5 Kinds of Ownership Roles in a Family Business

Contrary to what people often think, there isn’t just one way to be an effective family business owner, there are five. Nick Di Loreto explores five different owner roles. For more details, read the article below.

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Sienna Amouri*, the 72-year-old chairwoman and founder of a high-end cosmetics enterprise, was distraught. A true owner-operator in the classic sense, familiar with all day-to-day details of her far-reaching business empire, Sienna had just watched her eldest sons Remo and Robert storm out of the monthly half-day business meeting in tears. Simultaneously shell-shocked, angry, and trying to console her mother was their sister, Quinn, the current CEO. How did their previously close-knit family come to this point, she wondered.

Tensions had been brewing for several years, though not for the reason most might expect. Remo, Robert, and Quinn were siblings and best friends. They went to college together, lived in the same apartment after university, and even played in the same band. While their paths eventually diverged, with Remo and Robert moving to the east coast and focusing on art and teaching, and Quinn staying on the west coast and following their mother into the family business, they remained close and supportive, never jealous of each other’s successes.

However, Sienna had recently transferred equal ownership to the siblings through her estate plan, and disagreements in their business relationship had strained their family bond beyond recognition. Remo and Robert dreaded attending the monthly in-person meetings and weren’t clear how to engage. Quinn was continually frustrated when Remo and Robert missed meetings or tried to provide advice and guidance on the business when present.

One of the common unspoken tensions in a family business is the reality that different owners — and future owners — don’t all want to be involved in the same way. As families grow, different family members will want to play different roles as owners. But too often those desires and expectations are not discussed or normalized. What it means to be a good owner becomes ambiguous, and tension surfaces, as it did with Sienna, Remo, Robert, and Quinn.

Five Types of Family Business Owners

In other professions, there can be clearer boundaries around different kinds of roles, including responsibilities and compensation. In the medical field, for instance, a typical emergency room doctor is on call for a certain period of time and compensated differently than a dermatologist, who usually has a more predictable 9-to-5 schedule. The same differentiators exist for other professions across financial, legal, and other medical services as well, perhaps most notably the difference between a typical litigator and trust attorney, or a typical investment banker and a retail banker.

But for family owners, the different types of roles are less clear. All too often, families assume that the “right” way to be an owner of a family business means being an active owner-operator. But in our experience at BanyanGlobal, that’s not true. Instead, we see five different, important roles that owners in a family business can play, each contributing in their own way:

• Passive owners typically invest only their capital in the family business. Sometimes this is by choice, but other times this can be structural — especially as a beneficiary of a trust. Passive owners defer most decisions to other owners or trustees and normally choose not to engage beyond what’s required. They also rarely consider exiting the business. Oftentimes their most pressing questions are: What are my obligations as an owner? Or should I go to the shareholder meeting?
• Investors commit their capital and intellect, behaving mostly like a public equity shareholder. They typically review proxy statements and annual financials, vote on director slates, and attend annual meetings. Their focus is on the top two to five decisions a business must make — for example, designing shareholder agreements and selecting boards of directors. Typical questions investors ask include: Is the return I receive adequate? Or can I exit to receive a better return?
• Stewards commit their capital, intellect, and heart, usually choosing to not work in the business but engage to a limited degree as shareholders. Stewards typically focus on maintaining the legacy, ensuring sustainability, and considering how to “leave this place as good as they found it.” Stewards can focus on questions such as: What do we value in our collective stewardship? Or what is our forum to discuss legacy?
• Governors invest their capital, intellect, heart, and time, usually choosing to not work in the business, but instead to meaningfully contribute as board members (and sometimes shareholders). Most governors tend to focus on the top 10 to 20 decisions that a business must make — for instance, long-term strategy, capital allocation, and CEO selection and development. Other questions governors ask include: Who should be on our board? Or how do we develop future family board members?
• Operators commit their capital, intellect, heart, time, and career, typically working in the business, often in a leadership role. They are known to stay involved in the details and remain central to thousands of decisions a business makes on a day-to-day basis. Typical questions operators focus on include: How can we increase utilization at our factory? Or what staffing changes do we need to make at an underperforming division?

But most family business owners don’t explicitly decide which role to assume. Instead, many take on the same role as those that came before them, assuming that’s the way things work. If mom and dad were operators, so too should they be an operator. Anything less would be laziness or a disappointment. Or if my aunts and uncles were investors or stewards, then who am I to meddle in the business that has run been so effectively for years? And if grandma and grandpa were passive owners, then who are you to question the operations of an otherwise successful business?

This seldom works over the long term. Families grow over time, interests diverge, businesses evolve, and relationships change. In practice, that should mean that families develop and accept different owner types, too. But owners get stuck in a role for two primary reasons. First, and most impactful, is inertia. Put simply, change is hard, especially in a private business, where self-reinforcing systems build resilience, lifetime relationships limit change, and relationship stakes are very high. In the words of one family owner, “if it isn’t broke, don’t fix it.” But following that maxim risks alienating those with different perspectives.

