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Three-Circle Model of the Family Business System

Created by Renato Tagiuri and Dr John A. Davis at Harvard Business School in 1978, and published in b
The Business of Family
Three-Circle Model of the Family Business System
By Mike Boyd • Issue #15 • View online
Created by Renato Tagiuri and Dr John A. Davis at Harvard Business School in 1978, and published in book Generation to Generation, the Three-Circle Model (image below) has stood the test of time for over 40 years.
“Part of the reason why it is still relevant today, is that the Model, in its unaltered form, is adaptable. As the definition of “family” has changed in society, the Model allows for that. In-laws, blended families, divorce, adoption, domestic partners, and whoever the family calls a member of the “business family” because they are connected through ownership – all of these roles are consistent with the Model.
The Three-Circle Model of the Family Business System shows three interdependent and overlapping groups: family, ownership, and business.
An individual in a family business system occupies one of the seven sectors that are formed by these three overlapping circles. An owner (partner or shareholder) and only an owner will sit within the top circle. Family members will occupy the left-hand circle, and employees of the family company the right-hand circle.
If you have only one of these roles, you will be in just one circle. However, if you have two roles, you will be in an overlapping sector, sitting within two circles at one time.
If you are a family member who works in the business but has no ownership stake, you’re in the bottom-center sector. If you are a family member who works in the business and is an owner, then you will sit right in the center of the three overlapping circles.”

(C) Tagiuri and Davis 1982 HBS
(C) Tagiuri and Davis 1982 HBS
With the Three-Circle Model, one can depict seven distinct interest groups (or stakeholders) with a connection to the family business:
  1. Family members not involved in the business, but who are descendants or spouses/partners of owners
  2. Family owners not employed in the business
  3. Non-family owners who do not work in the business
  4. Non-family owners who work in the business
  5. Non-family employees
  6. Family members who work in the business but are not owners
  7. Family owners who work in the business

“Each of the seven interest groups identified by the Model has its own viewpoints, goals, concerns, and dynamics. The Model reminds us that the views of each sector are legitimate and deserve to be respected.
No one viewpoint is more legitimate than another but the different viewpoints must be integrated in order to set future direction for the family business system. The long-term success of family business systems depends on the functioning and mutual support of each of these groups.”

Recommended Book:
Generation to Generation: Life Cycles of the Family Business (1997)
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Mike Boyd is the co-owner and CEO of the Vroom Group, Founder of Prosura insurance, Investor at Mudbrick Capital, Host of The Business of Family Podcast and an active member of YPO.
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