Structures create formality. Formality underpins discipline. With discipline anything is possible; without it the law of the family jungle prevails
Family Structures – Overview
Structures are tangible things that help the Family Harmonisation and Best Practice processes. They provide additional shape and substance, formality, authority and discipline to the family equation. In our experience they’re integral and absolutely essential to the success of both processes.
We help to make all the following things happen on an individual, family-by-family basis. In addition to helping to set them up, we facilitate meetings, train family members in relevant skills and help to develop policies and procedures to increase operational efficiency.
Family Structures come in two forms: (1) Family Bodies and (2) Family Agreements:
Family Structures (1): Bodies
Family Bodies are the identifiable, formal entities that families use to: do things, make decisions, and get together. Although they have considerable authority within the family itself, they don’t usually have any legal status.
A Family Council is like a Board of Directors for the family. It has a key Stewardship function and is the supreme representative, governance and decision-making body for the collective family. Family Councils do not usually have formal legal status.
Every key section of the family (major bloodlines) should be represented on the Council by the leaders of those sections, or their nominees, to ensure that everyone’s views are adequately represented and their positions protected.
The Family Council initiates important tasks like developing and updating the Family’s Constitution. It provides focus and discipline to the family, especially when it comes to interactions between family members and the business. It’s the place for the collective family’s voice when it comes to the employment and performance of family members in the family’s business.
For its first year of operations, some Family Councils meet monthly to get their processes and plans in place as quickly as possible. Once they’re settled, they usually meet around 4 times a year.
Family Forum / Assembly
Where the Family Council comprises representatives of the family’s major bloodlines, the Family Forum is a meeting, usually held annually, where the entire family (as defined), gathers to receive information about both the family and the business. In some respects, it can be equated to a meeting of shareholders in a business.
Many families like to use the Family Forum as an excuse for an annual get together; as an opportunity to introduce younger family members into the family’s history and culture; as an opportunity for team building between generations and family branches and, more than anything else, as a celebration of their being a family in business.
Family Offices are being used by an increasing number of mature and committed families to help manage and protect the family’s collective wealth and to provide a wide range of professional and other services to family members.
Although once the exclusive preserve of the ultra-wealthy, a growing number of more modestly successful modern families are using the “Virtual” Family Office Model, where a family member becomes the Director of the Family Office and works with the family’s trusted advisers to co-ordinate and provide a range of in-house or outsourced services to other family members.
The services can range from conventional legal, accounting, finance and insurance to careers counselling, coaching and mentoring, business advice, next generation education and conflict resolution.
The Family Office can organise an expert response to a personal or family issue, challenge, problem or crisis that’s otherwise hard to manage from within the family. Such challenges can take many forms.
The Family Office is also likely to be made responsible for ensuring that family members manage their affairs responsibly, in accordance with the family’s requirements as laid down in the Family Constitution and Charter of Mutual Obligations.
Family Structures (2): Strategies, Plans & Agreements
Values, Visions & Goal Setting
Values are the underlying drivers that make us want to do, what we do, the way we do it.
Admirable people, families and businesses have their values (intentions) and their cultures (how they do things) closely aligned – so they actually do things the way they tell everyone they do things. In that sense a family’s business is a reflection of the family itself.
Goals define and describe what we want to achieve in the future. They can be personal, professional, financial, or many other things.
Visioning is the process of identifying individual and collective values and goals, and using them to help a family create “a vision” of where they want to be, and what they want to have achieved, at some time in the future, usually quite a few years hence. This creative and often emotional journey of the mind and spirit provides powerful bonding for the family and ultimately provides a solid foundation for making and living out long term Family Plans.
Defining and sharing individual and collective Values, Visions and Goals is essential to achieving personal and family Clarity, Certainty and Commitment.
Family Plans take agreed Values, Visions & Goals and turn them into big picture plans and timelines for the family, using relevant milestones and KPIs to help measure progress against plan over the years.
The family’s Stewardship Principles have a major part to play in forming The Plan, as just about everything the family does is referrable back to those Principles.
We help to make the best possible plans for the future by engaging with everybody in the family: (a) who can make a meaningful contribution to a plan and (b) who needs to know, understand and support the plan to maximise its prospects for success.
The Family Planning process is a powerful tool for bonding, focussing and motivating family members, over the long term. It provides an effective means for measuring and recognising performance and success, both inside and outside the business. It’s also an excellent risk management tool, supported by a Family Constitution and a Charter of Mutual Obligations.
No family that takes itself seriously should be without a live, up to date, written and fully communicated Plan. It links family members through: Clarity (knowing what you’re going to do); Certainty (knowing how you’re going to do it) and Commitment (agreeing to get on with the job).
This major legacy document lies at the core of both the Family Harmonisation and Business Professionalisation processes. It’s sometimes called: “The Family Rule Book”, or “Family Rules of Engagement”
The Family Constitution (or Family Charter) is a formal document that captures the spirit and intentions of a business family, and sets out guidelines and rules to help direct their decisions and manage individual and collective actions and interactions:
- Between the family and the business.
