Governance
Family Business Governance (Three-Circle Model)
Plots every person touching a family firm into family, ownership and management, and the overlaps between them, so a fight about who's 'right' turns into a clear question of which boundary is actually being crossed.
Also known as Three-Circle Model, Tagiuri-Davis Model, Family, Ownership, Management Model, Seven-Sector Model. First set out by Renato Tagiuri and John A. Davis in 1996; the primary source is cited in full below.
Where this is contested
The 1996 Family Business Review article is the standard citation and the one worth quoting, but the model itself was sketched in 1978 working papers at Harvard Business School and first formally published in Davis's 1982 doctoral dissertation, not invented whole in 1996.
- Format
- Structural model
- Level
- Corporate · Business unit
- Best for
- Structure the problem · Plan execution
- Decision stage
- Diagnose · Plan
- Difficulty
- Intermediate
- Time to apply
- A half-day with the family to map it, then months, sometimes years, of follow-through to turn the map into a constitution, a council and a board that actually work.
Plate · The model
The components
Family Only (Sector 1)
Relatives with no shares and no job in the business, a spouse, a sibling who chose another career, the next generation still at school. Their claim is emotional and historical: belonging, history, the family name. It isn't financial or operational, but it still shows up at Sunday lunch with a vote it doesn't legally have.
Signals of strength
Non-employed relatives treat business decisions as though they had a say they don't hold on paper. · Family gatherings quietly turn into shadow board meetings. · People actually running the business resent that relatives who've never set foot in it have strong opinions on pay, hiring or strategy.
Owner Only (Sector 2)
Shareholders who aren't family and don't work in the business, an outside investor, an independent trustee, or a relative who sold their operating role but kept their shares. Their claim is financial and governance-based: a return on capital and a say in control.
Signals of strength
Their expectations on dividends versus reinvestment are assumed rather than discussed. · They learn about major decisions after the fact, through family gossip rather than formal reporting. · Their return is quietly treated as less important than family harmony or management convenience.
Management Only (Sector 3)
Non-family, non-owner employees, including the senior managers actually running the business day to day. Their claim is professional: fair reward, real authority, and a career that doesn't hit a ceiling because of who their parents are.
Signals of strength
Capable non-family managers leave once they realise the top job was never going to be open to them. · Family members override decisions the manager was specifically hired and paid to own. · Pay and promotion criteria differ, visibly, between family and non-family staff.
Family + Owner (Sector 4)
Family members who hold shares but don't work in the business, often the next generation who inherited equity and chose a different career. Their claim combines belonging with a genuine financial stake, and they're usually the most overlooked people in the whole system.
Signals of strength
They hear from the business only when there's a problem or a signature needed. · Working relatives treat their shareholding as a technicality rather than a real, protectable stake. · No shareholders' agreement exists to stop them being diluted, outvoted or simply ignored.
Family + Management (Sector 5)
Family members employed in the business who don't yet hold shares, typically the next generation proving themselves before any equity changes hands. Their claim is a job plus an expectation of future ownership that's frequently never been written down anywhere.
Signals of strength
They're doing owner-level work for an employee's wage with no defined route to equity. · Performance expectations of them are either non-existent, because they're family, or unreasonably high, to prove they aren't coasting on the name. · They've been told some version of "it'll all be yours one day" with nothing more formal behind it.
Owner + Management (Sector 6)
Non-family employees who've been given equity, usually a long-serving executive or a co-founder outside the bloodline. Their claim sits between professional manager and part-owner, and it's an uneasy seat if the family doesn't fully mean what the shares imply.
Signals of strength
They're included in some ownership conversations and quietly excluded from others, with no clear rule for which. · Family members treat their shares as a loyalty reward rather than a real stake carrying real rights. · Succession conversations happen without them even though they would inherit genuine operating responsibility.
Family + Owner + Management (Sector 7)
The full overlap, family members who own shares and run the business day to day, typically the founder, or the next generation once succession has actually happened. This is the seat with the most power and the most confusion, because every decision they make can be read three different ways by everyone watching.
Signals of strength
They can't say, and neither can anyone watching, whether a call was made as a parent, a shareholder or a manager. · Business decisions and family decisions happen in the same conversation, often over dinner, with no record of which one just happened. · They resist any governance structure that would require them to explain decisions they're used to making alone.
When it earns its keep
- A founder is bringing the next generation, an in-law or a long-serving non-family manager into leadership and nobody has agreed what that means for authority versus ownership versus family standing.
- Decisions keep stalling or reopening because people are arguing from different circles at once without realising it, one person making the case as a shareholder, another as a parent.
- You're about to draft or fix a family constitution, a family council or a board, and you need an honest picture of who's actually in the system before you write rules for it.
- Succession is somewhere on the horizon, discussed openly or not, and every relative involved is quietly running a different private theory of who takes over and when.
- A manager who isn't family is caught between people who each think they outrank the others, for reasons nobody has said out loud.
And when it doesn't
- The business has no family ownership or involvement at all; there is nothing here for you.
