Why on earth would a business family need a family charter? After all, you may think to yourself, “I get along just fine with my family, why would we need a legal document to tell us how to treat each other?”. There are some very solid reasons business and personal reasons to draw up a family charter.
"The process of drawing up a family charter means that the family as a whole must test their assumptions with rigour…"
Here are my top five:
1. It ensures that you make the tough decisions It will also enable those decisions to be made more quickly and more easily because the parameters will have been discussed and agreed in advance. The process of drawing up a family charter means that the family as a whole must test their assumptions with rigour. Is this business really something that will be passed to the next generation? Are the next generation suitable and willing custodians? When and how will that transition happen? Thinking these decisions through as a family can lead to clarity and control. You can also ensure that business decisions are made in line with the family’s ethos and that the bottom line does not come before the health and values of your family.
2. It articulates family values which strengthens the business brand A business family has a unique advantage and a unique disadvantage. There is a strong natural connection between its shareholders other than the pursuit of profit. Captured and articulated those values – what the family stands for - can enhance brand and inspire a loyal and valuable following of customers and employees. In the same way, where a business has the family name over the door, the conduct of family members and of the business can have a significant impact on the reputation of both. Attitude to tax planning is just one example. Clarify and codify that relationship or manage reputational damage.
3. It builds consensus and manages conflict A family charter is developed by finding consensus amongst all family members. It takes time – a lot of time in small chunks. It requires the willing engagement of the whole family. By setting clear expectations and outlining well ahead of time the goals, ambitions and purposes of the family business and the principles along which it will be run you can avoid the business becoming a victim of any future interfamilial disputes that may arise. A family charter does not make acrimonious disagreements disappear. Conflict is inevitable; agreeing when and how conflict will be managed minimises its occurrence and impact.
4. It improves business efficiency (which increases the likelihood of profitability) A family charter sits at the heart of strong governance, but it does not have to deal in generalities. Properly drafted, it can cover everything from long-term business strategy; to policies regarding specific issues such as corporate social responsibility; to how the board is appointed, shares are divided up and dividends paid out; and the chain of command. It can also be helpful in establishing policies for how the business interacts with members of the family who are not part of the business, an important consideration for the future. The aim is to avoid distraction and confusion and reduce fire-fighting and damage limitation. All of which deplete time, energy and ultimately profit.
5. It anticipates change and avoids surprises But perhaps most importantly of all, a family charter brings all of these matters into focus in a clearly written document which can be referred to at any point, ensuring that every member of the family or the business is aware of the expectations on them and the benefits to which they may be entitled, preventing any nasty surprises or disappointments in the future. A Family Charter can set out the framework by which the business can expand and adapt to suit the many changes that will inevitably occur to the size and structure of the family over the years. And it can be a good way to start discussing what might happen in the event of a divorce or death of a shareholder.
Perhaps the real question is why wouldn’t you have a family charter? Why would you invest your life’s work and all of your savings in an unregulated business?