Family business tip #4 – “Establish family documents and policies.”

Drafting family business policies and implementing family business policies are often met with great resistance. The process will require conversations that some families would rather ignore, the implantation is a formality that may feel unnatural for some, and sticking to what is written down can be downright frightening.

Yet, the simple act of gathering the stakeholders around a table, discussing what is important to all involved and what will create a positive outcome can help many families and businesses escape costly litigation and emotional warfare.

Consider the tale of one Vermont family business which implemented a “Rules of Entry” document as they approached the third generation of family members, chock full with 15 cousins. The four brothers and their wives gathered, discussed and over the course of several years developed the following simple rules for any candidates for family employment:

  1. A college education, no degree specified.
  2. Three years outside employment experience.
  3. Employment experience within the family business but working for an uncle.
  4. A progression of experience within the family business to develop themselves for future leadership.
  5. How children of partners that have exited will be handled.

It amounted to one page and it was not legally binding. However, the process was critical to its success, and today two family members have met the requirements and begun employment in the family business, while others have pursued their desired careers. The end result was that the emotions often associated with who gets hired into what positions was eliminated and both the business and individuals are better served in the long run.

Below are some considerations for implementing family business policies and documents. I hope you find these helpful.

Why the need for family documents and policies?

  • Families have many unspoken rules which can be easily misinterpreted.
  • Decisions should be made without the absence of emotion often created by family events like death, disability or divorce.
  • Sound planning early on will help avoid costly legal and financial expenses in times of need.

What are important family documents to have?

  • Rules for entry and employment.
  • Family compensation and benefits guidelines.
  • Buy-sell agreements.
  • Family constitution.

Why do some families resist documents and policies?

  • Formality can feel un-natural in a family setting.
  • Families tend to be very private about decision making.
  • “Well if we love each other, we can work things out…”

Where to start?

  • A family council provides a forum for discussing and implementing rules and policies.
  • Talk with other family business owners.
  • Involve key family employees whom have a more external and grounded perspective.

For a video of the Monthly Family Business Tip, click here.

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