Danai Pathomvanich
Feb 24, 2015
Family charters are becoming critical elements of successful family businesses, especially in Asia.
As family businesses enter into their third and fourth generations, they must decide on protocols that will allow their business to continue flourishing while at the same time address the family’s growing needs.
Family charters
Family charters or constitutions, document the families shared vision and values and outline its policies regarding family business’s ownership and operation.
It’s a mechanism for establishing and maintaining the balance between the business’s best interests and the family’s well-being.
Although not legally binding, the charter reflects the family shareholder’s consensus view and it serves as an overall business governance framework.
The family charter should support and articulate the family’s business plan and clarify any prior shareholder or partnership agreements.
In Asia, many families are beginning to understand that well-constructed family charters can help family businesses and their long-term governance structures.
Family members’ different roles
A most important element of any family charter is the process that family members used to discuss different areas and determining a united approach for the family going forward.
The charter should permit families to establish frameworks for determining family and business roles for different family members and attempt to clarify current unclear areas.
Most importantly, it should address the needs of family members not involved in the day-to-day running of the business and ensure their views are appropriately addressed.
Planning for tomorrow’s predictable problems
Well-drafted family charters should help families address tomorrow’s predictable problems including potentially difficult conflict points.
Many families avoid certain topics that are ‘taboo’ and don’t’ want to discuss inheritance, death, passing on the business to the next generation.
However, family charters should address these issues and be viewed as living frameworks, that can be regularly updated when required.
What’s in family charters?
Because family businesses are different, no single
cookie cutter solution is optimal.
Most importantly, the process that the family goes through to create a charter should include understanding different family members varying perspectives.
A key goal is developing unity and shared family goals and defining the culture and the family’s code of conduct.
The family charter should define family goals, articulate family and business values. It should also facilitate effective communication between family members and identify decision making frameworks.
Key elements to be considered
In general, family charter discussions should carefully review and discuss several key areas that affect a family’s journey to business and family sustainability.
These include identifying, debating and articulating family protocols.
Another critical element is considering whether the family would family benefit from guidelines outlining how the business should be operated.
A family should also have open discussions on how the family can be best run by the next and subsequent generations.
Each family should also discuss what governance mechanisms would be beneficial.
Lastly, families should also consider whether outside facilitators would be beneficial.
Family charters pave way for future success
Globally, family charters today, play an important role family businesses.
Although many family charters are not formally documented, families that have discussed the issues and formulated approach frameworks are better placed to successfully navigate their way through them.
The experience and time spent by family’s debating and drafting family charters is more valuable than the actual document produced.
Well drafted family charters are used by future generations to deal with issues at hand and hopefully ensure success in future generations.
