Family Business Decision-Making Models

The magnitude of decisions made in family businesses highlights the significance for thoughtful decision making. A poor decision in a family business may not only create discord between family members (siblings, spouses, parents and children) it can also spell the end of the company.

Decisions can range from whether to sell the family business or who takes over the business after the first generation, what values the business stands for, how to divide family business assets, what disciplinary actions to take against family member employees, which non-profit organizations to partner with or support, etc.

It is advisable for family businesses to clearly define the roles and responsibilities of working family members early on the business cycle. This would help in setting up boundaries and determine the standard of authority and accountability. If every working family member understands who is in charge as well as where and when, the discussions are appropriate, decisions occur faster and feel more equitable.

Successful business families may adopt different leadership style and their decision making style could be any one of the following:

• Autocratic Decision Making: One person, typically the Founder or the owner, takes the decisions that affect the entire company. This style of leadership may suit emerging companies but provides few opportunities for development of future generation leadership.

• Democratic Decision Making: Here the power is distributed throughout the organization and so decision making is also decentralized. Although this model is primarily designed to keep the power in check, at times it may deteriorate into a highly politicized system. This may get magnified in a family business where relationships run deeper and intertwined with personal conflicts.

• Consensus- Based Decision Making: Every member of the organization is involved in the decision making process as they are given sufficient time and information till they are able to reach a consensus on the subject matter under discussion. This style will consume a lot of time as the subject has to be discussed and debated thoroughly before arriving at a consensus.

• Collective Decision Making: The positive features of Autocratic decision making are combined with the transparency that stems from companywide participation. In this time consuming model, effort is made to reach out to others for insight and inputs but decision making is still retained by the leadership. 

• Holacratic—or “Flat”—Decision-Making: This is a newer form of governance which opposes the traditional hierarchy entirely. Holacratic organizations vests specific roles with specific responsibilities in specific contexts. A group of leaders, instead of an individual, is tasked to come up with a solution for each and every problem. However such decisions are difficult to implement and maintain.                                                                     Every decision-making model comes with its challenges and advantages—it’s up to each business family to choose a style of leadership that corresponds to their unique objectives, beliefs, family makeup, and business composition.