Father and son leaning against a their own distillery
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Family charters

01st June, 2018

The issue of Family Charters (or Constitutions) is one that has become increasingly topical for Irish families in business in recent years. This is not surprising given how the Irish economy and Irish family businesses in particular have evolved over recent decades.

The emergence of a strong entrepreneurial culture in Ireland in the 1980s gave rise to the establishment of a large number of family-owned enterprises. Many of these have, in the relatively recent past, begun to grapple with the multiplicity of issues specific to family-owned businesses - issues such as ownership, inter-generational asset transfers and succession management - in addition to the usual business issues of growth, development and internationalisation.

 

'Fail to plan, plan to fail'

Statistics on the survival of family enterprises are stark; less than 25% of such enterprises make it to the third generation of family ownership. Reasons for the failure of family enterprises can, in the great majority of cases, be traced to the family rather than to the enterprise.

What a Family Charter seeks to do is to establish basic ground rules for the conduct of the relationship between ownership (family), management and the business.

How these relationships work, and in particular having pre-agreed processes for decision making and dispute and conflict resolution, will be crucial in determining the survival and success of both the family and the enterprise.

At its heart will be a statement of common purpose - "the Vision Thing" - from which all else will flow. It is extremely important to address the aspirations of family members for the family as well as for the enterprise.

Other matters to be addressed will include governance structures, ownership responsibilities, ownership succession rules, reserved decisions and employment rights and responsibilities, the role (if any) of in-laws etc.

It is vital to emphasise the importance of the process of developing the Charter which is itself arguably as important as the actual output - all family members must have an in-depth understanding of what it is they are committing to when they sign up to the Charter.

This can be difficult, particularly for a "can do" entrepreneurial type patriarch - but patience and perseverance will pay long-term dividends here.

Finally, when to start the process? As the saying goes, “the best time to plant a tree was 20 years ago, the second best time is now".

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This article is taken from the latest issue of Insights for Business Owners, a twice-yearly email publication which provides business owners with expert analysis of the latest economic & investment topics affecting corporates, as well as special features and profiles of leading business owners.

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