In a family enterprise, there are essentially two major systems or pillars for governance and decision-making: family governance and enterprise governance.

The enterprise side of a family enterprise consists partly of any family businesses or operating companies that may be present which provide substantial financial and nonfinancial benefits to the owners and family. Although a family business or operating company is often present, it is not required in a family enterprise. The enterprise side also may include real estate, business and non-business investments, private equity and debt, shared assets and collections, family offices, foundations, trusts, and private trust companies.

Enterprise governance structures often include owners’ councils or boards, shareholder agreements, buy/sell agreements, boards of directors, holdings boards, and policies and procedures for family office operations. Ownership status is relevant in enterprise governance while it may not be in family governance. In enterprise governance, the owners or shareholders have an overall fiduciary responsibility for some combination of a family office, holdings board, board of directors, corporate management, investment committees or managers, and the enterprise assets themselves.

In a well-known framework known as the “four rooms model” by the BanyanGlobal consulting group, family enterprise members often need to understand what types of decisions are being made for specific issues, since roles and issues often overlap. Knowing “what room of the house you are in” helps bring clarity.   BanyanGlobal advises members to consider whether enterprise governance decisions are being made in the owner room, the board room, or the management room. Issues and decisions in the family room are more likely part of family governance. 

Well-designed governance systems keep the responsibilities, boundaries, structures, and procedures clear and well-defined for each major element.