Family-owned businesses are distinct entities, often confronted with the intricate task of balancing cherished family values, traditions, and unity with the rigorous demands of running a thriving enterprise. In my previous article, I underscored the essential role of founders and business leaders in setting the stage for professionalism. Today, we delve into a pivotal decision that family businesses must make: opting for a "family first" model or a "business first" model for governance — a choice that significantly shapes the dynamics within the family and the enduring prosperity of the business.

The "Family First" Model

In a "family first" model, the central focus lies in preserving and fortifying family relationships. Below are some key characteristics of this model:

1. Senior Management is Exclusive to Family: In many family businesses found in Asia, birthright and seniority within the family are often more valued than skill or competence. Thus, leadership is commonly based on blood rather than ability, leading to less qualified family members taking on pivotal roles that may potentially hinder the business's performance and growth.

2. Mixing Personal and Business Funds: Due to the close-knit nature of enterprises with a family-first model, their strong familial bonds often lead to a more relaxed approach to financial management with blurred financial boundaries as family members sometimes assume that clear distinctions between personal and business finances are unnecessary. This practice can erode the financial health of the business and jeopardize its long-term sustainability.

3. Equal Compensation: This practice stems from a desire to prioritize familial harmony and unity. However, it's important to note that this approach can sometimes lead to challenges, as it may not always align with conventional performance-based compensation models. Offering equal compensation to family members regardless of their roles or contributions can demotivate high-performing individuals. It may also lead to resentment among those who feel they are not adequately rewarded for their efforts.

4. Your last name is your Birthright: This characteristic arises from a deep-rooted belief in the significance of family legacy and heritage. While this can strengthen family bonds, offering jobs to family members without considering their qualifications can result in underqualified individuals holding significant positions. This can adversely affect the company's performance, efficiency, and competitiveness.

5. Conflict Avoidance: Emphasis is placed on family harmony. The family's well-being and happiness take precedence. Avoiding conflict might maintain short-term harmony but can lead to unaddressed issues, which may fester and cause larger problems in the future. Poor communication and unresolved conflicts can hinder decision-making and stifle innovation within the business.

6. Shared Values and Legacy: Family traditions, values, and the legacy of the business are paramount. Decisions are guided by the desire to preserve and pass on these values to future generations.

7. Long-Term Sustainability: This model often prioritizes the long-term sustainability of the business over short-term financial gains. The family is willing to invest in the business to secure its future.

8. Collaborative Decision-Making: Family members work together to make important decisions, and consensus is often sought to ensure everyone's voice is heard

The "Business First" Model

This model prioritizes the success and growth of the business, while family relationships and emotions are set aside for the greater good. 

1. Business First: In a "Business First" approach, family and business matters can never intertwine. The best interests of the business always take center stage, nurturing a thriving enterprise.

2. Meritocracy is Paramount: Family members and stakeholders understand the clear distinction between familial roles and business responsibilities. Leadership is not simply bestowed based on lineage but is earned through competence and merit. The business is passed on to the most capable individuals, and external talent is considered when needed.

3. Separation of Personal and Business Funds: Maintaining a clear separation between personal and business finances is a cardinal rule. The cash flow generated by the business is used for reinvestment to drive growth and value. Family members do not siphon off resources for personal use.

4. Professionalism: The family operates the business like any other, with a focus on professional management, clear roles, and performance-based evaluations. And family members are treated in the same manner as non-family executives. 

To be continued...

Discover the crucial secrets of harmonizing tradition and progress — or prioritizing whichever is best for your family business — before time runs out and your legacy suffers from the worst possible scenario. Join us on December 2 for a must-attend webinar, "The Family-First vs. Business-First Dilemma," and safeguard your family's future success! Reserve your seat now c/o Pat at Don't let this opportunity slip away!