When there are no set of rules in a family business, expect drama minus any script. To avoid a free for all when a leader is no longer around, the family must initiate the following four C’s:

Craft Your Family Constitution/Charter

Clarify Roles

Create a Code of Conduct

Commit and Enforce the Signed Agreements

In my previous columns, I extensively discussed the necessity of pursuing Governance in Family Business. Undoubtedly, crafting a Family Constitution or Charter is a major step toward fulfilling a founder’s dream of cementing their legacy for future generations. The objective of any governance undertaking is to create harmony, unite family members, and prepare effective family and ownership agreements.

This week’s column will focus on family agreements. When done right, these rules will immensely benefit family relationships. Governance in a family-owned business simply underscores the importance of “institutionalizing rules and regulating behavior for the greater good.”

Institutionalizing Rules

Formality is crucial in family businesses. Assuming that blood relatives will forever be supportive and consistently productive is a flawed premise. There is a saying, “blood is not thicker than water; they can cross you anytime when you least expect it.”

We must recognize that there are different types of family members involved in the business. Some may exhibit exceptional performance, commitment, and trustworthiness. Others may be indifferent, selfish, and see their last name and employment as their birthright. For some, entitlement defines their role in the family business.

Behaviors Change

According to a Business Week article, family business leaders must recognize the individual differences among family members, including personality types, attitudes, behaviors, opinions, values, demands, expectations, capabilities, and evolving life priorities.

The behavior of your younger or older offspring may change significantly from their teenage years to midlife. Given these potential changes, family business leaders must anticipate and manage the difficulty of meeting the certainty needed from family members to operate a business professionally and achieve specific objectives.

The core group of any family business comprises family members, who can be catalysts for positive outcomes or major sources of problems if they disagree with established guidelines.

Familiarity and Entitlement

Issues with family members often boil down to familiarity and entitlement, leading to complacency and presumptuousness. Because they are related by blood or marriage to influential family business leaders, they often believe they will not be held accountable for underperformance or weaknesses. In many cases, “free riders” within the family can compromise the business. They believe their entitlement allows them to contribute little to no effort toward the business’s development.

Without performance metrics and accountability, these individuals continue to draw salaries and benefit from dividend sharing. Adding to the problem, they may moonlight and start separate businesses outside the family business.

Another major source of conflict is dealing with diverse personalities within the family. Some may be intellectual, capable, and productive but also greedy, overly controlling, and manipulative. Others may be quiet but tend to question every policy laid out by a family member, disrupting growth initiatives.

Start by Crafting Solid Agreements and Policies

Creating and following various agreements in the family business can help maintain harmonious relationships and promote professionalism. Based on my experience coaching family businesses in Asia, the most important documents and policies to unite and harmonize family members include:

Family Constitution or Charter: This should incorporate Governance Policies covering Employment, Compensation Policy, a Code of Conduct, Job Descriptions for working family members, and a Statement of Vision and Values.

Shareholders Agreement: This document covers agreements on ownership and Board-level accountabilities.

Due to limited space, I will explain these agreements in the succeeding columns.


"The W+B Family Governance Leadership Series: Structure, Culture, and Succession"

We have reached the maximum number of participants for "The W+B Family Governance Leadership Series: Structure, Culture, and Succession." Thank you to those who attended Day 1 and 2. If your family is going through confusion and or conflict and interested in learning the tools and strategies to navigate the complexities of family business dynamics with clarity and purpose you can reach out to Christine at wb@wbadvisoryasia.com Don't let unresolved conflicts hold your business back—seize this opportunity to secure a lasting legacy.