What is a Family Charter?

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What is a Family Charter?

The Family Charter is the cornerstone or foundation document of a family governance system. It is the bedrock on which everything else is built.

It is also known as a Family Constitution or agreement and is the main document you would use to outline your families values and vision.

If you have ever read or heard of the book by Simon Sinek called ‘Start with Why’ the Family Charter is a way or articulating the ‘why’ of the family business.

Each Family Charter is unique and should reflect the values and personalities of each family and business. That said their purpose is to outline your relationship as the business owning family to your family business and the relationship of family members with each other, so far as the business is concerned.

Is a Family Charter legally binding?

They are not typically legally binding as they tend to deal more with the values, behaviours and principles rather than formal rules. However, legal documentation can be used to supplement the family charter. We cover these later in the series.

The Family Charter is also a private document, rather than one that is available to the public via Companies House and should be values based. It is family driven and therefore bespoke to that family. For it to be an impactful and to give it the best possible opportunity to succeed, it should be a document that is developed by you as a family.

The Family Charter should be considered a living document, it should be something that is easily accessible to everyone and understood by the family as a whole

The conversations that can be facilitated during the process of implementing a family charter are really useful, these pro-active discussions around areas that may be otherwise sensitive should be seen as a huge positive.

Our belief is that it is better to have these discussions when things are going well rather than waiting until something has gone wrong to then try and deal with it. 

What is in a Family Charter? 

Very often a family charter will start with a values statement. Along with the usual buzzwords of ‘trust’, ‘loyalty’, ‘respect’ etc. the values should truly reflect the values of the family. You want this to be something that can inspire your family members when they are reading it and for them to act in a way that is aligned to these values so it is important not just to use those buzzwords as they are easy.

Along with the values of the business, this statement may also include why the business exists, and what its purpose is. This can develop into statements around ownership plans.

Is the intention for the business to be family owned and family managed forever?

Will future generations be expected to be custodians of the business for the next generation after them?

Is the business seen as a vehicle for generating wealth for the family that in turn can provide opportunities away from the business?

Is the intention for the family to be philanthropic and to what extent?

The charter can also outline who can own shares in the business, blood relatives only, spouses, step-children, adopted children etc. it cover whether un-married partners can own shares in the business? It would also deal with what happens on divorce or death of a shareholder.

It would explore whether external shareholders would be permitted, if so under what conditions

Along with who can own shares in the business it would also typically cover who within the family can work within the business, what the requirements are and what the remuneration and dividend policies are.

Information flow and communication is really important within a business owning family and so outlining and communicating the above is a fantastic way to encourage this and create the right environment to have the meaningful discussions that are so valuable.

Conflict in a family business is pretty much inevitable but the charter could include mechanisms to encourage the resolution of such issues, before they turn into something bigger.

One of the biggest benefits of producing a family charter is that all of the above is discussed. This may be the first time that a lot of these conversations are happening, and it is a good opportunity to ensure that everyone is heard and that everyone’s expectations are understood, obviously helping to manage these expectations over time.

How often should a Family Charter be reviewed?

The final element to consider for the family charter is the terms of review, i.e. how often should the charter be reviewed, good practice would suggest every 3 to 5 years although changes in circumstances may require this to be done sooner than this.

You can have a listen to Russ talking about Family Charters in this episode of The Family Business Podcast 


How to start with your own Family Charter

Getting started with these discussions can be tricky, there can often be scepticism around the introduction of any new piece of governance. However, we would recommend you start by adding it to the agenda for your next family meeting, board meeting or even over Sunday lunch. 

Opening the conversation with what you would envisage the Family Charter achieving would be a great place to start. 

We are able to help you with these discussions and the value in the Family Charter itself is not just in the ‘end product’, the real value comes from the discussions that are being held and if you are wanting to do this properly having the discussions facilitated by a Family Business Expert is a good idea. 
Due to the emotional nature of the discussions and the topics covered, having an external facilitator can ensure that the discussions remain focussed on the end goal and don’t stray off into less constructive discussions. 

Getting started can be a challenge itself, we are here to help and would love to hear from you

Get in touch to arrange a call to discuss how we can help you