- You need to fix one stalled decision, not the whole system. RAPID or RACI will get you there in a fraction of the time.
- The family relationships are fine and the real problem is strategy, pricing or operations; don't drag family dynamics into a conversation that was never about them.
- You want a governance mechanism, not a diagnosis. This model shows you where the pressure sits, it doesn't draft the shareholders' agreement or design the board for you.
- Feelings in the family are too raw right now for a structural conversation; get people talking to a mediator, or give it time, before a diagram goes in front of anyone.
How to run it
Before starting, gather the inputs the analysis depends on:
- An honest list of everyone connected to the business, family, owners, managers and employees, in whatever combination they actually sit in, not the combination the org chart pretends.
- Willingness from the family to say out loud who currently holds what, rather than what's supposed to be true or what was promised at some point.
- Enough trust in the room for people to hear that overlap is normal and not evidence that someone is being difficult.
- A facilitator who isn't personally sitting in one of the three circles, or who is honest enough to declare it if they are.
- Time. This surfaces the real argument in an afternoon. Fixing what it finds runs to months, sometimes years.
- 1
Map who sits where
List everyone connected to the business, family members, shareholders, employees, in every combination, and place each person by what's actually true today, not their job title or what the family says is true. This gives you all seven overlapping zones, not just the three headline circles.
- 2
Name what each zone is entitled to claim
An owner has a claim on value and control. A family member has a claim on belonging and history. A manager has a claim on the authority to run things day to day. Work out which claims each person is carrying, and where two or three of them are stacked on the same individual.
- 3
Trace the argument back to a boundary
Take whatever's currently causing friction and ask which line it's crossing, family versus ownership, ownership versus management, or family versus management. Renaming the argument this way takes the personality out of it and puts the structure back in.
- 4
Separate the forums
Decide which conversations belong where. Family matters, values, employment expectations, fairness, go to a family forum. Ownership matters, dividends, exit, control, go to an ownership forum. Running the business goes to management and, ideally, a board. Most family rows persist because all three get argued out in the same conversation, usually at dinner.
- 5
Turn the map into machinery
Use what you've found to start building the actual mechanisms, a family constitution or protocol, criteria for family members joining or leaving the business, a dividend policy, a board that includes an independent voice. The map is a diagnosis. It doesn't fix anything on its own.
- 6
Rerun it at every real change
Redo the mapping whenever a generation enters or exits, an owner sells or dies, or a non-family manager is promoted into real authority. The zones shift quietly, and old assumptions calcify if nobody checks them.
Reading the result
A picture of exactly who sits where across family, ownership and management, in whatever combination is actually true today, plus a shared vocabulary for naming which boundary a live conflict is really crossing before anyone tries to fix it.
- Overlap itself isn't the problem. Every real family firm has some. The problem is overlap nobody has agreed the rules for.
- If most of the heat sits in sector 7 (family, owner and manager all at once), the business is over-reliant on one or two people carrying every hat simultaneously, which is a succession risk whether or not anyone's called it that yet.
- If sector 4 or sector 5 keeps coming up bitter, you likely have an ownership-transfer or reward problem dressed up as a family argument.
- Empty sectors matter as much as full ones. If nobody occupies sector 2, 4 or 6, there's no external or non-operating perspective anywhere in the system, and the family is marking its own homework.
A worked example
Medlar Grange Farm: land, weddings and who actually gets what
Medlar Grange is a 340-acre farm near Cirencester, in the family since 1958. Graham Astley (68) took it over from his father and now holds the freehold and the majority partnership share, though he's largely stepped back from day-to-day running. His daughter Susannah Astley-Reed (41) spent eight years building a diversified side, a farm shop, café, wedding barn and three holiday cottages, from nothing; it now turns over roughly £1.9m of the farm's combined £3.2m and employs eighteen people, most of them seasonal. His son Tom Astley (38) runs the core arable and contract-farming business, lower margin but the reason the land itself is still farmed, worth about £1.3m and employing six. Tom's wife Priya Astley (40), a qualified accountant, has been doing the business's actual finance function for three years, unpaid and informally, because nobody else will. There's no board, no shareholders' agreement, no family constitution, just a partnership deed drawn up by a solicitor in 1994 that has never been revisited. Graham has started talking about 'splitting the farm fairly between the two of them' when he goes, by which he means the land, in half.
- Family + Owner + Management (Sector 7)
- Graham holds the freehold and the majority partnership share and still signs off anything over £10,000, despite calling himself semi-retired. His idea of fairness, splitting the land in half, is a family instinct answering an ownership question it was never built to answer.
- Family + Management (Sector 5)
- Susannah draws a manager's salary for having built 60% of the farm's turnover from nothing, and holds no equity in the land her wedding barn, car park and cottages physically sit on. If the freehold splits down the middle, half of what she built could end up standing on her brother's land.
- Family + Management (Sector 5)
- Tom runs the lower-margin core business and, as the son who 'stayed on the land' in the family's unspoken script, is the presumed heir to the freehold. He knows his sister's side outperforms his on turnover and margin, and is defensive about it, without anyone having said so to his face.
