• Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 5/6/2013

The key governance documents of a family 

The key governance
Have lifecycle events in your family, such as marriage, birth or divorce, created business ownership issues? Are some family members experiencing a need for higher income from their investment in the business? Is there a need for increased liquidity because of an estate settlement? Have there been outside takeover bids or owner lawsuits? Is a change in management or board membership imminent? Are young adults graduating and pressing for a position with the company?

If you answered “yes” to any of these questions, it is time to revisit your family constitution, your company bylaws and other legal documents, as well as the policies and procedures that provide governance for the family, the business and the owners.
” – Lamp, Is this the time to review your key documents?

In a recent feature article in the Family Business Magazine, Charlotte Lamp discusses the key governance documents of family businesses. The article lists in a systematic way the documents that may be useful for family business governance – from documents that help define the family and what it stands for, to documents that define the strategy and practices for the company, to the ones that create discipline around key moments and decisions.

Writing down the unwritten rules

“Beware of informal unwritten policies and procedures. Rather than being left to the whims of the an individual’s interpretation, these unwritten rules are better off written down. Research shows that when expectations are clearly understood by all stakeholders, appropriate behaviors ensue.” – Lamp, Is this the time to review your key documents?

Are these too much? Should one really bureaucratize family affairs with all these formal documents? Although the list seems extensive, formal documents have important advantages…

The first is the process of writing them. Trying to formalize and clarify the goals, rules and processes of the family creates an occasion for debate during which emotional and difficult issues may come to the fore. If well guided and transparent, this process can generate a sense of cohesion and alignment among family members.

It provides a good occasion to meet, discuss, and celebrate the family values. A second advantage is the clarity it creates for all members of the family, some of which are perhaps more detached from family affairs and have less insight into family policies.

The rules of engagement

These governance documents not only provide definition (who are we?), direction (where are we going?) and discipline (how do we proceed?) within each circle, but also outline the rules of engagement at the intersections.” – Lamp, Is this the time to review your key documents?

Clear and transparent rules help align expectations and behaviors, focus action, and diffuse conflict. Third, often when there is a crisis or moment of tension (a succession challenge or business difficulty for example), people tend to lose their objectivity and sense of perspective.

It is very valuable to have clear rules agreed beforehand, so that there is a clear and fair process to follow in addressing the difficult decisions, when emotions and tension usually runs high.

If you would like to check what family governance documents you have and which ones you may need, then read further: Is this the time to review your key documents?

Filipe Santos

Filipe Santos
Filipe Santos is Associate Professor of Entrepreneurship at INSEAD. He is the director for the Maag International Centre for Entrepreneurship and the academic director of the INSEAD Social Entrepreneurship Initiative.

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