You have determined after considerable reflection that you are not a family enterprise, and that is ok. To continue as a family enterprise your family circle needs to be seen as part of the system. And this is no easy task. The following article gives insight on what it is to include the family and going down the road to set up family governance. One way or another sharing your vision forward with your family is an option to consider.
Too often a business family does not put in the time and effort to share the vision with its family members. It’s the lack of this effort that leads many families to not hire an FEA to go through a process. If you want to reconsider this position here is an outlook of some of the things you would consider.
A critical requirement for any healthy continuity plan is openness and transparency. Planning with the family, rather than for the family, is essential to achieve a successful and harmonious outcome.
It is only by involving the people most interested in the successful outcome of your succession that you will be able to get the “familiness advantage” that is possible in a family enterprise transition.
So what tools are available to help a family enterprise build the family governance foundation needed for a successful continuity plan?
The main tools used by successful enterprise families for building family governance are:
- The Family Constitution,
- The Family Council
- Family Assemblies
- Family Meetings
This article will articulate the Family Constitution and Family Council. The other topics will be covered in later articles in this decision tree.
The Family Constitution
The Family Constitution is a very important document for every family enterprise to create for the benefit of current and future generations to define how it will govern itself.
It is a formal written agreement, developed by the family for the family, articulating a number of very important elements, which may include:
- The family mission statement (reflecting the family enterprise heritage, culture, goals, etc.)
- Formal by-laws, including voting procedures, and the election of the Family Council
- The family values (e.g. harmony, business growth, reinvestment vs distribution, wealth creation, etc.)
- Family policies for titles, compensation, employment & performance reviews, marriage contracts, retirement, share ownership, life insurance, dividends, etc.
- Policies for Board Membership, including term & rotation, successor criteria, non-family component, election of chair, etc.
- Policies for recruiting senior management leadership, and the role of family members versus merited recruitment from outside the family using professional recruiters
- Code of conduct for how members will deal with one another
- Philanthropic goals (how important is philanthropy)
- Goals and frequency of family meetings
- Mechanisms for dispute resolution
- Confidentiality considerations.
There are some wonderful articles and templates available online as reference, for any family to use to scope out a family constitution. A few examples include:
A family can delegate the duty of developing the family constitution draft to the next generation family members, who can work together as a small team to research, craft and present the draft to their elders. The act of working together in the design of the constitution can ensure that the next generation has the commitment to work together to execute on the outcome.
It is customary for the family’s specialist estate lawyer to help the family in formalizing and executing the final family constitution, which can then be inherited by future generations as a roadmap.
The Family Council
The power of compounding does not just affect investing. When I married my wife, we were a family of two. We then had 3 daughters and became 5. Our daughters then married, and we became 8. They had 4 children, making us 12, with more grandchildren still to come. And now we are 3 generations. The family are of different ages and stages of life. And they all have an interest in the successful outcome of our family unit.
The Family Council is a very useful governance tool for growing families, of several generations, to have an organized governance method to elect competent representation and define and exercise voting rights.
In a healthy growing family enterprise, the family will meet (at a family meeting or family assembly), and elect the most competent persons to comprise the Family Council to represent the family on the Board, and the family members in the family governance oversight.
Family Councils can be particularly useful for recommending policies and initiatives, as well as tackling the succession challenges that arise. Family Councils report to the family members, and have formal obligations for timely disclosure of all decisions taken. Competence and trust are keys to a successful family council.
There are tremendous benefits for a family enterprise to develop a Family Constitution and Family Council. Speak to a Family Enterprise Advisor, who can assist you in mapping out the steps to implement these tools with your family. These tools are best implemented by the family, for the family.
If this is a road you don’t foresee you and your family take together than making the choice to not be a family enterprise is the best choice for your family. One way or other, do include them in this decision and share your vision and perspective.
Decision Tree Question: No FEA Process. We suggest you relook at your estate plan and all its elements.