Business Today

Family business readings: Living the charter is not easy

A Family Charter is a set of agreed principles and protocols for governance of a family business. It evolves through a participative and systematic process of open discussions amongst family members and owners.

Prasad KUmar        Last Updated: August 5, 2018  | 17:02 IST
Family business readings: Living the charter is not easy

It is relevant to clarify what Family Charter means before we explore aspects of living it.

A Family Charter is a set of agreed principles and protocols for governance of a family business. It evolves through a participative and systematic process of open discussions amongst family members and owners. It enables an integration of the three dimensions of family, business and ownership. The involvement of an experienced and skilled family business advisor facilitates discussion of difficult subjects.

Progressive and far-sighted family firms usually agree on creating the charter. This symbolises their commitment to governance and cohesion.  The journey is always intense and sometimes painful.  It involves participation of all key family members in difficult conversations, over several meetings.

After having signed this document, most families think the job is done. There is an implicit assumption that the clarity and synergy achieved during the process, will last forever. Far from it, it's just the beginning.

Living the charter can be difficult.  The family has to walk the talk.

As everyday life unfolds, some challenge or the other confronts the family and the implementation of the charter gets difficult:

  • Family's needs and aspirations override the charter.
  • Pressures of a growing and complex business distracts attention.
  • Preoccupation of growing family responsibilities takes centre stage.

So, how do we make all this effort worthwhile? How do we live it?

Firm, fair, empathetic and committed family leadership is essential to mobilise implementation. Here are some governance guidelines that support strong leadership. Providing for some of these in the charter is important:

  1. View it as a guideline for action rather than an instrument of control - dynamic rather than static.
  2. Design a flexible format - less of rules and more of principles.
  3. Embed an amendment process - both tenure and trigger based. Tenure is normally five years. Generational transition, sharp changes in family or business, and unforeseen events are examples of triggers.
  4. Put in place an agreed and documented "fair process" that is acceptable to all.
  5. Activate an alert mechanism to correct any lack of transparency and asymmetry of information.  Make disclosures compulsory.
  6. Provide a grievance redressal mechanism.
  7. Install a whistle blower process under the oversight of a trusted and credible ombudsperson.
  8. Organize regular, facilitated, family offsite retreats - these serve to revitalize relationships, manage differences, increase alignment and build ongoing trust.
  9. Agree on a robust process for managing differences - deadlock facilitators, relationship reviews, training in conflict resolution.
  10. Mandate direct communication of differences between the concerned individuals - "triangulation" breeds politics and ill will.
  11. Compose a "code of conduct", for working and non-working members - this will guide their behaviour with stakeholders.
  12. Promote the "one voice principle" where two or more family members are in inter-related business roles. The will and skill for consensus building is fostered by applying this principle.
  13. Business families who can afford to own or rent family office services must do so and mandate them to provide assistance in the governance of the charter.
  14. Monitor effectiveness of the Family Council, Business Council and Owners Council.
  15. Initiate "team projects" for family members to work together and understand each other more deeply.

Underpinning each family charter are values and principles that define the family. Building psychological resilience and maturity in family members, helps live these values. The two big reasons for problems are "entitlement" and "ego". Usually, the more successful the family gets, more hubris sets in. Feelings of comparison and discrimination overtake family harmony.  Forgiveness and grace plummets, and the dry haystack is ready to spark conflict.

Increased self-awareness, higher consciousness and building "inner excellence" is paramount.  This helps keep the ego in check and fosters humility.

The vitality of the family firm and its trans-generational strength is in living the charter across generations.

Strong values and relationships make for good family governance. This in turn nurtures good corporate governance. Institution building and perpetuity might then be possible.

Prasad Kumar specialises in family business advisory.

  • Print

A    A   A