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.

A Family Constitution is a great governance tool...

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

Many family business leaders stop thinking about governance because they associate it only with a Board of Directors. In reality, governance has many aspects to it:

• Family Councils (to facilitate open communication among family members)

• Boards of Directors and/or Advisors

• Family Constitutions and Mission Statements

• Leadership Development for the next generation

One of the most effective and important tools for the family is the Family Constitution, which is a legal or quasi-legal guide on how to put the family’s priorities, values and mission into action. In essence, it’s a blue print for everything the family intends to do. Here are some areas that are usually included:

Owner Commitments, Rights and Responsibilities: might include guidelines for Ownership, Inheritance and Succession, and Personal Development of family members. Even, marriage and divorce.

Finances and Investment: might include who owns assets, stock agreements (buy, sell and exit) who can purchase and sell shares, and how it will be done.

Family Employment and Compensation: generally includes rules of entry, how jobs will be offered to family, supervision/mentoring, and fair compensation.

Check out a sample family constitution, from the Carjaval Family, SMEToolkit.

Sum and Substance: Something is better than nothing in the world of governance! As with the Family Constitution, starting out small and adding sections as you go along is just fine.


Let us know your thoughts in the comments section of this post:

Does your family have a constitution? How has it helped your family?

In-laws as Outlaws?

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

Many in-laws feel so separated from the family business family, they become “outlaws,” people who feel outside the law. Handling in-laws is fraught with difficulties but here are a few tips about how to keep a spouse’s relationship with the family from becoming volcanic:

• Learn to articulate unwritten family laws, so your spouse doesn’t inadvertently violate them (an example might be, “we don’t criticize Dad in public.”)

• Discuss traditions of both families so that both can be accommodated (How do we spend Christmas, Easter, birthdays? How do we divide the time?)

• Educate your spouse and in-laws about the family business, through family meetings and other vehicles; the more transparent you can be about the status of the business and how it runs, the better for everyone.

• If you don’t have one, think about developing a family charter; in the case of in-laws, two areas are key: stock ownership policies and pre-nuptial agreements.

• Don’t complain about a family member to your spouse or in-laws! It only causes problems later.

Sum & Substance: Inlaws may not be part of the family business, but it's in the business's best interest to remember they are part of the family.