The second reason owner roles don’t evolve is lack of language and context. Most family business owners tend to be private individuals who don’t have large peer groups to exchange experiences and understand different roles. So, if your experience is only with governors or stewards, then how could you ever imagine what other options are out there? And even if owners have personal connections to others in similar situations, no common language exists to articulate the different types, their benefits, and their costs to the system.

How Families Can Navigate Evolving Owner Roles

As one might expect, these conversations have the potential to be messy, and as a result are very difficult to initiate. In fact, the Amouri family delayed doing so until their business and family relationships were almost at a breaking point.

So, what is the best way to start an owner roles conversation? We advise families to start by acknowledging the tension and explicitly recognizing that no individual owner is causing problems — many issues stem from people’s different expectations about how to engage. Clearing the air and depersonalizing the challenge can free the group to focus on trying to find a collective solution rather than “fix” individuals.

In the Amouri family’s case, after recognizing that they were fighting over the wrong things, Quinn and Remo agreed to meet separately to walk through possible solutions, and once aligned, brought those ideas to Robert and Sienna for further discussion. Here’s the process we helped them follow.

Create a common language.

Talk about what your family views as the acceptable, different ways to participate as an owner: operator, governor, steward, investor, or passive? Something else? What value does each role contribute to the long-term sustainability of the enterprise? And what expectations exist for each about what you can or cannot do? Then decide which role the collective group wants to engage as.

In their family’s case, Quinn and Remo realized that two of the owners preferred to focus on major decisions rather than details. That led them to design a new governor role focused on influencing the business — and agree to operate with those expectations as owners.

Define goals, priorities, and commitments for each role.

What matters to individuals in your owner role and why? Where will you each focus your attention, what will you do, and why? And how much time are you willing to commit to fulfill your newly defined roles? For example, some stewards we know commit to quarterly owner meetings to monitor performance, an annual management meeting to develop relationships with key executives, and online courses for continuing education.

When Quinn, Robert, and Remo met to more deeply define their governor role, they appreciated how they were largely on the same page about their shared goals and priorities — caring less about utilization figures at the manufacturing plant, and more about brand perception, risk, and shareholder return. They also recognized that meeting three times per year for a full day was more efficient and sufficient for those engaging as governors.

Define success.

Ask all interested owners to collectively develop an owner strategy statement to articulate your priorities and why they matter, as well as an owner dashboard to clarify how you will measure success. While these statements will differ in their level of detail (e.g., operator statements will be more detailed than those of passive investors), this process can be useful in creating psychological ownership for those owners who are less engaged. It’s also an incredibly powerful tool to strengthen relationships between those more deeply involved in the business and those who are less so by forcing everyone to build consensus on what “good” looks like.

Adjust governance.

You may need to take a look at your governance structures to accommodate how these new types of owners wish to engage with the enterprise. For example, if you’re moving to an investor or passive owner model, this may mean creating or strengthening an owner forum with more focused information and a narrower scope of authority to align with their level of engagement. If you’re gravitating to governors, it may mean moving more authority to the board, where those individuals can choose to participate. And if you’re aligning as operators, it may mean adding operating company boards or other senior management forums to create space for more family owners to engage in the details of the business.

We’ve seen families work through the governance issues differently, but the key is to make sure you take the time to think through and specify how the governance will work with the clarified owner roles in mind.

Evolve information flows.

When adjusting to new owner roles, chances are the old ways of communicating won’t work anymore. For example, operators typically have access to real-time information at a very granular level. But stewards or passive owners may feel inundated and overwhelmed by that level of detail, and may benefit more from summary data, delivered quarterly, accompanied by a Q&A session with the CEO or a board member. Or alternatively, investors may be used to receiving annual reports, but governors or operators may wish to dig further into the details. Conduct a review of what information is shared, with whom, and through which channels.

From our experience, this tends to be the most challenging step largely because it upends traditional hierarchy and power models. As they say, “Information is power!” But simplifying, focusing, and targeting information ultimately can help capture new perspectives, unlock powerful insights, drive long-term sustainability, and support deeper family owner cohesion.

In the Amouri family’s case, rather than sift through stacks of financials, they used a new owner dashboard to organize their meetings. This prompted Robert and Remo to engage more deeply, helped them focus on the big picture, and enabled them to ask great questions — one of which led to a novel and incredibly successful marketing campaign.

Create processes to evaluate progress.

Once you’ve implemented the new roles, you’ll want to build in periodic reviews and assessments of what’s working, what’s challenging, and what could be improved or even scrapped. The most successful family owners know that the only constant in private enterprise is change and that creating forums for self-reflection and continuous improvement are what helps them sustain across generations.

For the Amouri family, this meant completing a survey at the end of the year and using time during their end-of-year meeting to review the data and reassess their goals, definitions of success, governance, and information flows.

To read the full article, click here.

*Identifying details have been changed

Originally published on HBR.org, 22 March 2024.