Your family business communication vehicle: is it roadworthy?

June 4, 2015

An owner’s vision may be to pass the business to his three children. However, his greatest fear is that they won’t see eye-to-eye and the increasing sibling rivalry will escalate to the point where relationships are permanently damaged. This fear is so paralyzing that he isn’t planning appropriately for his impending exit. With no concrete plan, his business is spiraling towards an involuntary sale.

The Family Charter

Given the overlap between the family and business circles, there is little doubt that your family’s philosophy will impact the success of your business, specifically around how the business is run and how decisions are made. Create a document that communicates this philosophy to help guide future generations as they develop plans and policies for the business. It will also support what is important to the family, and ensure clarity around the rights and privileges for family members. We call this document a Family Charter.

  

Begin developing a Family Charter by defining and communicating your family’s principles. In most families, their whole philosophy – their values, beliefs, standards and attitudes – has been founded on a few core principles. These principles are the reference point or map for your journey on the family business highway. They will help you choose your destination and travel in the right direction. Using these principles, your entire family can work together to:

  • Create a Family Creed or Mission Statement. This communicates your family’s founding principles and how they contribute to the continuity of the family heritage. What a truly powerful way to pass a legacy to future generations!
  • Create an ethics policy. This outlines the rights and responsibilities of family members. It upholds the family principles both inside and outside the business, as well as contains guidelines for the family to deal with unacceptable behavior or conflict of interest. Such a policy is critical to maintaining an environment that supports mutual respect.
  • Define an overreaching purpose for your family wealth that upholds your principles. Current and future generations need a clear purpose for the wealth the family business will generate. This purpose can include using the family assets in areas such as philanthropy, citizenship and neighborliness.
  • Develop your business and ownership philosophies. These philosophies are the keystones for the rest of your communication vehicle. In our last article you saw how both the family and business circles impact the business philosophy. Similarly, the ownership philosophy resides in the overlap between the family and ownership circles. In developing your Family Charter, first clarify these philosophies and then communicate how strategic, reinvestment, participation, compensation, asset distribution, and/or operating decisions are made.

In essence, a Family Charter is the foundation of your entire governance structure. It lays the groundwork for effective governance in each of the ownership, management and family circles. It serves to maintain and enhance respect, trust, stewardship, leadership, relationships and reputation.

While your Family Charter can never anticipate all the questions and challenges that will arise, the process of developing and maintaining the document creates cohesiveness that is invaluable in managing future issues and obstacles. What better way to build family unity and make the shift from an entrepreneurial business to a family business!

Using the charter in governance

Governance is the process used to make and then implement decisions.

Good governance is not always easy to attain, especially in a family business that has very differing objectives for the family, ownership and management circles. A Family Charter is the cornerstone of an effective governance process.

Developing a Family Charter delivers a common purpose for both the family unit and the business entity, and as a result, families have a stronger foundation upon which to build open and honest communication.

The Charter also provides the basis for a Family Participation Plan that clarifies how family members can participate as shareholders and directors in the ownership circle and/or qualify for a role in the day-to-day management of the business.

Finally, the Charter sets the stage for you to develop the communication, problem-solving and decision-making techniques that are essential to effective governance. The Family Charter creates greater awareness of the overreaching family business philosophy. From there, families can create forums that will sustain the differing objectives of each of the three areas (family, management and ownership). At the same time, it encourages inclusiveness, participation, transparency and accountability.

You will not only find it much easier to make group decisions, but will be more likely to have the buy-in to implement those decisions.

We are available to help you to develop and manage your family business communication strategy. Contact Lisa Horn at lisa.horn@schencksc.com to learn more.

Adapted from an article by The SuccessCare Program.