The theory informs the practice; and practical experience shapes the theory.
The three-circle conceptual model of Tagiuri and Davis purports that family businesses are systems made up of three key independent but overlapping subsystems involving family, business, and ownership.
The various categories of family business stakeholders involve:
- Family members who work in the business and own shares (i.e., active family members)
- Family members who own shares but do not work in the business (i.e., passive family members)
- Family members who work in the business but do not own shares
- Family members who do not work in the business and do not own shares
- Key nonfamily managers who own shares
- Key nonfamily managers or employees who do not own shares
- Owners of shares who are neither family members nor work in the business (e.g. equity partners or investors in the firm)
Each subsystem or sphere of influence has its own norms, membership rules, value structures, and organisational structures. Problems arise because individuals have inter-role conflicts and multiple obligations across subsystems, for example, as might be the case for a daughter who is also a sibling manager. Finding strategies that deal with multiple roles associated with different subsystems is a key challenge facing all family firms. Understanding and dealing effectively with the issues surrounding each subsystem is a challenge for accountants.
The three-circle model is theoretically elegant and immediately applicable. It can be used to unravel and synthesize the numerous factors that constitute family business. Understanding the issues involved in each of these domains helps to place individuals’ behaviour into context. In other words, understanding what is and why it is, greatly enhances our understanding, the information of which can be shared with family members themselves.
Gersick and his colleagues extended the three-circle map to include a framework incorporating time and change. This three-dimensional developmental framework of family business encapsulates the separate developmental dimension of the three subsystems: ownership, family, and business.
Controlling owner, sibling partnership, and cousin consortiums comprise the sequence of stages of the ownership subsystem. The developmental stages of the family subsystem involve the young business family, entering the business, working together, and passing the baton. Start up, expansion/formalisation, and maturity are the sequence of development stages of the business. While these developmental progressions are independent, they also influence each other.
Each domain develops according to its own pace and sequence. This model means that each family business can be viewed as progressing to different points on the ownership, family, and business developmental axes.