Sometimes Family Charters can be regarded as a black art but, in fact, they are one of the most useful documents a family business can have.
Family businesses are very different from other businesses and that is not always recognised by those out with the business, from advisors to clients, customers and suppliers. With every family business comes a business family. That is the added support network, potential investors, sounding boards but also an extension of the family business which brings its own challenges. Family business owners often refer to their business as “the additional family member at the Christmas table” and in essence that how many family business members view their business. But how does the business family view it?
A Family Charter is a document which brings the whole family together. There are always core matters a Family Charter will cover but these can be expanded, changed and added to. The Family Charter can be utilised to suit each family business, business family and structure. It is not a legally binding document but is generally signed by all members of the business family. The signing could almost be described as ‘ceremonial’ as it signifies everyone’s commitment not only to the Family Charter but to the family business and the business family.
Every family will have a different level of involvement in the family business. It is a misconception that only those involved in the business will be involved in the Family Charter. Quite the opposite! One of the advantages of a Family Charter is that it involves those who are not directly working in, or owners of, the business. It allows some transparency on what is happening within the business. The charter facilitates discussion about what should happen. Although each one is unique a Family Charter can avoid potential conflicts and assist with the dispersion of wealth. Examples include:
- when will those in the business family be given shares – is this only when working in the business or will shares be issued regardless? If shares will be issued, will there be different share classes to allow different voting powers, dividend levels and capital (whether part of a capital distribution or on a sale)
- when are family members able to work in the business? This covers a number of considerations including something as simple as the children of family members having Saturday jobs. That may seem like a very detailed consideration but it may be the business cannot support giving 20 grandchildren/cousins Saturday jobs, but refusing to do so will cause disagreements. It is sensible consider if those within the business family will be given a job with no experience or qualifications. Some Family Charters limit this to senior management roles requiring anyone coming into the business in a senior management role to have relevant experience and some qualifications for that role.
- succession is always a contentious issue for the business family. Many family businesses have been run by family members who did not want to do so but did not want to upset the previous generation of the family, therefore said nothing. In some cases an alternate and willing family member, equally as qualified, who could have taken over the role. A lack of discussion led to the presumed successor taking on the role and being really unhappy instead of an open discussion where the best person for the job was in place.
A Family Charter delves deeper than just the collective values and governance. It asks family members to have a multi-generational discussion to reach an open minded outlook on the future of the business. In many cases, these discussions allow those in the business and in the family to better understand each other’s position and their parents’, children’s and even grandparents’ outlook for the company.
All of the above may sound very simple but in a family business, even more so than a general business, communication is key. It is easy for small parts of the family to have discussions round the Sunday dinner table or at family events, but if the whole family is not included in this it can cause fracturing. The benefit of the Family Charter is having independent help and guidance, where someone out with the family explains the benefits and leads a discussion. That takes away any contention and allows everyone to take a step back, consider what their priorities are for the business family and the family business, and facilitates proper succession planning. It also encourages transparent discussion on future employment, voting rights and a whole host of other issues which instead of being contentious, allow these to be calmly and constructively agreed.
If you would like more information on Family Charters, how to start the process or how that would fit in with your family business and business family, please contact Joanna Millar on firstname.lastname@example.org or 0141 370 8116.