Creating a family charter for unchartered family business success
21 February 2024
Family business owners sometimes refer to their business as “the additional family member at the table”. Creating a family charter is a process that opens up the lines of communication and offers the family an avenue to an honest and robust conversation regarding their relationship as business owners and family members.
Family values
Running a family business involves many complexities and not least of these is the family itself. Whether or not they are aware of it, every family and every family business has a charter. Most remain unspoken, but strongly affect how the family business is run. Any thoughts along the lines of “In this family we always…” indicate that there are unwritten rules or family values at play. The problem with unspoken rules or family values is that what individual family members assume to be true may not be shared by other family members and indeed may not be true at all.
Family values may include love, mutual support, respect, openness and honesty. Business values may include a commitment to growth, excellence and customer service. The family charter melds these two sometimes conflicting sets of values into a single set of values for the family business. For example, the family values may include sustainability. Does this mean that any investments must be ‘green’ too?
What a family charter covers
A family charter typically covers:
- Who is a family member? Does it include step-children, in-laws and cohabitees?
- What if some family members want to be involved in the business but others want to exclude them? In what circumstances will family members be removed from employment, directorship or even lose their shares?
- Can shares be passed to spouses and are there restrictions on what happens to those shares on a separation or divorce? Are family members required to enter into pre-nuptial or post-nuptial agreements?
- Can a family member be fired? How is that dealt with?
- How does the family communicate its needs and opinions to the Board in a constructive way? How does the family handle conflict?
- What roles do different family members play within the family business?
- Succession planning for the family business.
A family charter sits alongside (and does not replace) the business’ articles of association, shareholders’ agreements and directors’ service agreements. It is generally not legally binding. However, regular reviews ensure a family charter remains relevant and keeps the next generation engaged.
Conclusion
Running a business is always hard, but a family business adds another layer of complexity. Creating a family charter binds the values of the family into the business, including family members who are both actively involved as well as those who are not, creates a level of trust and helps keep the family at peace.
Earlier is always better when it comes to creating a family charter. It is not a discussion that should be left until the founder’s later years or carried out in times of business crisis.
The Birketts view
The next generation often see the world and business opportunities differently to the older generation; both perspectives need to be appreciated. An external adviser, with no vested interest and a wealth of relevant experience to draw upon, is best placed to navigate family conflicts from a neutral standpoint and build trust within the family. Different family members across different generations will bring their own needs and objectives. Without a family charter, the family business can easily end up becoming a pawn between warring family members.
Contact our team at Birketts for assistance in creating a family charter.
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Katherine Forster
Services
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at February 2024.