by David Gage
Bottom Line Business
Lack of clarity about issues – such as money power, position, percentage of ownership, performance – and a process for conflict resolution are often at the heart of serious problems for families and can even lead to the dissolution of the family business.
Honest communication: Key to preventing family disputes that threaten the business. That means talking about sensitive issues before they become conflicts and agreeing on strategies to manage them.
ONE STEP FURTHER
Write down the strategies and guidelines that come out of your family’s powwows and enter them into a family charter.
Family charters spell out a family’s objectives and expectations for the business and for each other. These written documents are created by the family, usually with an experienced, objective third party helping the process along.
Having an outsider guide the family through the steps of creating a charter prompts open, honest dialogues that otherwise may not occur.
While creating a charter, family members work through and agree on some of the stickier aspects of running a business. Then they write down their resolutions so they’re clear and easy to remember.
Bonus: The process of creating a charter strengthens family bonds and conflict resolution skills.
BUILDING AN EFFECTIVE CHARTER
A charter isn’t a legal document, but it can aid in the drafting of partnership and other legal agreements. The charter typically is a work in progress. It gets reviewed and updated annually and when the business goes through transitions, such as a family member entering or leaving or a merger taking place.
It typically takes two to three months to create a 20- to 30-page charter, with biweekly meetings and take-home assignments that explore personal values, strengths, weaknesses, and business styles.
While there’s no “one size fits all” formula for family charters, the most effective charters clearly define:
Family members spell out their expectations of each other… of the business… and of the family partnership as a team.Example: A charter would have helped prevent the ill feeling that developed when a family business I know of that was run by a father was in transition. It was on its way to becoming a larger business run by his two sons. As the business slowly changed, the father expected his sons to manage employees and run the business. However, he held on to much of the authority he’d had and continued to make special arrangements with employees regarding perks and benefits. He didn’t tell his sons about these arrangements, and as it turned out, they were working at cross purposes with him. They were revamping the benefits plan in an effort to standardize it. In the end, a huge disagreement broke out and the benefits policy had to be rebuilt from scratch.
Ownership and equity interest
Charters spell out who owns shares in the company and how ownership will change over time, or at least how family members intend it to change.
Communication and dispute resolution procedures
We evaluate each partner’s personal style and explore how each works or doesn’t work in the context of the family business. Then we get family members to think about and commit to communication on a regular basis.Example: Family members agree on a meeting schedule, talk about the kind of information they’ll discuss at meetings and decide who will be privy to what. We also build in a step-wise procedure for resolving differences. First, family members talk among themselves. If they can’t resolve their differences, they bring in a mediator to help. If that doesn’t work, they bring in an arbitrator, and so forth.
This sensitive issue is frequently avoided until unfairness is perceived and hard feelings abound. A well-written family charter ensures fairness by looking at what people are contributing to the business in a variety of different ways-including time, energy, and expertise. It also examines what each person is taking out in terms of compensation, benefits, and time off. To increase objectivity and fairness, each family member should draft a list of what he/she thinks each partner contributes to the business including his own contribution–and what he believes each person wants to get out of it. This may be uncomfortable, but it is vital to talk about all aspects of compensation. The perception of fairness largely determines how people will feel about working together.
Arrangements for leaving the family business
This critical issue is often avoided by families until it’s actually happening. Then emotions run high. Discuss this scenario as a hypothetical issue. You and your family members are more likely to think similarly about how best to withdraw from the family business if you consider it in advance.
Guidelines for governance
Should your family business have a board of directors or a board of advisers? Discuss how your business should be governed and put together a plan to make it happen.