The family charter, also known as the family constitution or family protocol, is a fundamental document for ensuring the long-term future of family businesses. By bringing together the family’s objectives, values and priorities, it serves as the basis for the company’s strategy and corporate charter, which must be drawn up by the company’s management and board of directors.

A family charter?

The Family Charter is a set of principles that outline the family’s commitment to the company’s values, vision and mission. It also defines the roles, composition and powers of the company’s main governance bodies, such as family members, shareholders, directors and the Board of Directors.

The family charter plays a vital role in providing a clear governance structure, preventing potential conflicts and ensuring business continuity across generations. It is crucial when new generations join the business, bringing different ideas and opinions.

Content of the Family Charter

The content of a family charter varies according to the size of the family, the stage of development of the business, and the degree of involvement of family members. However, a typical family charter generally covers several key elements:

1. Family values and vision

The charter generally begins with a statement of the family’s values, mission, and vision, which serve as the basis for all the company’s decisions and actions. These fundamental decisions and clarifications constitute the frame of reference for the company’s strategy and provide a transparent definition of everyone’s identity, role, and prerogatives.

2. The Family’s material objectives, and the role the business plays for the Family

The charter should specify what the family wishes to achieve through the business. This may include increasing the value of the business and the family assets, exploiting an invention, or achieving personal fulfilment. It should also determine who should be involved in the business, at what stage, and how.

3. Role of the Family in the company

It is essential to define the role that the family should play in the business, including involvement and collaboration in running the business, occupying management positions, and deciding on the involvement of outsiders.

It is also important to define who is part of the family.

4. Financing the business: how does the family intend to organise itself to achieve its objectives and remain true to its values?

The charter must address the way in which the family positions itself in relation to the financing of the business, specifying whether it wishes to call on equity capital or the capital market, and the consequences of these choices.

5. Asset structure

The charter should clarify how the company’s assets are structured, e.g. as shares, voting shares, or profit-sharing shares, and their importance within the family’s total assets.

6. Asset Management Strategy

A clear asset strategy guarantees the long-term future of the family’s assets, by dividing the assets between various areas of investment and ensuring that each member can leave the business individually if necessary.

7. Relationship between Family members and the company

The charter should also define the relationship between family members and the company, establishing formal communication channels for sharing ideas, aspirations and problems, and allowing the family to meet to make necessary decisions.

It must also be clear about priorities: do the interests of the business take precedence over those of the family? What are the consequences of such a choice?

8. Conflict resolution mechanisms

To prevent and manage conflicts, the charter must include clear dispute resolution mechanisms, specifying the procedure to follow in the event of a deadlock and the attitude to adopt towards Family members who wish to leave the company.

Implementing and reviewing the Family Charter

The family charter should be a living document, and evolve as the Family and the business change. It is recommended that it be revised regularly, for example every five years, to reflect new Family priorities, the history of the business, and its future. These revisions should be discussed collectively to ensure a consensual and harmonious process.

Implementing the Charter requires the active involvement of all Family members, especially those not involved in the day-to-day running of the business. Good communication and regular meetings are essential to maintain Family cohesion and ensure that all members feel included and heard.

To conclude

The family charter is an essential tool for the governance of family businesses. By clearly defining the values, objectives and roles of family members, it helps to prevent conflict, ensure the continuity of the business, and preserve family assets across generations. It needs to be regularly updated and discussed collectively, reflecting changes in the family and the business. Ultimately, a well-designed and implemented family charter contributes to family harmony and the long-term success of the business.

The information presented in this article is based on specialist documents on the governance of family businesses.