What is a Family Charter?
Running any business successfully can be complex, but a family or owner managed business adds another layer of complexity. Balancing the needs of the business with the needs of the people can seem daunting. Developing a Family Charter will help to bind the values that are important to the family into the business. Including family members who are both actively involved with those who are not, helps to develop a team approach and helps with decisions and problem solving, as well as creates a level of trust. As with many things, the power is in the process as much as in the developed charter.
What does a Family Charter look like?
The Charter builds a practical structure to decision making and strategy which is based on the foundation of the family and business values and vision. Imagine the Charter is like a house:
What does each part mean?
The foundation
A family business is a complex structure as the values important to a family are not necessarily the same as those that apply in the business world. This often leads to confusion, tension and disruption when sensitive issues arise. Will they be dealt with under the family’s value system or those of the business world?
Family values
Each family has a set of values that are important. These will include concepts such as love, support for family members, respect, honesty, and integrity.
Business values
Although there will be some overlap, these will also include values such as a commitment to growth, continuous improvement, excellence, and customer focus.
Family Business (FB) values and vision
These two often conflicting value sets need to be reconciled into a set of values applicable to the family business as an entity in its own right. These values help the family to identify a uniting common vision for the family business. It is useful to distil these into a mission statement for the family in business.
Structures
Structures are developed to govern the Business System and the Family System and to control the interaction between them. There needs to be an effective functioning Board for the business and a Family Council which manages family issues that impact on the business. A Charter or Constitution then becomes the governing document for the Family Council.
Once values and visions are distilled at the outset the structures will follow, to lead how the values interact. For example, the family may have strong ecological beliefs and its values are driven by sustainability. Does this impact directly on the way the family business is run, e.g. must investments be ‘green’ too?
The Family Charter
Typically, the Family Charter will contain several key elements relating to ownership, leadership, employment, communication and governance. These include:
1. Background
- History of the business
- Definitions: who is family?
- Governance structure – family council, family forum, family office
- Meetings – how often do they take place and who can attend?
- Vision, values and code of conduct
2. Working in the Family Business
- Joining the business
- Can spouses and in-laws work in the business?
- Remuneration
- Career path and promotion
- Leadership
- Exit – can a family member be fired? How is that dealt with?
3. Those not working in the family business
- Opportunities to contribute to the value setting
- Education – support to gain skills needed in the family business
4. Succession and transition
- Estate planning, wills and powers of attorney
- Buy/sell agreements
- Binding financial agreements
5. Procedural
- Decision making, voting, who has a vote?
- Mediation
- Confidentiality
- Updating the Family Charter
Once completed, how does the Charter work?
Having developed the Charter, two protective mechanisms are required to ensure that it lasts:
Renew (update)
Invariably not all issues will be covered in the first draft. More importantly constant change within the family, the business environment and society mean that a mechanism of regular updates is required. This is the process that you will commit to so that the Charter remains current.
Imbue (the culture)
The document itself will have little impact unless its message and the principles that underlie it are imbued into the hearts and minds of all family members. How will you ensure this happens? How will children and in-laws be introduced to the family’s values, principles and codes of practice?
In summary
The Family Charter is about governance. While good governance can sometime be seen as ‘nice to have’, the reality is that good governance is critical because it’s all about making the right decision at the right time. The steps and structures are the repository and filing system for that good governance.
As noted at the start, the process of pulling together the Charter is often just as important, if not more so, as the Charter itself. The meetings, debates and decisions are made within a clearly defined format so that the aim for the process always remains clearly in sight.
Contact us
If you would like further information and to find out how we can help, please contact our Family Business Group.