Family Charter

What is a Family Charter?

A Family Charter (sometimes referred to as a family constitution) is a document that is a key element in setting out the relationship between the business and the family.   A Charter therefore sets up the parameters and boundaries so that it’s clear how to operate and move.  Otherwise, it can become personal with the potential for conflict.  A Charter is implemented therefore to head off any potential conflict and to ensure harmonious relations.

In a nutshell, it is the rules and policies of the family or a kind of written contract between family members. It is based initially on the family values and what the family stands for.

As is generally the case though, the whole process behind its development is often more important than the actual document itself and this certainly seems to apply to the Family Charter.

When to use

A Family Charter is often not required until a business reaches the 2nd or 3rd generation. However, experience shows that it can be very important to introduce the concept when transition from 1st to 2nd generation is being contemplated.

General Hint

Developing this charter is a lengthy process that is often initiated at a family retreat and then updated at regular intervals. The family need to set aside time (eg., a full day) and be prepared to do so at regular intervals (eg., quarterly or every six months) until the Charter is finalized. Of course, it is not a static document and needs to be updated as necessary.

Why have a Family Charter?

The Charter provides a process that is important for the family to go through. In other words, the family has to communicate with each other, listen to each other and then finally agree.

It provides clarity and certainty where the family is clear on what the rules and policies are in the same way that the business ought to be clear about its procedures and policies.

It is a powerful tool in managing people’s expectations and because it provides some certainty, it also provides for proper planning.

As hinted at above too, it is a very effective means of resolving disputes and any conflicts.

The cost-benefit ratio is also clear in that the cost involved in meeting and setting up a Family Charter is miniscule in comparison to a legal dispute with the associated emotional turmoil, stress and damage.

What are the Steps in Building a Family Charter?

  1. The Foundation – A family business is a complex structure as the values important to a family (eg., love, caring) are not the same as those that apply in the business world (eg., profit, growth).  This often leads to confusion, tension and disruption when sensitive issues arise.  Are these issues to be dealt with under the family’s value system or those of the business world?
  2. Family Values – Each family has a set of values that are important to it. These will include concepts such as love, support for family members, respect, honesty, integrity.
  1. Business values – Though there will be some overlap, these will also include values such as a commitment to growth, continuous improvement, excellence, customer focus.
  2. Family Business – Values and Vision – These two often conflicting value sets need to be reconciled into a set of values applicable to the family business as an entity in its own right.  These values help the family to identify a uniting common vision for the family business.  It is also useful to distil these into a mission statement for the family in business.
  1. Structures – These are then developed to govern the Business System and the Family System and to control the interaction between them both.  There needs to be an effective functioning Board for the business and a Family Council which manages family issues that impact on the business.  The Charter becomes the governing document for the Family Council.

What is in The Family Charter?

Typically the Family Charter will contain a number of key elements including the following:

  • Statement of family values, mission and objectives
  • History, background, overview of the family business
  • Policies and codes of practice on issues such as –
    • Ownership (Who are the business owners?)
    • Governance (How does the family interact with the business? How is the Family Council run and who chairs it?)
    • Employment (Who works in the business? Is it based on competency or just being a family member? Do the children need to have outside experience first and if so, for how long?  Do the children need a Trade or University qualification?)
    • Compensation
    • Career Opportunities
    • Leadership
    • Succession
    • Communication and Conflict Management
  • Rules for updating and reviewing the Family Charter

How does the Family Charter Continue Over Time?

 Having developed the Charter, there are two protective mechanisms that are required to ensure that it lasts.

  • Integrate – The document itself will have little impact unless its message and the principles that underlie it are imbued into the hearts and minds of all family members.  How will you ensure this happens?  How will children and in-laws be introduced to the family’s values, principles and codes of practice?
  • Review – Invariably, not all issues will be covered in the first draft. More importantly, constant change within the family, the business environment, and society mean that constant regular update is required.  What process will you establish to ensure that the Charter remains current?

With these support structures in place the content contained in the Charter will be secured and it will become a living document that adapts to the needs of the family in business over time.

What are the Barriers to having a Family Charter?

Some families (and individuals) push against the notion of having a Family Charter. What would be some of the reasons for such, given that the Charter makes for sound business sense?

Take for example some of the following reasons:

  • Lack of Knowledge: Not being aware that there is such a thing as a Family Charter. Some business people are certainly aware of the need for clear procedures, operations and policies and clear governance, but it has never occurred to them that such could also be done within the family context.
  • Feeling insecure or inadequate: If the business owner doubts their ability to manage something like a Charter or indeed, if there is a fear of somehow losing control, then this may be a barrier to implementing a Charter.
  • Feeling of Opening Pandora’s box: Again, not being in control of what might be discussed or brought up and that individuals in the family might also talk about their feelings or emotions is enough to put some business owners off trying to undertake a Charter.

Irrespective, the real question to ask oneself is this: What might be the implications of NOT putting together a Family Charter?  What could be the possible consequences of not having a Charter with clear family rules and policies?  In essence, what could you lose by not having one?