Once your company moves into later generations, you need a document that will govern how decisions will be made.
By Ellen Frankenberg
Complicated journeys become simple when a GPS points out each turn in the road and how many miles it will take to get where you’re going. Yet family entrepreneurs, whose employees, customers, suppliers and grandkids expect them to arrive somewhere special, sometimes continue to drive simply by the seat of their pants. They assume the whole family agrees they’re heading in the right direction, even though bickering may erupt from the backseat.
A family charter or constitution provides direction for your family, especially when you move beyond a unilateral decision-maker—the founding entrepreneur who carries all the key data in his or her head. Once owners multiply into the second and third generations, it becomes critical to have clear, written statements about the family’s core values, goals, ethical principles, criteria for leadership and structures for governance. On what terms will major decisions be made in the future, especially once Mom is no longer around to settle an argument?
If every family member contributes to the family charter and signs off on it, consensus on future decisions becomes a realistic destination. One family wrote: “When considering candidates for future leadership, we will seek the most competent and ethical leadership available, including, but not limited to, family members.…” In that sentence, they declared respect for family members, but also a “business first” approach to seeking new leadership, because they recognized that the right business competencies and ethics may not always be encapsulated in their own DNA. They agreed that the “Golden Goose” that supports so many families needs the best and the brightest to sustain it.
If an entrepreneurial family can agree on a family charter, compliments will abound from non-family managers, subcontractors, bankers, customers and strategic partners: “These people have their act together … This business is not going to be torn apart by family squabbles … Look at what’s hanging on the wall.”
Before your next family council meeting, ask each adult member to write answers to questions like these, or whatever other questions are appropriate for your situation.
1. How do you feel about our family business? Proud? Angry? Burned out? Excited? Stuck in a rut? Determined to succeed? Fearful that conflict will erupt? Feelings are clues to people’s deepest values.
2. How important is it to you that this business remain in the family? Do you want to pass it on to your children, or sell it? What talents and competencies will be required to keep this business competitive? What kind of family investment?
3. What have been the ingredients for success in our company, especially compared to its competitors? The founder’s personality? Innovation? Customer service? Location? A unique product line? Can these ingredients be transferred to a global marketplace?
4. What are the requirements for hiring other family members, especially in the successor generation? These usually include graduation from college or technical school and successful experience at a company one step ahead of yours. What are you doing to ensure that the messages you are currently giving to your children depict the family company as an opportunity, not an entitlement?
5. What ethical principles or guidelines will you propose for family members who work at the company? Will you expect the same work ethic for second-, third- and fourth-generation members? Will you develop policies to ensure that family members aren’t given more perks and bonuses than other essential employees? Will family members’ compensation and promotions be based on fair performance reviews?
6. What criteria will future leaders/managers be required to meet? Production savvy? An MBA? Integrity? The ability to motivate others? Sales and marketing skills? IT competence? Or will the eldest son automatically inherit the kingdom, regardless of any objective assessment?
7. How will ownership be transmitted? Do you believe in dividing stock “equally” among all heirs —especially for tax advantages? What will be the consequences of splintered ownership for future CEOs? How about concentrating voting stock in the hands of those who make significant contributions to the company? Have you written a succession plan for ownership? What questions do you want to ask financial and legal advisers?
8. How will your company be governed in the future? Family firms that grow into the third generation often develop clear accountability through “structures for governance”: strong boards of directors or advisers who offer objective business perspectives that are different from those of company insiders, regular family council meetings that provide a legitimate forum for family stakeholders and, of course, a competent management team stacked with the best and brightest family and non-family leaders available.
9. Which aspects of your family heritage do you want to perpetuate? Some of Granddad’s ideas may have been ingenious, but sometimes ancient prejudices that were shaped by a long-gone social environment need to be dumped. Women nowadays run major companies, and calculated risks are required for future growth. Which core values that you were taught as a child do you want to pass on to your children, and which should be left in the past?
10. Does the family share a vision for the future? Walt Disney created an industry “to make people happy.” Microsoft envisioned “a computer in every home” at a time when some of us thought “software” might be some new kind of lingerie. Every day FedEx delivers its vision of “The world on time.” Even if your family is not quite in the same league as these giants, do you share any vision at all that will inspire your company to do great things?
Building family solidarity
After you’ve shared your ideas within the family circle, designate one or two members to pull together the key concepts and distill them into a one-page document. Vigorous debate —laced with sufficient respect—will bring clarity to vague ideas. You will get to know what your sons and daughters really think about the company before your succession decisions are final. Another meeting—or two—will be required to discuss and fine-tune your document. It will be a great day when everyone gathers to sign the family charter, hang it on the wall for all to see and celebrate a rare accomplishment for your family.
If developing a family charter seems challenging, recognize that this process provides an opportunity to build family solidarity and manage family conflict productively before it disrupts the business. Then everyone will be looking at the same GPS —because they want to reach the same destination together.
Ellen Frankenberg, Ph.D., advises family businesses in transition, especially as they develop succession plans, manage conflict productively and define the goals and values that lead to long-term growth (www.frankenberggroup.com).