There is a theory that if you ignore problems, they go away. Sadly, no one has yet been able to prove it works!

The opposite theory – that if you deal with things before they happen, they won’t happen – also can’t be proven for how would you know it wouldn’t have happened if you hadn’t dealt with it? However, being a rational accountant, and knowing that there are less family feuds in businesses where there is a Family Charter, the second is sounder logic.

It’s not always easy dealing with family matters in business as the lines between personal and business matters can become easily blurred. A family charter will prevent the problems arising from this.

The Family Charter – Laying the Ground Rules

Quite simply, a charter sets out the objectives of the family business and the rules by which it is governed. Firstly, ask yourself:

• What are the foundation principles on which the company stands?
• What succession plans are in place?
• What is the process for decision-making?
• How will family members be employed in the business?

There are examples of how siblings have moved smoothly into a family business with each having their own realms of responsibility. But when three siblings each have three children, the situation of nine offspring fitting into the family business in the third generation raises serious questions: Where will they all fit? Are they good enough? Do you include non-participating offspring as shareholders? Here are some questions that need addressing:

• Should family members work in another organisation before being offered employment with the family business?
• What kind of qualifications and experience should they attain?
• Can a family member approach the directors for a job, or should they apply in the normal manner?
• If there’s no vacant position are you going to create one for a family member?
• How much will family members be paid? Will they be paid the same as non-family members who are equivalently qualified and experienced?
• What is the level of commitment expected from family members?
• Who can own shares and voting shares in the company?
• Should family members not involved in the business be allowed to own voting shares?
• Will there be any restrictions in place, for only “blood line” family members or can in-laws hold shares and management positions also?

Next Steps – Write a Charter for Your Family Business

• If your charter includes family members already involved in the business, you will need to involve everyone in the process. Your accountant will be able to provide a good list of issues and questions for discussion.
• Set aside time for family members to sit down and brainstorm the issues. Getting away from the home and/or office is best.
• Bring all ideas to the table and aim to reach consensus among all parties – you’ll never be able to prevent future conflict if some members never agree to the charter in the first place.
• Make sure the core values of your business – the stuff that got you where you are today – are not overlooked or pushed aside.

Consider bringing in an outside facilitator, especially if markedly different views make consensus challenging.

Guiding Document

Once in place, the charter becomes the guiding document on which the business stands. All decision making should then follow the processes set out in the charter.

The aim is to support families and their business leaders – who often have three hats to wear: family member, business owner and company manager – by laying out the ground rules on which the business stands.

The family charter must be a ‘living document’. If circumstances change you might need to amend the document so it continues to be relevant and up-to-date. It pays to regularly review the charter to make sure it continues to reflect current thinking within the family.

Philip Bradbury CA