persons related by more distant relationships, the ownership is referred to as a family syndicate.

Wealth Integration: The family must recognize the importance of building the family wealth over each generation, including all the different asset classes comprising the family enterprise.