- Management Only (Sector 3), contested
- Priya does three years of real, unpaid finance work with no shares, no title and no formal standing. Whether she counts as 'family' for governance purposes has never been decided, which is exactly the kind of boundary question this model forces into the open rather than leaving to assumption.
- Family Only (Sector 1)
- Graham's wife Jean (66) holds no formal role or stake but has real informal influence over Graham's thinking, and strong, frequently aired views on fairness between the children. Nobody has ever suggested her opinion doesn't count; nobody has written down that it does, either.
- Owner Only / Family + Owner / Owner + Management (Sectors 2, 4, 6)
- All three of these sectors are currently empty. Every owner at Medlar Grange is also family and also working in the business. There is no external shareholder, no non-operating family owner, and no non-family person holding equity, so there is no seat in the system that isn't also carrying family history into the conversation.
- Cross-boundary asset
- The wedding barn is technically part of the estate Graham owns, an ownership-circle asset, but functions economically as Susannah's business, a management-circle asset. She has no lease, licence or agreement protecting her use of it if the land passes to someone else.
The read. The map doesn't tell Graham how to split the farm. It tells him what he's actually deciding, and it isn't one thing. There's a land question, who owns the freehold, a value question, who built what the farm is worth today, and a fairness question, what 'equal' even means when one child converted eight years of unpaid risk into 60% of turnover and the other kept the land producing at a much lower margin. Treating all three as the same question, which is what 'split it fairly' quietly does, is exactly why nobody's been able to agree. Medlar Grange has no shareholders' agreement, no policy covering Priya's situation, and no independent voice in the room. Until one of those exists, Sunday lunch is the governance structure, and at Sunday lunch the loudest claim wins, not the strongest one.
Pitfalls
- Treating the map as fixed once it's drawn. People move sectors as they age, marry, retire, buy in or die, and a two-year-old map is often just a nostalgic photograph.
- Mistaking the mapping exercise for the fix. Naming which boundary a conflict crosses is the diagnosis. The constitution, the council, the board, the buy-sell agreement, that's the treatment, and it still has to be built.
- Letting whoever holds the most power in the room, usually the sector 7 person, run the exercise on themselves. They will draw circles that protect their own position without ever consciously deciding to.
- Assuming 'family' means blood relatives only. In-laws, unmarried partners and stepchildren often carry real influence and belong somewhere on the map; pretending otherwise just hides where the conflict actually lives.
- Reaching for a scare statistic to create urgency. 'Only 13% of family businesses make it to the third generation' is the most misquoted number in the field. Ward's original 1987 study found something narrower: 13% of the firms it tracked remained family-owned through three generations, from a sample that had already survived 60 years. Use the real finding, or leave the number out.
- Running this once and filing it away. Its value is in repeating it at every ownership or generational change, not treating it as a one-off consultancy deliverable.
What the critics say
The model is a still photograph. It shows who overlaps today but says nothing about how the picture changes as people age, marry, have children, retire or die, which is exactly when family firms get into the most trouble. The field's own answer to that gap is a generation-old book, not a footnote.
Kelin E. Gersick, John A. Davis, Marion McCollom Hampton and Ivan Lansberg, Generation to Generation: Life Cycles of the Family Business (Harvard Business School Press, 1997), which extended the three circles with an explicit developmental time dimension for this reason.
It's a diagnostic lens, not a design tool, and used carelessly it invites a one-size-fits-all governance response built on nothing more than the shape of the diagram. Naming the roles isn't the same as understanding the rules, logics and communication patterns actually driving the family system.
Maria José Parada, 'Family Business Role Models: Understanding Role Complexity', FFI Practitioner (7 October 2015).
Some scholars reject the premise that family and business are cleanly separable circles at all. For people fully embedded in both, family life and business life aren't two overlapping systems, they're two sides of the same continuous surface, and drawing them as separate circles that merely intersect understates how inseparable they actually are for the people living it.
Reginald A. Litz, 'Two Sides of a One-Sided Phenomenon: Conceptualizing the Family Business and Business Family as a Möbius Strip', Family Business Review, 21(3) (2008), pp. 217-236.
Sources and further reading
- Renato Tagiuri and John A. Davis, 'Bivalent Attributes of the Family Firm', Family Business Review, 9(2) (1996), pp. 199-208. ↗
- Kelin E. Gersick, John A. Davis, Marion McCollom Hampton and Ivan Lansberg, Generation to Generation: Life Cycles of the Family Business (Boston: Harvard Business School Press, 1997).
- John L. Ward, Keeping the Family Business Healthy: How to Plan for Continuing Growth, Profitability, and Family Leadership (San Francisco: Jossey-Bass, 1987).
- Reginald A. Litz, 'Two Sides of a One-Sided Phenomenon: Conceptualizing the Family Business and Business Family as a Möbius Strip', Family Business Review, 21(3) (2008), pp. 217-236. ↗