A common situation I see in family business is the following. An old generation with an ingrained true owner-operator mindset in the classic sense, familiar with all day-to-day details of the family business and focused almost exclusively on daily operators. Then the next generation comes along. Many times I see next generation family business leaders unhappy, sad and restrained. The source of all this is that the next generation normally have a different view of how they want to be involved in the family business. The new generation normally understand that as the family business grows, they will want to play different roles as owners. But too often those desires and expectations are not discussed or normalised. This leads that the understanding along different generations of what it takes to be a good owner becomes ambiguous and tensions surface.

All too often, I see family business that have cultures inculcated on the belief that the “right” way to be an owner of a family business means being an active owner-operator with a solid operator’s mindset.

Instead I see that their are different and important roles that owners in a family business can play, each contributing in their own way.

• Passive owners that 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 that 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 that 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 that 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 committing 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 utilisation 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 the next generation should also be an operator. Anything less would be laziness or a disappointment. 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 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 with the same people involved in your family business, 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.

As one might expect, these conversations about the family business ownership, have the potential to be messy, and as a result are very difficult to initiate. My experience is that such discussions are often delayed until the family business and family relationships were almost at a breaking point.

So, what is the best way to start an owner roles conversation? Here are some pointers

• I constantly advise families to start by acknowledging the tension and explicitly recognising that no individual owner is causing problems — many issues stem from people’s different expectations about how to engage. Clearing the air and depersonalising the challenge can free the group to focus on trying to find a collective solution rather than “fix” individuals. 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 family group wants to engage as.

• Define goals, priorities, and commitments for each role. What matters to individuals in the owner family group 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? Many times I see valuable family business ownership members who are less interested in operational details but more interested in strategic matters like brand perception, risk, and shareholder return.

• Define success. It is important that all interested owners collectively develop an owner strategy statement to articulate their priorities and why they matter, as well as an owner dashboard to clarify how they 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.

• 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.

In conclusion, breaking the mold of “how we do things around here” can be a scary proposition for successful family owners. But not doing so can have near-disastrous consequences, even for the closest family owner group. Perhaps your next generation won’t aspire to be owners in the same mold as their elders. That is both likely, and may be just fine, as long as you help them have the right conversations to define their owner role.