Practitioners in the field often see the “three generations”-rule play out. The rule, also known as the “30-13-3” statistic, states that the first generation builds the business, the second generation looks after it, and the unfortunate third generation – with an implicit sense of laziness and ineptitude – loses it.

The three generations rule has some academic backing and is often repeated in several studies. The origin of statistics comes from a study conducted in the mid-1980s by John Ward at the Loyola University of Chicago, which had a narrow sample of 200 family-owned Illinois manufacturing companies from 1924 to 1984.

Several issues need to be considered in this study:

  1. It may not accurately reflect the current reality of family businesses;
  2. the definition of success and failure used in the original study was also quite narrow, considering any family business that did not pass on majority family ownership to the next generation as a failure. But as the field of family business scholarship has evolved, a more realistic definition of success and failure is emerging. The concept of “family enterprise” takes a more holistic approach, considering all the business, entrepreneurial, family, and philanthropic assets of a family group;
  3. The taxonomy of a family business

The first two points are self-evident, I think. Let’s look at the third point in more detail.

What is the taxonomy of a Family Business?

Creating a taxonomy of a “Family Business” from an academic perspective can be difficult for several reasons:

  1. Complexity: Family businesses are complex entities that involve multiple layers of ownership, management, and control, which can make it difficult to create a clear and concise taxonomy.
  2. Diversity: Family businesses come in many different forms and sizes, and operate in a wide variety of industries and markets. This diversity can make it challenging to create a taxonomy that applies to all types of family businesses.
  3. Ambiguity: Family businesses are unique in that they involve both business and family issues, which can make it difficult to separate and define the different aspects of the enterprise.
  4. Adaptability: Family businesses often adapt and change over time, making it challenging to create a fixed and unchanging taxonomy.
  5. Lack of data: Family businesses are often private and not subject to the same level of scrutiny and disclosure as publicly traded companies. This makes it difficult to gather and analyze data on these types of companies.
  6. The different authors may use different definitions and criteria, making it difficult to create a consistent taxonomy widely accepted among scholars in the field.

As a result of these challenges, the field of family business research has evolved, with different scholars adopting different criteria and definitions to classify and study family businesses. Despite these challenges, there have been significant advances in the field of family business research over the last few decades, and there is a growing body of literature that can help us to better understand and classify family businesses.

The following are examples of different taxonomies leading to different definitions of a family business:

  1. Ernesto J. Poza: He considered that Family Business is an enterprise in which two or more family members own and/or manage the company, and one or more of these family members occupy one or more key management or board positions. He proposed the concept of “familiness” as the distinctive characteristics of a family business, which include the intertwining of family and business issues and the potential conflicts that arise from them.
  2. Joseph A. Schumpeter: He proposed that a family business is a unit of economic activity controlled by a single family and passed on from generation to generation. His focus was on the entrepreneurial aspect of family businesses and the role of innovation in these companies.
  3. Michael A. Hitt and R. Duane Ireland: They define a family business as a business in which two or more family members are involved, either as owners or managers, and at least one family member holds a significant ownership position. They also emphasized the importance of considering the family and non-family aspects of the business.
  4. L. Gordon Brewer Jr. and Ernesto J. Poza: They define a family business as an enterprise that is controlled by a single family and is passed on from one generation to the next, and that is characterized by a combination of family and business issues. They also consider the importance of considering the roles of family members in the business and the potential conflicts that arise from these roles.
  5. Edward D. Hess: He defines a family business as any company where the ownership and control are closely tied to a specific family, that is managed by one or more family members, and that is intended to be passed on to the next generation. He also stressed the importance of considering the business’s family and non-family aspects and the company’s intergenerational transmission.

Despite some overlap, it is not too difficult to imagine situations where the distinction between a family business and a non-family business becomes increasingly complex.

Moving away from the family business and towards the family enterprise

The “family enterprise” describes a more holistic approach to a family and its family business, which encompasses all of the business, entrepreneurial, family, and philanthropic activities, art collections, and other assets of a family group.

Whilst the traditional approach to analyzing family businesses has primarily focused on the primary operating business unit, which can be a too narrow view of a family’s sphere of action. As the taxonomies of a family business show, the interaction between a business and a family is important. But a family does not – usually – solely operate in a business. Next to the family’s cash generation activities, a family (and the business) are also, directly and indirectly, acting within a larger social structure. This social structure interacts vice-versa with all aspects of the family. One is a family’s reputation, to mention an often overlooked aspect.

Expanding a family enterprise through the family’s history

Furthermore, family enterprises often have a set of values, a history, and a culture that can be distinct from the individual businesses they own and operate. More often than not, there is some alignment between how the family operates and the values and vision of a family business.

Adopting the family enterprise perspective allows practitioners and researchers to consider the full scope of a family’s enterprise and its goals, resources, and opportunities when analyzing the family business. This perspective can be particularly useful when assessing the health, success, and sustainability of a family enterprise and its ability to transition through the generations.

Research by Alfredo De Massis focuses on family heritage and the transmission of family values and wealth across generations.

