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A striking example of this occurred in September 2017: Herbert Meyer, owner of a medium-sized limited liability company (GmbH) in Bremen, got into a heated argument with his son Ferdinand. The trigger was a seemingly trivial request: to clean up the warehouse ahead of an important client visit. The resulting family tension prompted Herbert Meyer to bring in a mediator. This case is symptomatic of the challenges faced by entrepreneurial families.
For over 40 years, the Three-Circles Model developed by Renato Tagiuri and John Davis of Harvard Business School has been opening up new perspectives for entrepreneurial families. This model, which highlights the subsystems of family, ownership, and business within a family-owned company, is simple yet effective. It identifies seven different stakeholder groups that arise from the overlap of these three areas, thereby shedding light on potential role conflicts.
In the Meyers’ case, the conflict stemmed from a mix-up of roles: Ferdinand interpreted the task of clearing out the storage room as a personal one, not a business one. This led to the resurgence of old family tensions when it came to tidying up his own room.
Despite their apparent vulnerability, however, family businesses provide a stable and resilient foundation for the economy and society as a whole. Strong family values such as trust, integrity, and social responsibility are often reflected in the corporate culture and can have far-reaching positive effects on employees, their families, and the local community.
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Image: KERN’s Munich location
A particularly critical issue in family businesses is generational transition. Homeostasis—a system’s tendency to maintain its current state—becomes especially evident when the company is handed over to the next generation. If the successors now assume their new roles as shareholders, members of management, and so on, this means that the current business leader must step away from the central position where all circles intersect. This causes the system to falter, with all its attempts to restore the familiar original state. This is because values, needs, and identification with new roles are often interpreted differently than by the predecessor.
To ensure a smooth transition, it is essential to address this issue early on, involve all stakeholders, and develop a long-term ownership strategy. A morally binding family constitution and a legally binding shareholders’ agreement can be valuable outcomes in this process.
The model of the circles also shows that the needs and perspectives of the stakeholders are constantly evolving. Family businesses must therefore not only address current challenges but also proactively plan for future developments.
In just over half of all entrepreneurial families, however, the younger generation is not willing to get involved in the family business. Their ideas of a fulfilling life differ too greatly from the reality of running a business. This is a trend from which one can certainly draw some positive conclusions, as the willingness to voluntarily assume responsibility and risk is an important asset for maintaining long-term motivation.
The senior generation is then left with only two options: separating the family from the business by transferring management and ownership to third parties, or seeking a hybrid model in which either the capital or the management remains within the family.
In any case, the emergence of new players leads to stress within the familiar family business system. The neutrality of the circle model can help defuse tensions by emphasizing the significance of roles rather than attributing differences to personality clashes. Tensions become easier to understand when those involved recognize where their counterparts in the conflict are positioned within the model. This is a constructive approach that ensures family businesses will continue to have a positive impact on the German entrepreneurial landscape in the future.
