Do family businesses need “rooms” to operate effectively?

The answer would appear to be yes if you agree with a recent Harvard Business Review article written by a group of family business advisors. Here’s what they say about rooms and businesses.

Family businesses face multiple decisions in areas that often have a tangential relationship with each other. These decisions may involve succession, or whether to hire more staff for the business. To better make these decisions, according to Josh Boran, Rob Lachenauer, and Sebastian Ehrensberger from Banyan Global Family Business Advisors, family businesses need to think in different rooms.

 

“Just as we separate the bedroom from the kitchen in our homes, successful family businesses build out and furnish four rooms: the owner room, the board room, the management room, and the family room,” say the authors.

 

They go on to say that decisions are made in each room, whereby management directs operations, the board monitors the performance of the business and hire/fire the CEO, owners set the high-level ownership goals for the business and elect the board, and families build unity and develop family talent.

 

As long as everyone who fits into one of these rooms knows their responsibilities and they do not enter other rooms with their issues, family businesses should run more effectively, say the authors.

 

“Well-run family business systems funnel decisions to the appropriate room, and family members and others play different roles and behave differently in each room,” say the authors. The article goes on to quote a family business CEO saying that since applying the four rooms concept to his business, the company has become “50% more efficient”.

 

The room idea appears to be based on common sense and has an effective organisational appeal to it for any family business.

 

But the concept has been around for some time. Harvard Business School has for sometime taught the three circles principle to members of family businesses, whereby the business should be broken down to three areas - the management, the board and the family, and that there should be clear boundaries between them.

 

So, it has been around for a while - although, of course, now there is another room.