Professionalizing the Business Family: Why Structure Alone Is Not Enough

When people hear the words “professionalizing a family business,” they often think about bringing in outside executives, setting up a board, creating policies, drafting shareholder agreements, or writing a family constitution. These are all familiar tools, and in many cases they are useful. However, after reading Professionalizing the Business Family: The Five Pillars of Competent, Committed, and Sustainable Ownership, I think there is a more important message for families to understand. A family does not become professional simply because it has more documents, more committees, or more formal rules.

The research makes an important distinction between professionalizing the business and professionalizing the family that owns the business. A business may have professional management, strong financial controls and a formal board, but if the ownership family itself cannot communicate, cannot make decisions together, does not share a common direction, or has not prepared the next generation to become competent owners, the business can still face serious long-term risk.

This is particularly relevant for families moving from the first generation into the second and third generations. In the first generation, the founder usually carries much of the decision-making responsibility. The family, the ownership and the management of the business are often concentrated in the same person or a very small group of people. The founder understands the history of the company, the customers, the employees, the financial situation and the risks because he or she has lived through all of it.

Once the family expands, this becomes much more complicated. There may be children who work in the business and children who do not. There may be spouses, cousins and eventually grandchildren. Some family members may depend on dividends, while others want to reinvest for growth. Some may be comfortable taking business risk, while others prefer capital preservation. The family may still own the same business, but it is no longer operating with the same family system.

This is why I think one of the most useful ideas in this research is that professionalization has to begin from the bottom up rather than from the top down. The authors argue that a strong family ownership system begins with shared values and goals, followed by family cohesion and commitment, ownership competence and informal behavioral norms. Formal governance structures come later.

This is almost the opposite of what many families do.

When a conflict starts, the first instinct is often to create another rule. If there is disagreement about compensation, the family writes a compensation policy. If there is disagreement about dividends, it creates a dividend policy. If there is conflict between siblings, someone suggests writing a family constitution. If the next generation does not participate enough, the family creates a family council.

Sometimes these are appropriate solutions, but sometimes the real issue has nothing to do with the missing policy.

The research makes the point very clearly that structural solutions cannot solve emotional or relational problems. In fact, adding more structure can sometimes make the underlying problem worse. Families that remain successful over generations invest in relationships first. They spend time together, create shared experiences, improve communication and learn how to manage conflict. When relationships are strong, formal processes tend to work much better.

I think this is an important point for family office work because advisors naturally like solutions that can be documented. A trust can be drafted. A policy can be written. A board can be established. An organization chart can be designed. These are visible deliverables.

Relationships are much harder to measure.

However, many of the biggest risks inside a family are relational before they become financial. A disagreement about dividends may actually be about one sibling feeling less respected than another. A disagreement about compensation may be connected to an old family rivalry. A dispute over who should become CEO may be influenced by years of competition between children for parental approval.

The research provides a good example of this. In one family, siblings were arguing over compensation and dividend policies, and formal best-practice policies were introduced to address the problem. Those policies did not reduce the conflict because the underlying issue was not really compensation. The siblings had grown up competing for their father’s attention and approval, and the financial disagreements were simply where those older emotions appeared.

This is why family governance cannot be treated purely as a legal or financial exercise.

A professional business family needs to understand both the business system and the family system.

The first foundation is shared values and goals. Families frequently assume that everyone shares the same values simply because they come from the same parents or grandparents. That may be true in the first generation, but it becomes less reliable as the family grows.

The research gives an example of a family where continuity had always been an important value. Over time, however, the younger generation developed increasing financial expectations from the business. At the same time, some family members wanted larger dividends while others wanted to retain earnings and invest in future growth. What appeared to be a disagreement over financial strategy was actually a growing lack of alignment between the family’s original values, the collective goals of the business and the expectations of individual family members.

For me, this raises a very practical question. If a family says it wants to keep a business for another generation, does everyone actually understand what that means financially?

Keeping a business may require reinvesting profits rather than distributing them. It may require taking certain risks. It may mean family members cannot treat the company as a personal bank account. It may also require accepting professional management even when that means a family member does not receive the position he or she wants.

A shared value only becomes meaningful when family members understand the decisions and sacrifices that come with it.

The second area is what the research calls “psychological glue.” This refers to the emotional connection family members have with one another and with the family enterprise. Long-term ownership becomes difficult if family members eventually see the company only as a financial asset.

A shareholder who feels no connection to the history, purpose or future of the business may logically ask why the family should continue owning it. If the only reason to remain a shareholder is receiving a dividend, then selling the shares may eventually become equally attractive.

This is why successful families deliberately create connection. They maintain family traditions, tell the story of the business, organize gatherings, involve younger generations and give family members opportunities to understand the company. The research notes that psychological ownership can develop even before someone legally owns shares. When younger family members become familiar with the business, participate appropriately and invest some of themselves into the family enterprise, they begin to feel responsible for it rather than simply waiting to inherit it.

The third area, and one that I believe deserves much more attention, is ownership competence.

