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April 2022 < Back

Family Business Policies

Businesses create policies to ensure consistency, fairness and consistency in decision-making. Similarly, many successful family businesses develop policies through a process that builds unity of vision, commitment, positive relationships among one another and the business. The policies enable families to work on anticipated challenges. They help to reduce frictions between relationships.

For instance, consider these questions:

What happens if my brother thinks that my nephew needs to be promoted, but I disagree?

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

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

Developing policies way ahead before they are needed gives a direction and orientation for families. It provides an opportunity for families to draft their own policies which is relevant to their context, culture, keeping in mind the lifecycle of the business and family needs.

The policy-setting process strengthens and unifies the families as they learn to communicate with each other on difficult issues, solve problems together, address issues as a team, think together and resolve differences. Given that no family can ever anticipate every problem it will face, the skills and confidence developed through the policy making process can help them cope with unexpected issues.

The development of a policy is an ongoing, evolutionary, almost perpetual process.

Some of the vital policies include:

  • Governance: Criteria for board member appointments, composition of the board, membership criteria for family council or family association, funding of family meetings, successor selection process etc.
  • Employment: Qualifications, induction into business, reporting relationships, compensation & benefits / perks / expenses, performance review, titles, severance etc.
  • Ownership and Financial Planning: Conditions for ownership and voting rights, dispute resolution process, dividends, redemption process, shareholder agreements, rights & responsibilities of non-employed owners, addressing family member financial distress etc.
  • Interpersonal Relationships: Code of conduct, Conflict resolution, Listening & communication guidelines, decision-making process, conduct in public, conflict of interest and non-compete etc.

Adapted from - Developing Family Business Policies: Your Guide to the Future (Craig Arnoff, Joseph Astrachan and John Ward), Family Business Leadership Series No. 11.

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