Officially, the celebration of Family Business Week ended yesterday, but our work with family businesses of all shapes and sizes, across numerous sectors has taught us that their working week often includes weekends, with many an informal meeting over Sunday lunch.
We work hard to support our family business clients, whatever time of the week they need advice on the wide range of matters that impact their activities, whether its business, family or personal issues to discuss.
Having previously looked at governance and avoiding conflict in family businesses in Friday’s post, today we’re taking the point about creating a Family Charter a little bit further. In this post we explain what your Family Charter could contain and how it will help you succeed.
Creating a Family Charter
Those working within the family business already recognise they have a charter that shapes the business and defines the relationship between the family members and the business; unfortunately this charter is typically unwritten and unspoken, it’s just developed over generations.
As the business grows and new generations join, what everyone thinks is in this unwritten charter will be different and we all know the slightest divergent beliefs can create cracks in relationships that are almost insurmountable.
Ensuring the Family Charter is created with input from the family, understood by all and shared with newcomers is an important step for the family business, as it helps detail what is expected from each individual, through the stages of the lifecycle of the business.
The Family Charter will address such thorny issues as how the family intends on making decisions, how it will solve problems and how inevitable conflicts will be resolved, long before they become major issues impacting the future of the business.
Even the process of creating this Charter will reveal any persistent tensions as it opens lines of communication across the family group, allowing everyone the opportunity to have honest and healthy conversations about relationships and their roles as owners and managers.
Why should you consider creating a Family Charter?
The point of the Charter is to help the family members balance the interests of the business with their needs as a family. The needs of the business must not override the needs of family members and their relationships across their wider family. Similarly, family members should not make self-centred decisions that serve only them and negatively impact the business.
A Charter helps address these common scenarios and reduces the risk of conflict that often leads to the breakdown in relationships and the end to a successful family business.
A well-crafted Charter will help:
- define individual expectations of all family members within the business.
- strengthen family relationships by defining values and expected behaviours.
- clarify what benefits each family member can expect from the business.
- recognise changing relationships and their potential to impact the business.
Creating a Family Charter is not something that should be delayed until a second or third generation shows interest in joining the family business. For anyone starting a business with their family, a simple Charter makes sense, as it does for those already established, but with only perhaps a married couple at the helm.
When second and even third generation family members think they might like a future in the business, the well-drafted and often amended Charter will help them understand what they can expect from the business, but also what the business expects from them.
The same can be said for those joining the family by marriage or civil partnership, with the Charter again not only detailing the benefits of becoming part of the family business, but their responsibility to the business and other family members.
The Charter becomes a reference point for anyone seeking clarification and it will help encourage positive communication within a framework that balances the interests of the family with those of the business, whilst reducing the risk of conflict through misunderstanding.
The Charter will become an invaluable tool that embodies a consensus view on the relationships that exist between the family and the business, helping address a whole range of issues that can often cause unexpected problems for the business over time, including:
- How is the next managing director chosen?
- Must the mangaing director be a family member?
- How are board members selected?
- What’s the process if someone wants to sell their shares?
- Are all family members entitled to shares
- What constitutes a family member?
- How do family members formally express their views?
- How are different views on the future direction of the business handled?
- How are disputes between family members handled?
Who creates your Family Charter?
The likely issues highlighted above demonstrate that outside help can bring experience and clarity to a process that will be unfamiliar to a lot of family business owners, particularly those that are only just starting to increase the number of family members involved.
However, the creation of a Charter is not a free for all, not every family member gets a say in what it includes, how it is worded or the detail it contains. Younger family members with an eye to joining the business may have opinions to voice, but these may not make the final draft!
The Charter will require honest and healthy conversations between the family members involved in its creation, to ensure it genuinely balances the interests of the family with those of the business. An external adviser can be very helpful to referee these conversations when at a more formal stage.
If you have a Family Charter and it has not been maintained to reflect changes in the family, the business, or both, we should talk. If you do not have a Family Charter, we should talk.
Please get in touch with the experienced Family Business team here at Buckles and we’ll explain the benefits of working with a firm that understands the unique challenges faced by family businesses like yours.