We spend enormous amounts of time training people to become managers, accountants, lawyers, engineers and executives. Yet many families do very little training for the role of owner.

Someone can inherit millions of dollars of shares without ever having been taught how to read financial statements, understand a board package, evaluate management, assess business risk or understand the difference between ownership and management.

Being born into the family does not automatically make someone a competent shareholder.

The research identifies four broad areas of ownership competence: business competence, family competence, self competence, and contextual and zeitgeist competence.

Business competence includes understanding financial information, strategy, the industry and basic legal and regulatory issues. Family competence includes understanding family dynamics, communication and conflict management. Self competence includes the ability to receive feedback, continue learning, regulate emotions and maintain appropriate personal boundaries. Contextual competence changes with the family’s circumstances and with the world around it, including areas such as technology, digital readiness, security and other emerging risks.

I like this framework because it recognizes that a good owner needs much more than investment knowledge.

A shareholder can understand a balance sheet and still damage the family through poor communication. Another person may have excellent interpersonal skills but lack the financial knowledge necessary to question management. A family may also have very successful individual members but still be unable to make decisions collectively.

This is why ownership education should not begin when someone is appointed to the board or when the parents are ready to transfer shares. The research argues that families with a multigenerational vision should develop ownership competence systematically and allocate real resources to it, including time, money and emotional commitment.

From Anico Capital’s perspective, this is one of the areas where family office planning can add significant value.

Next-generation education should not simply mean teaching children how to invest money. They should gradually learn how the family wealth was created, how the operating business works, how the ownership structure is organized, what trusts and holding companies do, how decisions are made, how boards function and what responsibilities come with ownership.

Different children may ultimately play very different roles, and they do not all need the same level of knowledge. One may become the CEO, another may sit on the board and another may remain a passive shareholder. However, every person who has meaningful ownership rights should understand enough to exercise those rights responsibly.

One of the most interesting real-world examples in the report is the Merck family. The business has remained connected to the founding family for hundreds of years and has more than 200 family shareholders. Their approach does not rely only on formal governance structures. The family also maintains communication systems, social interaction and structured next-generation education. Younger family members participate in programs that introduce them to the family culture, the industries and the company’s strategy, while more advanced internal education prepares future family members for governance roles.

This shows that professional ownership is not created at the moment shares are transferred. It is built over many years.

Another important lesson from the report is that every family does not need the same governance system. This is something I strongly agree with.

Family business advisors sometimes talk about family councils, constitutions, boards, committees and policies as though every wealthy family should eventually have all of them. The research specifically warns against this type of “off-the-rack” professionalization. A structure that works for a thirteenth-generation European family with hundreds of shareholders may make no sense for a first-generation Canadian business owner with two adult children.

More structure is not automatically better structure.

In fact, excessive formalization can freeze existing conflicts into the system and impose rules on future generations that no longer fit their circumstances. The report therefore argues that governance needs to reflect the actual family, including its culture, relationships, communication patterns, level of trust and long-term objectives.

This is an important principle for Anico Capital’s approach to family office advisory. We should not start with the product or the structure. We should start by understanding the family.

Before recommending a trust, governance structure, family council or next-generation program, we need to understand who the family members are, how they communicate, where the conflicts already exist, what the founder wants to preserve, what the children actually want and whether the family genuinely wants to remain an ownership group in the future.

Sometimes the right solution will involve more formal governance. Sometimes the family needs better education. Sometimes the first priority is communication. Sometimes the family simply needs to spend more time together and understand one another before attempting to write rules.

Professionalization therefore does not mean making a family operate like a corporation.

It means helping a family become capable of carrying the responsibilities that come with owning a significant business or pool of wealth.

For families that want their wealth to last across generations, I believe the most important shift is from focusing only on ownership rights to developing ownership responsibility. The next generation should not simply know what they are entitled to receive. They should understand what they are responsible for protecting, improving and eventually passing forward.

The report captures this point very well: responsible ownership means prioritizing responsibilities over rights, and this is learned behavior rather than something that appears automatically when someone inherits shares.

For families beginning this process, there is no need to create a complicated governance system immediately. A more practical starting point is to understand whether family members still share a common purpose, whether they are capable of communicating and resolving disagreements, whether future owners are being properly educated and whether the existing legal and governance structures truly support the way the family wants to function.

Only after those foundations are clear does it make sense to ask what additional structures are needed.

A professional family is therefore not the family with the most documents. It is the family that knows why it wants to stay together, has built enough trust to make difficult decisions, prepares its members to become responsible owners and uses formal structures only where those structures genuinely help the family achieve its long-term objectives.

From a family office perspective, that may be one of the most important differences between simply inheriting a family business and being prepared to own one.

Anico Capital

Family Governance | Business Succession | Ownership Education | Next-Generation Planning

This article is based on the research report Professionalizing the Business Family: The Five Pillars of Competent, Committed, and Sustainable Ownership and is intended for general educational purposes only. It does not constitute legal, tax, investment or financial advice.