Whether in nations, communities, sports, religion, associations, or families operating a business, there are requirements for becoming a member. These entry requirements vary from organisation to organisation, depending on the common project the organisation seeks to achieve. Whether simple or complex, these entry requirements pre-qualify members for certain benefits and confer specific responsibilities.

In the case of families, particularly affluent families that own successful businesses, which is our focus in this article, membership and responsibilities must be clearly defined. My opinion in this article will be aimed at educating and sensitising affluent families on the need to be intentional and seek professional intervention when defining membership into the family which by implication, dictates the family business ownership.

When intertwined with the business, family membership takes another turn than the regular. This is because a lot is dependent on the strength, competence and professionalism of the business owning family. It is no longer as simple as it should be. Marriage or birthright do not always pre-qualify one for ownership of the family business. Ownership has to be intentional and well-thought out withly clearly thoughtout pre-qualification criteria.

Certain pertinent questions should be raised before admittance into the family business, and the implications of the proposed positions on admittance should be analysed. Membership should not be assumed as there are various dynamics at play like the Bermuda triangle of love metaphor, where significant wealth comes with complexities that challenge the dynamics of money, power and love.

Unlike companies where membership can be terminated by contract or exit from shareholding, family membership is based on kinship. While a company derives its value from its economic success and hence assesses the members according to their contribution to this success, families are directed towards providing security and safety to their members and furnishing them with the required capabilities for leading a successful life.

Ideal families support the weak while ideal companies promote the strong. What looks right according to one philosophy can be wrong when seen from the perspective of the other one. Hence, there are expectations from families and these expectations must be defined to manage potential conflicts, disappointment and hope.

Expectations like expecting to become automatically qualified to be an owner or a manager of the family business, by birthright should not be the case. Ownership and management require a special act. For the sake of fairness, the rules that apply to this procedure must be set out clearly. Here are a few questions that can help families set their rules of membership in ways that meet their objective;

Who belongs to the business family and how is it involved, how many owners can the business carry, who can become a shareholder and are we using lineage or family mentality?

Each of these questions will be analysed as they apply to membership in a business owning family.

Who belongs to the business family?
The business family comprises more than just the owners. However, while the children and spouses of the owners are also members of the family, this does not mean that they are automatically part of the business family. Every family has to decide who is part of the owner family apart from the owners. As with the issue of who can be an owner, the issue of ‘outside’ partners is subject to social and sometimes, cultural changes. The excluding equation “in-laws = outlaws” no longer holds true. Today’s relationships are much more complex and are like a sword that cuts both ways.

First, partners are no longer only seen as a potential cause of risk for peace in the family, but also as support, enrichment, and co-educators of the next generation. On the other hand, the integration of partners is becoming more difficult due to the growing instability of partnerships/marriages, especially when it comes to matters that have to be kept secret. Each family walks its own line between inclusion and exclusion.

This is sufficient reason to define as exactly as possible who belongs to the business family and who does not. The rights, privileges and responsibilities of each status have to be clearly defined. The key is to establish a system that fosters fairness, clarity, and a sense of belonging for all involved members. It is also important to document clear membership criteria in the family constitution, once the family can agree on what their objectives are. This is one certain way to avoid possible future conflicts.

How many owners can the business carry?
In the bid to promote equal treatment in the family, the expectation might be to open up membership into the business owning family, to include everyone with blood ties or at the very least, all the children of the founder. In determining how many owners a business can carry, it is important to carefully consider the business perspective alongside the family perspective. A possible trimming of the family tree may have to be discussed for some of the reasons stated below. Many family businesses are too small to satisfy the economic needs of a growing number of family members.

A retail shop or a growing small business might support one owner family, but not several. Some families have put together umbrella ownership structures to address fragmentation of ownership and retention of economic value of the business. This could also potentially manage culture fall-outs that may arise from selective ownerships where a younger child gets more from ownership than an older one.

