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Family Charters - An Overview

Simply put, every family and every family business has a Charter. Most remain unspoken, yet powerful, influencers on how the family interacts with the business and how the business progresses through its own life cycles. If you’ve ever thought to yourself or heard others say: “Well, in our family we always…” or “I believe that the business has to…” there is evidence that there are rules in play. The problem with undocumented (or unspoken) rules is that what we assume to be true may not be shared by everyone in the group and, in fact, may not be true at all.

The creation of a written Family Charter is an important step toward ensuring that the family and the family business are aware of the rules that will guide what can be expected from each. While it may seem awkward at first; even the simplest Charter can successfully inform, reassure and guide everyone who has an active interest in the success of the family business and a vested interest in keeping the family at peace.

Creating a Charter documents how the family would like to make decisions, solve problems, resolve conflicts and govern their organization.  It becomes one of the foundations for governance – how the family will guide the business. It is a process designed to open up the lines of communication and offer the family an avenue to a sincere and robust conversation regarding their relationships as owners and managers and family members.

Why should you consider creating a Family Charter?

Without a written Charter the business can become the pawn in the family’s interpersonal relationships. Conversely, the business may make decisions that will serve its interests but be counterproductive to the needs of the family. This is exactly the kind of distraction that creates conflict and can ultimately prove hazardous for both.

The Charter can:

  • define expectations when multiple family members own or are employed in the business.
  • promote cohesion – both at home and at work
  • by outlining family values and expectations for behavior. 
  • create clarity about who is able to participate in or benefit from the business proceeds. 
  • anticipate both the happy marriages and sad divorces that ultimately change the structure of the family and their potential impact on the business.

Children and grandchildren of company founders can be buoyed by the existence of a Charter. For second and third generations the Charter can give guidance about what they must do should they desire a future role in the business. Charters can also document how the business and the family view social responsibility and philanthropy.

The Charter is an invaluable tool for bridging the gap between the interests of the family and the interests of the business. It helps encourage, prompt and guide positive communication. The Charter can create guiding policies that eliminate unnecessary confusion and eliminate unnecessary painful and even costly conversations down the line.

Who should be involved in creating your Charter?

The participation of others in creating a Charter can help give valuable insights and encourage thorough discussion. Yet, the creation of a Charter doesn’t mean everyone gets a say in what it contains or how it’s worded.  

Certainly the owners in the business must participate in creating the Charter’s foundation. They are counted on to guide the outline of the document and what is included.  The decision about what is covered and who is involved will depend on the current issues of interest to the business and family.

Charters might be called upon to help: 

  • define a code of conduct to address the current working relationship between siblings in a business.  
  • prepare the business for the creation of Advisory Boards or a Board of Directors and what is expected.  
  • acknowledge the fact that children are growing older and need help understanding what is expected of them as a member of a family that owns a business.  
  • give family members of those involved in the business a better understanding of the vision the business holds for its future and how that interacts with the future of the business. 
  • protect the legacy of the business and the family by collecting history, value statements, and expectations for behavior.

With the reason for the Charter in mind the individual segments of the document can be created together with key business and family stakeholders.

The Charter will require some thoughtful, honest, and authentic conversations among its creators. For it to really serve the family and the business, the interests of both must be considered.

What are important steps in creating a Family Charter?

The creation of a successful Charter typically includes these steps:

  1. An agreement and commitment to create the document.  
    1. Does everyone understand why a Family Charter makes sense?  
    2. Are there people interested in working on its creation and do they have the time and information they need to be successful?
  2. A process for creating the document.  
    1. Is there a timeline and defined level of effort? 
    2. Are you going to divide up segments or work on it as a group?  
    3. Do you want someone to facilitate your discussion or can you go it alone?
  3. A method for sharing the document.  
    1. Who will you share the Charter with?  
    2. Who will deliver the messages contained in the Charter?  
    3. Do you want to hold a family (or multi-family) meeting or share the document individually? 
    4.  Who will handle questions, comments?

How do you keep your family charter relevant?

Change, of course, is inevitable. Just like the family car or a company’s fleet of vehicles, the Charter requires maintenance and upkeep. Be mindful of when important events might change the landscape of the family and/or the business.

  • Consider selecting a few family members – both those in and outside the business – and ask them for an annual or semi-annual review of the document.
  • Remember that younger generations might be valuable contributors toward refreshing the Charter. Ask them for thoughts about behavior, values, social responsibility.
  • Be particularly mindful of legal changes that might impact the Charter’s validity. Are there new laws or structure demands that require a change in the document. 
  • Remember to introduce the Charter to new family members and review any revisions with interested parties.

Where can you get more information?

If you would like more in-depth information on how to set up an effective Advisory Board or would like help in any other aspect of running a family-owned or closely held business, please contact us.

Lisë Stewart is a Director in the Closely Held and Family Business Services Group within the Private Business Services Practice. Lisë has experience in organizational development, strategic planning and training, and human performance management.

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