In the last edition of our Family Business Law Brief, we talked about the need for family owned businesses to discuss how they work together now and in the future.
To recap the main points from the previous article:
- Family businesses have an additional layer of complexity to factor in - the family
- Only 30% of family businesses make it to the second generation, and most are gone within three generations
- Lack of succession planning can destroy value and family relationships
- Lack of governance (a system for decision making and communications) can create damaging tensions
A Family Charter, sometimes called a constitution, can be a very effective way of helping to align individuals, the family group, the business and its other stakeholders. If you can achieve this, the chances are you will have a successful business and enjoy working in it with your family.
Where Do I Start?
It is never easy to be the one who points out the 'elephant in the room', but someone has to do it. From there you are best advised to get somebody from outside the family and the business to help facilitate a discussion. You may have a trusted adviser everyone is comfortable with. If not, there are some excellent Family Business Consultants out there who can help - we would be happy to introduce you to those we would recommend and have confidence in.
What Should Be Discussed?
Just the process of talking through issues and exploring what you might include in a Family Charter can be hugely beneficial. You should distil the product of your conversations in writing which a lawyer can help you to shape. However, a Family Charter is not supposed to be a detailed and binding legal document but rather a set of guiding principles you all buy into and work to.
Your Family Charter should be bespoke, recognising what is unique about your business and family.
Here are a few themes you could think about debating:
- What do you want out of this as individuals? Or to think of it another way, what is your purpose in life, and how does this business fit into it?
- What are the core values of your business? Core values are statements of beliefs that underpin the culture of your family business. Culture is hard to define but core values usually describe key behaviours - things like teamwork, doing your best for customers, encouraging responsibility and creativity etc.
- Why does your business exist? What is its 'mission'? 'To make money' is not a mission - at least not one you could communicate to your staff and customers and it won't get you out of bed in the morning with a spring in your step.
- Where is your business going? What is its 'vision'? Vision and mission are not uniquely family business concepts and are commonly employed in strategic planning exercises. Nonetheless they are important to consider in the context of family members' expectations of what they want out of the business and are prepared to put into it.
- What are the rights, duties and responsibilities that should be recognised and respected by any family member who is, or wants to be an owner?
- What is your policy about employing family members in the business?
- How will you engage with the next generation and family members not directly involved in the business?
Make sure you hold these conversations away from both the family home and the business premises. Ideally gosomewhere pleasant, a favourite hotel perhaps, and make sure you spend time together socially. There may be some tricky topics to cover but these occasions can also be empowering, inspiring, and fun.