Governance/Decision-making The Four-Room Model Excerpt

How to Set Up Your Family Room

By Josh Baron , Leigh Blank and Rob Lachenauer

The Family Room is an important part of the Four-Room Model. Banyan principal Leigh Blank explains how to think about setting up your Family Room for success.

What decisions happen in the Family Room?

The primary purpose of the Family Room is to enhance family unity and build family talent. In this room, both love and other emotions come into play, though they are usually unwelcome in business decisions. A Family Room allows all family members—including spouses and next-generation members—to build and strengthen their bonds, to share experiences, and to stay connected with the business. Distributed and Concentrated family businesses, which may have dozens or even hundreds of family members, clearly need strong Family Rooms, while Sole Owners and Partnerships may have less of a need.

We benchmarked Family Rooms across a wide range of sizes, industries, and geographies. They all work on similar challenges:

Who is in the Family Room?

All family members above a certain age can be part of the Family Room. But who exactly constitutes your business family? Typically, families include all descendants and spouses of their founder. That seems obvious, right? But if a branch sells its ownership in the family business, is that branch still part of the business family? What about divorced spouses whose children will someday be owners? Family businesses have different definitions of family—and there are many common permutations—but the most successful business families are inclusive.

How does a Family Room work?

Most Family Rooms have two common structures: a family council and a family assembly. A family council is a small group of family members (four to seven) who are elected by the full family to lead the work on the challenges listed earlier. Typically, a family council might have a few mandates, such as the responsibility for developing and educating the next generation (as shareholders, family members, citizens, and professionals). A family council might manage communication among the family members (e.g., many families we work with communicate updates via messaging platforms). Or the council might ensure integration across the family and preserve the family legacy through speakers, events, and other activities. Membership in the family council can offer people who don’t work in the business or who are not active owners a wonderful opportunity to help contribute to the longevity of the family business.

A family assembly is like a family reunion for a business family. Typically, it occurs every year or two and is organized by the family council. The agenda covers both the family and the business. We have seen everything from an all-day picnic to an all-expenses-paid getaway to a five-star resort. Whatever their level of expense and formality, successful assemblies set aside time for family connections, fun, and education. One family we know celebrates any family wedding that has occurred since the last assembly. Another family asks each member over a certain age to contribute their biography (in whatever form they choose) to the family library. In another creative approach, one family prepares mini case studies for the younger generation to work through to understand the family’s business history. Time is also set aside to communicate changes in the business, introduce new business leaders and board members, and new structures and policies that the family council is developing. As families grow larger and spread across different branches, family assemblies are crucial. Siblings grow up in the same house and share experiences and deep bonds. But once family members are part of different households, those bonds can’t be assumed. Cousins are more likely to develop important cross-family bonds through regular, shared experiences available at family assemblies.

*Adapted from the Harvard Business Review Family Business Handbook by Josh Baron and Rob Lachenauer. Pages 66-68