What It All Means: A Glossary of Family Business Terms
If you’re just beginning to investigate how to manage issues at the nexus of family and business, you may have encountered some terminology that’s unfamiliar to you. We provide some definitions and explanations here.
This glossary is adapted from a longer version that is distributed to attendees at Family Business Magazine’s Transitions conferences. The version presented here also includes some additional definitions.
Board of advisers/Advisory board: A group of experienced businesspeople who provide advice to the business leader but do not have voting authority or fiduciary responsibility.
Board of directors/Fiduciary board: A group of individuals elected or appointed to represent the shareholders’ interests and oversee the company strategy. The board of directors has voting authority and a legal fiduciary duty to shareholders. Directors have a duty of loyalty (a responsibility to act in the best interests of the company) and a duty of care (a responsibility to make decisions in good faith and in a prudent manner).
Buy-sell agreement: This document specifies matters such as how a shareholder may sell stock, who is eligible to buy it, under what circumstances stock must be sold (such as in the event of a divorce or termination from the company), how the stock will be valued and how the company would fund the purchase of stock from an exiting owner. These types of agreements help ensure that company ownership remains in the family.
Entitlement: A person’s belief/attitude that they should be given special opportunities and benefits without having earned them. This is too often seen in wealthy children who consider themselves to be special and to merit material possessions and extraordinary consideration because of their heritage.
Family: Each family must decide for itself who may have access to certain information, attend family events, serve on the family council and the corporate and foundation boards, and own stock in the family business. Are the founder’s lineal descendants the only ones granted some or all of these privileges? Are in-laws included? Domestic partners? Fiancé(e)s? Stepchildren? Adopted children? Ex-spouses? Many families include a “definition of the family” among the documents in their family constitution.
Family assembly: A formal gathering of family members to discuss business and family issues. This meeting, usually held once or twice a year, is generally open to all members of the extended family.
Family constitution: A set of documents that record the family’s values, hopes and goals as well as a framework for how to achieve them. The constitution provides guidance on the activities of the family, the business, the enterprise, the family office and more.
Family council: A formal governing body that represents the family. It makes decisions on issues that overlap the family and the business and makes recommendations on behalf of the family to the board.
Family enterprise: The various businesses and shared investments, including real estate, owned jointly by family members. A family usually begins with a single legacy business and then, over generations, diversifies into other investments, often selling their family business.
Family governance: Agreements and shared activities that organize the family to remain aligned in support of their ventures and investments through multiple generations.
Family office: A private wealth management advisory firm that serves ultra-high-net-worth families. A single-family office serves one family. Multifamily offices serve multiple families. Family offices can also manage non-financial issues, such as travel and household arrangements.
Family values: In a family business context, these are statements of what the family and their company stand for and believe. Families typically uncover and enshrine family values over time. Documenting and distributing the values to all stakeholders creates behavioral guides for decisions, brand development and family development. Some families create separate statements of family values and business values.
G1, G2, G3 etc.: Refers to the generation of family ownership, starting with G1 as the generation in which the family business was founded. Members of G2, for example, are the children of the founder. G3 members are the third generation, a group of cousins from several family branches.
Genogram: A graphic “map” of the family tree, highlighting “entries” and “exits” (births, adoptions, marriages, deaths and divorces) and representing relationships such as birth order. A genogram can also include data about roles in the family enterprises and causes of death, as well as notations about whether relationships are close, conflicted or distant.
Independent directors/board members: Members of the board of directors or board of advisers who are not family members, company employees, advisers or consultants paid by the company, or close associates of the CEO or other key stakeholders.
Married-in: An in-law; i.e., someone who has married into a business family.
Owners council: Shareholders of the family business (or a representative group of shareholders) who meet to discuss their vision and goals for the enterprise and relay that information to the board with one voice.
Shareholder agreement: A document that codifies issues such as who may own shares, how voting rights are determined, under what circumstances dividends are paid and how disputes will be resolved. It often includes a buy-sell agreement.
Stewardship: The careful and responsible management of something entrusted to one’s care; an attitude that one’s inheritance should be preserved and passed on to others, rather than used up.
Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact firstname.lastname@example.org.