Is It a Family or a Business?

    Is It a Family or a Business?

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    Family businesses are perhaps the most complex organizations combining two different and potentially conflicting value systems – the family and the business. Very few family business leaders successfully implement a “both/and” approach to managing this inherent overlap between their family and their business to effectively prioritize both at the same time. Neither is right nor wrong per se, and both very clearly serve a purpose. The question then for any family business owner is whether or not you prioritize the family or the business. Or do you do both? 

    One of the best tools for clarifying your intentions and setting the policies and procedures that prioritize either your family or your business is the family business charter. The purpose of a charter (also referred to as a “constitution”) is to clearly outline how family business leaders will handle family-related matters that may impact the business, and vice versa. It is intended to capture your core values as a family and serve as the foundation for your business for generations to come. As such, it defines various roles and responsibilities for family members who are involved in the business and provides a framework for the governance, leadership, and ongoing ownership of the family business. By establishing these guidelines in a charter now, you can maintain greater harmony within your family and prevent potential conflicts between family business leaders from ever even occurring in the future.

    The following are some of the most critical components for your family business charter:

    • Mission & Values – What are your long-term objectives? To stay together as a family and amass tremendous wealth to pass on to future generations, or maybe to serve a niche market of consumers regardless of who manages the business? What are your core values, and what guidelines would you like to establish to govern both family and business activities?
    • Ownership – Are shares in the family business limited to only family members? Or even bloodline relatives? Are you open to selling some portion of the business to outside investors if it will accelerate your growth and/or create a more sustainable business? Have you considered granting shares to senior executives as part of a long-term incentive plan?
    • Employment – Are family members required to get a college degree or gain experience working outside of the family business first before joining the company? When you hire family members into the business, do they experience the same process as anyone else? For example, would you hire a family member simply because he/she needs a job, or would you only hire a family member who is qualified for a specific open position?
    • Compensation – Once hired, are family members compensated like all other employees, or do they benefit from increased wages and/or other perks because they’re family? What if your family business has a Board? Do you compensate your family members who serve on the Board, or is it simply expected of them?
    • Leadership & Succession – Has your family business established a Family Council to monitor your Mission and manage the transitions from one generation to the next? What other governance structures or succession plans exist to create a sustainable business and groom your NextGen leaders to take over one day?

    Your family business charter will be most effective if you consider it a living, breathing entity just like any of the family members or other employees who work in your family business. For that reason, we encourage everyone, including current leadership and your future generations, to review and refine your charter over time in line with any shifts in your market, changes to your family’s make-up, and especially differences in your family’s collective priorities. Whatever you do, just don’t consider your family business charter a “one and done” effort where you draft it once and never look at it again.

    Need some help crafting your family business charter or establishing other governance structures like your Family Council? Give us a call at 310.589.4610 or email us if we can help you eliminate your family drama and reap the benefits of being BOTH a family AND a business. You can also visit the Family Business page of our website to see how we support our multi-generational family business clients in defining their priorities together and succeeding from one generation to the next to create a more sustainable future.