How family charters get you off the hook

by Mary Beth Matteo, Founding Director of the S. Dale High Center

Many family business leaders don’t like the idea of written rules because they seem too confining and rigid. But the conflict that arises when there are no rules creates ambiguity and distrust. Consider these two cases:

Story #1: Two brothers, Jack and Sam, each have a child in the family business. Jack’s daughter, Joanne, has just earned an MBA from Wharton and hopes to become the CFO some day, maybe even president. Sam’s son, Rick, is manager of operations, has worked in the business his entire life, and according to his father, has shown more commitment than his cousin Joanne. The fathers and their children have become enraged about what they consider to be preferential treatment. Rick is getting paid less than his cousin. A job was specially created for Joanne. Rick claims Joanne is getting special treatment, when she has no track record and he does. The list goes on……

Story #2: Mary Jane is the only child of the founders of ABC Corporation and though she is an owner, she’s never worked at the family business. However, Mary Jane’s husband, Walter, became CFO when they were first married and has become an integral part of the business and a part owner. Now, fifteen years later, Mary Jane and Walter are going through a brutal divorce. The family is at each others’ throats over whether Walter should stay, how they can buy him out if necessary and whether he should have claim to company assets. The list goes on……………
It’s vitally important to define the rules of the game before the game begins. Not in the middle. Family constitutions are a good place to start and typically include things like family employment policy (compensation, rules of entry, etc.) and ownership policies ( buy-sell agreements, prenuptuals, etc. )

Sum and Substance: to use an analogy, imagine the Colorado River. If you take away its boundaries—the Grand Canyon—the river becomes nothing but a big messy puddle! Boundaries cannot be too tight because people will rebel. Or, too loose, because people will feel like there’s no one at the helm. But a river with good boundaries flows smoothly and reaches its destination.