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D21 Partners, LLC. 

50 Fountain Plaza, Suite 1700

Buffalo, NY 14202

(716) 853-5100

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An Introduction to Stage 3 Planning: Planning for Both Business and Family Governance

By Scott E. Friedman, Andrea H. Vossler, and Eliza P. Friedman 

While “stage 1 planning”™ and “stage 2 planning” strategies are important family business planning tools, the historical emphasis on “financial planning” without comparable attention to “people planning” has often come at great cost to families in business together, as most failures are more appropriately attributable to intra-family mistrust and miscommunication.  This inadequate attention reflects a historical under-appreciation for the unique qualities of a family business. For example, every business needs to consider such issues as how to generate more revenue than expenses incurred, how to grow, and how to compete. Only family businesses, by contrast, are controlled by two or more individuals who, to work together well, must also figure out how to smartly reconcile the conflicting roles and responsibilities that inevitably arise as a result of the frequent incongruity between traditional “family values” and “business values.” Without appreciating the distinct attributes of a family business, too many families and their professional advisors have failed to sufficiently consider how family members might work together, presumably trusting that family members would naturally support other family members and work well with each other. In our experience, however, families seem to take for granted that goodwill and trust will continue without effort when, in fact, failure to structurally enforce open lines of communication is a primary cause of failure.

These considerations generally received inadequate attention until sometime in the 1970s when the field of family business consulting is traditionally considered to have been established, principally by psychologists and social workers. The field continues to develop and, as a result, there are no licensing requirements to counsel clients, no commonly accepted understanding as to what training consultants should have, what they should be doing, how they should do it, nor what is reasonable for their clients to expect. Many family business consultants, however, strive to help family businesses by developing processes and structures that are designed to enhance the quality of interpersonal relationships and the quality of decisions that impact the future of the business, including by seeking to align values, vision and mission, and developing plans and policies that are informed by those core principles. Such efforts, that we refer to as “stage 3 planning”™ are often informed by helping families to better appreciate the intersection of three roles that individuals might have in a family business: (1) roles within the family, (2) roles as owners of the business, and/or (3) roles as employees of the business, as traditionally reflected in the following three circle model developed by Harvard Professors Renato Tagiuri and John Davis in the 1980s(1):

  1. Infographic inspired by Kelin E. Gersick et al., Generation to Generation: Life Cycles of the Family Business at 6 (1997).

After clarifying these differing roles and accompanying responsibilities, many consultants seek to help their clients by introducing them to planning tools designed both to promote more harmonious relationships and thoughtful business operations. Because of their importance to effective planning for family businesses, and because these tools may be less familiar to attorneys, particularly in the family business planning context, we consider in our next weeks’ blogs how these three circles are used to advance planning along with some of the most important tools.

D21 Partners specializes in all stages of planning for family businesses primarily in the Western New York area. The first step to begin working with our expert team, is fill out our exclusive Family Business Scorecard.