policies and contracts.jpg

POLICIES TO SECURE AND PERPETUATE YOUR FAMILY & BUSINESS

"Businesses create policies to assure consistency, fairness and efficiency in decision making. Rather than making lots of ad hoc decisions, they create policies to guide actions related to matters ranging from compensation to extending to who should receive shares. Policy manuals give family business owners and managers a ready reference aid to decision making." 

POLICIES HELP FAMILIES SOLVE CURRENT & FUTURE PROBLEMS

"Successful family businesses do a good job of anticipating future issues and talking about how to deal with them as a family before they become issues." 

Consider these problems: 

  • "What happens if my brother thinks my nephew should be promoted, but I disagree? 

  • "What happens if my cousin gives his wife shares in the company and then they get divorced? 

  • "What happens if we have to fire a family member?" 

  • "How can I tell my son that he needs to get more work experience before joining the family business?" 

  • "Even if I'm not in the business, I own shares. Why shouldn’t I get the same financial information as family who are in the business?" 

  • "Why can't I be on the board?" 

  • "How can your son work in the family business and run another business at the same time?" 

  • "Shouldn't the business buy its group health policy from me? After all, I am family?"  

Families who go through the policy-setting process actually affect expectations and therefore, moderate and possibly eliminate some of the prickly issues that typically arise in family businesses.  

REASONS FOR DEVELOPING A POLICY GUIDE

  • Avoid problems or solve them before they occur.  

  • Reduce family tension.  

  • Strengthen the family with experience in coming to agreement. 

  • Help the family sort out its values and know what it stands for.  

  • Improve future decisions by insuring that policy formation is informed and objective rather than made in the heat of battle.  

  • Create more enthusiasm for and knowledge of the business. 

  • Increase, the likelihood of long-term business and family success, survival, and prosperity.  

Family businesses often face situations that would never occur in businesses that are not owned by members of the same family. When it comes to family business matters, things can get complicated. Employers typically enter into specific agreements, or contracts, with their employees.

However, family-owned businesses often sidestep formal agreements with family members who work for or otherwise are affiliated with the family business. When roles and agreements are not formalized by way of a contract, problems can arise. Without a contract, no formal document exists to serve as a reference or guide to help resolve the issue. 

“But We are Family…” 

Families are notorious for statements professing the loyalty they have for their members. Nothing is more frustrating than situations in which a family member, who works for a family-owned business, does not abide by the rules. A family business contract is essentially a written document describing a business agreement between the family members who work for the business. It is a binding agreement that lays down the ground rules for the business. It also describes the consequences to follow when the contract is broken. 

FAMILY BUSINESS CONTRACTS ARE DESIGNED TO HELP A BUSINESS FUNCTION PROFESSIONALLY

The overall goal of a family business contract is not to be cruel or unkind to family members that work for the business. Rather, the purpose of a family business contract is to promote a professional business atmosphere. Businesses with non-family members use contracts, so it’s only natural that a family-owned business should reap the benefits of this type of arrangement. 

"We realised that we needed policies not just to guide decisions inside the business, but we needed policies to guide decisions about the relationship between the family and the business." 

Family business contracts can be used to administer the following: 

  • Terms of employment 

  • Specific job descriptions and detailed job responsibilities 

  • Salary details 

  • Consequences for employment under performance 

  • Communication expectations 

  • Rules on disclosure of family business matters to non-family members and others not affiliated with the business 

 

CONTRACTS PROVIDE A BASIS FOR AGREEMENT & ORDER

Family Business Contracts serve a crucial purpose. When utilized in conjunction with a Family Constitution, such contracts are useful tools for specifying a clear understanding among family members. When a contract is written and signed, each involved party is provided with written expectations. When expectations are written, they become more defined. Well-defined guidelines are simpler than verbal guidelines to follow and also to enforce.