Family business owners often see their business as “the additional family member at the dining room table.” Preparing a family charter for a family business is a valuable process as it opens up the lines of communication and ensures that the family have an honest and robust conversation about their relationship as business owners and family members.
Family Values
Running a family business involves many complexities, and not least of these is the family itself. Whether or not they are aware of it, every family and every family business has a charter. Most remain unspoken, but strongly affect how the family business is run. Any thoughts along the lines of “In this family we always…” indicate that there are unwritten rules or family values at play. The problem with unspoken rules or family values is that what individual family members assume to be true may not be shared by other family members and indeed may not be true at all.
Family values may include love, mutual support, respect, openness, and honesty. Business values may include a commitment to growth, excellence, and customer service. The family charter melds these two sometimes conflicting sets of values into a single set of values for the family business. For example, the family values may include sustainability. Does this mean that any investments must be ‘green’ too?
A Family Charter
A family charter typically covers:
Who is a family member? Does it include step-children, in-laws and cohabitees?
What if some family members want to be involved in the business but others want to exclude them? In what circumstances will family members be removed from employment, directorship or even lose their shares?
Can shares be passed to spouses and are there restrictions on what happens to those shares on a separation or divorce? Are family members required to enter into pre-nuptial or post-nuptial agreements?
Can a family member be fired? How is that dealt with?
How does the family communicate its needs and opinions to the Board in a constructive way? How does the family handle conflict?
What roles do different family members play within the family business?
Succession planning for the family business.
A family charter sits alongside (and does not replace) the business’ articles of association, shareholders’ agreements, and directors’ service agreements. It is generally not legally binding. Regular reviews ensure a family charter remains relevant and keeps the next generation engaged.
Running a business is hard; a family business even more so where rivalries and family dynamics are at play. Preparing a family charter melds the values of the family into the business. Its value lies as much in the process and the honest discussion in preparing the family charter as it does in the final document itself. Including family members who are both actively involved as well as those who are not, helps keep the family at peace.
Sooner is better when it comes to creating a family charter. It is not a discussion that should be left until the founder’s final years or loss of mental capacity, as by then it is too late.
The Birketts View
The next generation often see things differently to the older generation; both views need to be taken into account in running the family business. A neutral adviser outside the family, with a wealth of relevant experience to draw upon, is well placed to navigate difficult family dynamics.
Different family members across different generations have their own needs and objectives. strong disagreements are inevitable in all human relationships. Without a family charter, the family business risks becoming a pawn in the wider conflict within the family.
Contact the team at Birketts via their website here to find out more