- Between family members; and
- Between the family and the outside world.
Constitutions should be constructed and applied as living documents, subject to constant review and updates as the family and its business interests evolve and change.
The initial document should be prepared collaboratively by all key family members (including partners and spouses) in one or more workshops, or retreats, typically conducted over 2 to 4 days. The facilitated open discussions that form the basis of the process are just as important as the final outcomes for purposes of bonding the family together.
A good collaborative process enables everyone to have a voice in determining:
- What the family is all about (Values).
- What it means to be a family member (Values).
- Where the family should go in the future (Vision – Clarity).
- How it’s going to get there (Plans – Certainty).
- What everyone’s role is on that journey (Plans – Commitment).
Our Solutionist approach to problem solving includes a lot of learning. As a result, the resolution of their issues provides excellent preparation and encouragement for the Constitution exercise … when they’re ready for it.
Mutual Obligations Charter
This innovative and strategic document has evolved from work undertaken with several of our more progressive families in recent years. It dovetails nicely with Family Constitutions.
The concept is simple: in return for the benefits individuals receive as members of the XXX family, they have certain obligations they need to fulfil – both to the family as a whole and to their fellow family members.
In essence, they’re required to act like responsible adult citizens by having their taxes up to date; relevant insurances in place; executed wills and powers of attorney; binding financial agreements; career and/or lifestyle plans; and responsible financial and estate plans.
Most families don’t want to be too intrusive or directive about this, and are pretty relaxed about the personal decisions family members choose to make. The thing nobody is allowed to do is “nothing”, or “something bad”, because that could create problems for the whole family.
To preserve personal confidentiality the whole process is overseen by a non-family lead adviser (usually the family’s accountant, financial planner or lawyer) who uses a traffic light reporting system to inform the Family Office of the status of family members:
- Red = serious concerns that require urgent attention;
- Amber = not perfect, but heading the right way; no immediate cause for alarm;
- Green = all OK.
Shareholder and Buy/Sell Agreements
As families grow and their circumstances change, some family members may wish to buy or sell interests in the family business. This can create a great deal of tension in the family, unless clear and authoritative policies have been developed in advance.
The situation can be made more complicated by the presence of family trusts and other forms of asset protection – especially when the trusts are old and out of step with current realities.
It’s always a good idea to get this type of agreement in place when everyone is in a calm and happy space. If urgent needs arise and there are no defining processes, tensions can easily grow into unpleasant and destructive conflicts.
Codes of Conduct
It seems strange to suggest that a family might need a Code of Conduct to help manage communications, behaviours and interactions between family members, either in or out of the business. However, this was one of the first things we learnt as dedicated family business advisers – that family members can behave towards each other, even in the business, in ways they wouldn’t dream of acting out with other people, anywhere!
Tantrums, threats, screaming abuse, violence and resurrections of ancient family history are almost de rigueur in some families – and they have absolutely no place on business premises.
When this issue kept presenting itself in meetings that couldn’t proceed because one or more individuals were behaving so obstructively, we backed up, reflected on the situation and developed a process for creating Codes of Conduct (usually a one or two page document) with the family.
The new understandings and commitments that arise from the process (about self and others), and the increased respect for others and where they’re coming from, make enormous contributions to improved family functionality.
Meeting Procedures and Decision Making Rules
A recurring finding in many of our initial interviews is that lots of families are not good at convening or running formal meetings; are worse at making wise decisions; and are even worse at sticking to the decisions they do make.
When that’s the case, there’s little point in commencing the Best Practice process, where they absolutely do need to have meetings and make good decisions, until they’ve acquired better skills in both areas.
So we developed tailored workshops to produce the XXX Family’s Meeting Procedures and Decision Making Rules. We created a fully facilitated discussion and design process that encourages family members to work together and bond over a shared and focused exercise.
Pre-Nuptials and Binding Financial Agreements
Despite recent legislative and court-inspired “advances”, high divorce and matrimonial separation rates, combined with increasingly complicated, blended family structures, create terror amongst many family business owners. They genuinely fear having their beloved businesses torn apart by family law proceedings driven by the rapacious or predatory spouses, or de facto partners of their children. This creates major blockages in succession planning and generational transitions.
Once the sole concern of the mega-wealthy, many “ordinary” business families now insist that all married family members, and those in long term de facto relationships, must enter into binding financial agreements (“BFAs”) that make adequate arrangements for departing partners AND block any potential attacks on the Empire.
We recommend placing requirements for this in the Family Constitution and in the Mutual Obligations Charter, as that helps to depersonalise the request by characterising it as a family requirement.
Wherever possible we appoint collaborative family law advisers from the Family Business Consultants Network (“FBCN”) to help with creating BFAs for family members as, unlike the many family lawyers who take excessively combative stances with little regard for what the parties, and the wider family are trying to achieve, they will happily work with everyone to get the job done with a minimum of fuss.