Fiducia Partners Insights - Developing a Family Charter

Developing a Family Charter

October 4th, 2018 Posted by Family Wealth 0 thoughts on “Developing a Family Charter”

You might be surprised to find out that in the UK only 14% of families with a business have a Family Charter (according to PwC). I was surprised too, particularly because I know how valuable they are for family businesses. In fact, a couple of weeks ago I wrote about family business feuds and one of the preventative measures I suggested was to draw up a Family Charter. Since then I have come across an interesting survey conducted by KPMG which found that 87% of family businesses with a charter said that they will eventually come to a consensus even when they have differing opinions, compared to 71% of families without a charter.

Here I want to elaborate on what family charters are and why I often recommend them, not just as a way to deal with disagreements.

 

What is a Family Charter?

A Family Charter aims to define shared values, individual and group needs, visions, goals, structures, succession rules and plans, strategy, business models and roles. As a basic guide it should contain the following:

  1. Definitions, such as who is considered a family member.
  2. Details of how your family and the business got to where it is now. This should include the history of the family business and the principles and values it was built on.
  3. An overview of the current organisation of the business and family.
  4. Details of current family investments and assets over which the Charter also applies.
  5. Your goals and visions for the future.
  6. Your values both as a family and as a business.
  7. How you manage business ownership. For example the restrictions and incentives in place to keep ownership within the family and the rules family members should be bound by regarding the sale and purchase of shares.
  8. Details for how you make decisions about succession, dividend policies, new investments etc.
  9. Structures for governance like a board of directors with independent, non-family directors and perhaps a family council.
  10. Details of who currently fulfills each role and plans for who will take on future responsibilities and roles and for how long.

 

Why should you have a Family Charter?

Firstly, while I think they are a good idea at any stage of the business, the need for a Family Charter becomes greater the more family stakeholders there are. A business that has many family stakeholders is often one that has survived a few generations and as those families and their advisers will know, sustaining the business’s success, ensuring smooth leadership transitions and dealing with shareholder changes can be tough. Having a Charter that contains at least all of the above will help manage expectations, deal with problems that could arise ahead of time meaning there are fewer surprises and as KPMG’s survey suggests, more consensus when making decisions.

Since the Family Charter establishes a framework for decision making and gives structure to what are normally very informal relationships between family members, it also helps to separate relationships at home with relationships in the business which can prevent disagreements in the home or the business from spilling over into the other.

As well as its value dealing with decision making, leadership transitions and shareholder changes I think the most valuable part of a Family Charter is the time spent developing it. My experience of working with families has shown that open discussions about values, ambitions, hopes and fears can strengthen family relationships and help work out how to solve problems together and create a smooth path to manage the family’s wealth. Often, giving thought to and encouraging debate about foreseeable difficulties can prevent them from arising in the first place. It can also be a useful document to have for inducting new members of the family into the business.

And of course, once the Family Charter is complete it must not be put away and forgotten about, it must be lived by, reviewed and adjusted to reflect changing structures and economic conditions.

 

I hope you found this article useful, if so please leave a comment below.

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