Ownership growth should correspond with business growth in earnings and size for dividends to remain constant. Otherwise, dividends from the business may no longer be able to maintain the owners’ level of economic satisfaction. A positive way to look at this is that the decision for growth on the part of the owners also forces the family business to walk a path of growth. If you do not want this, you must limit either the number of owners or the financial expectations of the successor generations.

Another possible reason to discuss trimming the family tree is that a growing number of owners also increases the potential for conflict. Every shareholder conflict destroys economic and emotional capital. The sibling partnership and the cousin consortium are deemed especially prone to conflicts. Permanent sole ownership through a trust or other structures, lends itself as an attractive alternative to eliminate the destructive power of these conflicts.

Experts like to point out that family businesses with sole ownership for several generations survive longer than companies with a growing circle of owners. Owners of large family businesses often find it difficult to take appropriate actions, because the socially accepted norms that make trimming the family tree seem natural and that provide accepted selection criteria no longer exist. Nonetheless, a reasonable decision has to be made as part of defining the future ownership of the business as neither the business nor the family will profit from closing one’s eyes to reality.

Who can become a shareholder?
The owners have to define the circle of family members who are eligible for company ownership. These decisions are binding and have to be made in a way that can be understood by all stakeholders. There are no generally applicable rules. The decision as to who can be an owner of a family business depends on changing social norms, culture and other prevalent objectives.

The traditional middle-class family model consisting of a father, a mother and children has been succeeded by more complex models. Blended families with children from several marriages of both partners, unmarried couples, single parents with children born out of wedlock or non-biological children, artificial insemination and surrogate motherhood are no longer rarities. Today’s families have become quite colourful and cannot be defined in a simple way. Every owner family has to decide for themselves what the family is, who is part of it and who can be an owner. Automatic limitation to “marital biological offspring” may not exactly work in today’s world.

Family or lineage mentality?
Locally, most family businesses are still at the sole ownership stage. In the next few decades, however, these business would have become more diversified in ownership, from sole ownership to sibling partnership or cousin consortium, and so on. At the diversified stage, the owners will have to determine whether the shareholders and family members see themselves as one big family or if they think and act accordingly based on a lineage mentality.

The lineage mentality was popular in patriarchal times, because the aggregation of shareholders in manageable lineages facilitates efficient authoritarian leadership and perpetuates the balance of the sibling partnership. The lineage mentality is therefore seen as a way to reduce conflicts. Lineage mentalities usually arise during the transition from the sibling partnership to the cousin consortium. They are particularly important for voting, assigning committee posts and free transfer of shares. Nowadays, they are on the retreat.

The young generation criticises the consequences of the lineage mentality: the concentration of power in the hands of a few; the growing distance and alienation of all others from the company; the distribution of positions according to proportional representation instead of performance criteria; the additional limitation of transferring shares only to members of one’s own lineage; and the fact that thinking in terms of lineage is dangerous from the perspective of the owner family.

Even this short summary of the most important arguments clearly shows how delicate this question is in many family- businesses, especially in those transitioning from the patriarchal to the post-patriarchal age. Dealing with this issue thus requires utmost care, extensive communication, and fair consideration of all the arguments and consequences.

In summary, membership in a business-owning family encompasses ownership, involvement, roles, shared values, and addressing challenges that arise from the intersection of family and business dynamics. Successful business-owning families often have well-defined structures, communication strategies, and mechanisms for addressing both business and family interplay. It’s important to note that the criteria for determining membership in business owning family may vary from one family to another. Establishing clear guidelines, often documented in the family constitution or similar document, can help define and communicate the expectations and criteria for inclusion in the business family.

Having discussed some general guiding questions to raise when determining what membership means to a business owning family, remember that these are general principles. Ultimately, the membership principles for each family will be unique and reflect their specific values, goals, and context. The key, as earlier mentioned, is to establish a system that promotes fairness, transparency, and responsible stewardship of the family business and legacy for generations to come.

Bukola Osikomaiya is a family wealth advisor in Meristem Family Office