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Family Charters Are An Effective Part Of Governance

A family charter or constitution, documents the shared vision and values of the family and its policies regarding the ownership and operation of the family business

It acts as a tool for establishing and maintaining the balance between the best interests of the business and the well-being of the family.

Although it is not a legally binding document, it contains several statements of intent which reflect the consensus view of the family shareholders and it should be viewed in the context of the overall framework of governance for the business, supporting the business plan and the shareholders or partnership agreement.

How Does A Charter Help

The family charter covers key areas that families have to address when they work together helping to establish a framework for addressing the different roles that family members have within the business.

However, the content of the family charter is key and it is not simply about having one, but more importantly, having been through the process of considering the different areas and determining a united approach to the issue for the family going forward.

It is about what it can do for the family business, ironing out some of the grey areas, and providing a framework for the family going forward, as well as helping those not involved in the day-to-day running of the business keep in touch and make sure that their views are heard.

It is essentially all about the family planning today for tomorrow’s predictable problems and the best time to consider writing a family charter is when the family is harmonious and time can be given to thinking about the future without too much emotion and anxiety.

They also help to add openness to proceedings and avoid some of the issues that can manifest themselves in the family business – deferring discussions on matters that are potentially difficult, avoiding discussions on certain topics that are ‘taboo’ and avoiding topics that are just not talked about, inheritance, death, passing on the business to the next generation.

It is not set in stone and needs to be regarded as a ‘living’ framework, updated as appropriate but staying with the family for many years to come.

Things To Think About…

There are a number of key questions that the family need to be able to review and discuss in order for the journey to be valuable, including:

  • Have the protocols of the family ever been debated and written down?

  • Would the family benefit from having some clear guidelines outlining the basis upon which the business will be run and owned?

  • What impact will there be on the family when the next generation start to join the business?

  • What governance mechanisms would be beneficial?

  • Who should be involved with creating the new family protocols?

  • Would an external facilitator help with the discussions?

  • What goes into a family charter?

All families an businesses are different and as such, there is no single solution as to what goes into the family charter, but the process that the family go through to create a charter encompasses understanding the different perspectives from different family members, developing unity and shared family goals and defining the culture and code of conduct for the family too.

In essence, the family charter defines goals, articulates the values of the family and the business, establishes channels of communication to allow effective communication to take place between family members, identifies methods for decision making, and sets a framework for making decisions too.

Some of the things that are encompassed in the family charter include:

  • Defining the family vision, mission and values

  • Setting out the family code of conduct in terms of their rights and obligations as owners and employees

  • Defining the rules regarding family employment, remuneration, performance and appraisal

  • Setting out guidelines for leadership and management succession

  • Identifying the procedures for the appointment and role of the Chairman and any family Directors

  • Clarifying the roles, responsibilities and powers of the Board of Directors

  • Making clear the methods of educating the family and the next generation

  • Clarifying areas that could lead to uncertainty in the future such as the rights and position of in-laws

  • Documenting what to do in the event of a family disagreement.

  • Setting out the family guidelines for charity and philanthropic activities

Paving The Way For Future Success

Family charters play an important role in the successful governance of the best and well-known family businesses around the world and although not always formally documented, the families that have discussed the issues and formulated an approach to deal with them should they arise are better placed to successfully navigate their way through them.

In many instances, the experience and time spent as a family debating and drafting a family charter is more valuable than the actual document produced at the end of the process, and it is then established as part of the framework to help future generations to deal with the issues at hand.

They clearly lay down the ground rules for the family and help to put in place plans to alleviate the adverse impact of issues on the family and the business, helping to ensure that success of the family business for future generations.

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