De Massis argues that the transmission of family heritage can play a significant role in the continuity of the family enterprise. He suggests that family heritage should be considered a dynamic process, which involves the transmission of tangible and intangible assets, as well as values and beliefs, from one generation to another.

De Massis believes that family heritage can be seen as an essential resource that can provide continuity, identity, and legitimacy to the family enterprise. Family heritage is what makes family enterprises unique. The unique way of looking at the world is then often percolated into the family business, giving it a unique advantage (or at least something to distinguish itself from the competition).

The transmission of family heritage can be done through several means, such as storytelling, rituals, and education. Family businesses (and families themselves) should actively preserve and pass on their heritage by creating formal and informal opportunities for family members to learn about the family’s history, values, and traditions. This process can help to transmit the heritage from one generation to the next and to increase the sense of belonging and identification of the family members with the family enterprise.

The awareness of family heritage is essential to foster the engagement of the next generation in the family business and to increase their commitment and involvement in the activities of the family business.

Stewardship and Agency – Finding the balance in the Family Enterprise

In the context of a family enterprise, agency, and stewardship are two different approaches to decision-making and management.

Agency refers to an individual or group’s ability to act on their behalf, make their own decisions, and take responsibility for their actions. In the context of a family enterprise, the agency is often associated with the business side of the enterprise, where the goal is to maximize profits and achieve business success.

On the other hand, stewardship refers to the responsible management and preservation of something, often with a long-term perspective. In the context of a family enterprise, stewardship is often associated with the family side of the enterprise, where the goal is to preserve and pass on the family’s wealth, values, and legacy across generations.

The tension between agency and stewardship can arise when there are conflicts between the short-term goals of the business and the long-term goals of the family. For example, a business decision that may maximize profits in the short term may not align with the family’s values or long-term goals.

A family enterprise needs to find a balance between agency and stewardship to achieve both business success and the preservation of the family’s heritage. This can be achieved through clear communication and governance structures, such as setting clear roles and responsibilities, creating effective decision-making processes, and aligning the values and goals of the business with those of the family. To achieve these goals, trade-offs, and compromise might be required.

The family enterprise needs to work on developing a clear vision, values, and governance structure that guides the business decision-making process and creates effective communication and decision-making processes. In addition, regular family meetings and family retreats, where these topics are discussed, can be very helpful to the family to align their goals, vision, and decision-making.

Taming Stewardship and Agency with Family Governance Structures

Family governance structures refer to the systems, processes, and policies that a family puts in place to manage and govern the family’s wealth, business, and other assets. These structures play an important role in aligning the interests and objectives of the family with those of the family business, and in facilitating effective communication, decision-making, and conflict resolution within the family.

There are several key components to a family governance structure, including:

  1. Vision, values, and mission: A clear vision, set of values, and mission statement for the family enterprise helps to guide decision-making and align the interests of the family with those of the business.
  2. Roles and responsibilities: Clearly defined roles and responsibilities for family members in the business, as well as any other family assets, can help to ensure effective communication and decision-making.
  3. Decision-making processes: Effective and transparent decision-making processes are essential for ensuring that the family’s interests are taken into account in business decisions.
  4. Communication channels: Regular communication channels such as family meetings, newsletters, and family councils can help to keep family members informed and engaged in the family enterprise.
  5. Conflict resolution mechanisms: It’s important to have clear policies and procedures in place for resolving conflicts that may arise within the family, such as mediation or arbitration.
  6. Succession planning: A clear succession plan, which outlines how the family enterprise will be passed on to the next generation, can help to ensure continuity and stability.
  7. Professional advisors: Engaging professional advisors such as attorneys, accountants, and family business consultants can help to ensure that the family governance structure is effective, legal, and efficient.

It is important to note that the structure and rules of family governance should be customized and tailored to the specific needs of each family, and should evolve as the family and its enterprise change. Moreover, the governance should be regularly reviewed and updated to make sure it aligns with the current needs of the family enterprise.

A well-designed family governance structure can provide a framework for effective decision-making, communication, and conflict resolution within the family enterprise, and can help to align the interests of the family with those of the business, to ensure that the enterprise will thrive for generations to come.


We have seen that the third generation may not be a priori doomed to fail. The study, which gave this notion academic credence, has a couple of aspects that need to be carefully considered.

Most practitioners talk about family businesses and succession planning. But what is a family business exactly? Here we have seen the difficulty of a clear definition. A more holistic approach uses the term Family Enterprise to encompass both the family side and the business side with all its interconnections and counter-acting forces.

How do Family Enterprises build a basis for future generations to expand on? Here we have seen the strength of storytelling and retaining the history of the family and the business; giving it more context.

The Family Enterprise will have to manage and organize itself somehow. The family has, essentially, two choices on how to manage: stewardship or agency. Both have their advantages and disadvantages. For most families, the ideal is a mix of the two.

How can a family combine the two management types and systematically collect and build values and visions on their history? Through a family governance structure that helps a family, step-by-step to build their “Family Enterprise Muscle”.