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November 18, 2019

Q&A with Professor John A. Davis: continuing the conversation about the three-circle model

During the webinar on November 7, 2019, there were many more questions for Professor Davis that couldn’t be answered in the time allotted, so we’ve compiled some of these questions here followed by Professor Davis’ replies.

When is the right time to introduce family members to the Three-Circle Model?  

Children who are able to reason and think conceptually can grasp the relevance of the Model. I once talked with a family that drew a large Three-Circle Model in chalk on a playground and then sorted family members—including young children —and some non-family family business employees into the various sectors. Family members physically stood in the area where they belonged according to the Model. Apparently, this exercise encouraged the children in the family circle (8 or 9-year-olds) to ask, “When can I be an owner or part of the business circle?” These questions opened up discussions of what each group does, why each is important, and the qualifications and learning needed to be in each sector. And of course, it raised the question: “Why can’t we go anywhere we want?” The Model is better understood the more people understand the rationale for rules, boundaries and qualifications. But even at a young age, there can be some benefits of using the Model. One caution about this exercise: young children didn’t like being separated from their parents who would be in the family-owner or family-owner-employee sectors. It was important for parents to rejoin their children in the family circle (like driving from work back home) and reassure them that the family was the most important circle. But isn’t this an important lesson for all families?

How do you use the Model to show people moving over time to different roles? 

The Three-Circle Model presents a photo of the system at a point in time. But it can also illustrate the dynamics of the system. Over time, some individuals move into different sectors, like pieces on a chess board. These movements can be shown with arrows, tracing the path a person would take, say, as a family member becomes an employee in the family business and then later becomes an owner. One can also use the Model to illustrate that, over time, not only do people move around the Model, but babies are born, spouses join the family, employees depart the business, etc.

How do we develop or consider family members that may be future owners, future directors, and future family employees? 

As mentioned in my answer above, the Model is useful in identifying roles that family members might play in the system: employee, owner, board member, executive, family council member, etc. Governance forums are not explicitly part of the Model but can be added in the right locations: The Family Council goes in the family circle, the Board of Directors is usually placed in or above the center of the Model. Once various roles are identified, their responsibilities and qualifications can be described and ways of preparing family members for these roles can be discussed.

What do you think about a CEO (family member) who thinks that to be more “professional” they have to forget they are part of the family? 

Many of the most professional managers I have met in my career are family members working in their family’s company. There is no equivalence between being a family member and not being professional. Or being a non-family manager and being professional. A family member-manager or a non-family-manager can behave professionally or not; professionalism always has to do with having high standards of behavior, performance, and ethics, and generally implies that a person uses the latest tools or understandings in their practice. Unfortunately, our language makes an implicit connection between professionalism and not being a family member: We call non-family managers, professionals, which makes family member-managers by implication, non-professionals. I have tried to change this unfair labelling my entire career (with little progress).

 When a family company that used to be very successful and was admired goes bankrupt, have you ever seen next generation members re-build their company to become successful again? 

There are thousands of examples of family companies that were destroyed by war or economic depressions being resurrected by the next generation. There are also examples of once-great companies that failed because of mismanagement or family conflict being restored by family members. Generally, families that are able to resurrect their companies have both great pride in their company and their legacy as a family, and they have something worth salvaging. There is a valuable brand, patents or market needs that make the company a good bet. And the reputation of the family is seen as an asset worth their effort.

Embracing governance software can have significant benefits and is an option that should be explored by every family office. Take a leap toward simplified governance with Trusted Family, learn more on our page