Business charters define how owners, family members work together

Have a problem with a boss? All you have to do is set up a meeting to discuss it and work it out. If things don’t change, then get the resume together and start looking for a job. Easily solved, right? Not when the boss is your mom, or a co-equal business partner.

People become co-owners of a business because they believe they will be better off with a larger entity than as a sole owner or sole practitioner. They might sign agreements that cover the details of the corporate organization. However, the actual understanding of how the owners will work together is rarely discussed in detail, let alone written down.

Family owned businesses are even more complicated. The role of family members is usually just an evolution of non-planned events and circumstances. Some family members might be invited to join the business, while others might go and do their own thing. All this is wrapped up in family wealth and estate issues, let alone the regular family dynamics.

When conflicts arise in a family business, they are inherently more complex and difficult to resolve than in a non-family business. The ones who run the company also have to go home and be with each other at night, or visit during the family get-togethers. Non-related owners usually have less allegiance but they still might create their own version of “family dynamics.”

Whether the owners are related or not they often enter into the business partnership wearing rose-colored glasses. In the beginning, they will have high expectations for a blissful and financially rewarding relationship. Success in meeting the original high expectations is frequently not achieved. The relationship between owners will have a natural shift between highs and lows.

Communication skills
Business owners that have more and higher peaks in their relationships do so because of good communication and understanding. Often, this is the result of chance rather than specific planning. In these cases, the business owners or family members naturally have the skills and temperament to get along.

As business consultants, we are often brought in to help with issues involving owners and/or family members. The stated issue is typically something about so-and-so getting paid too much for the little work they actually do. Sometimes, there are sudden and un-resolvable divergent opinions or personality conflicts. Regardless, the genesis of the “issue” is typically the result of an accumulation of slights and hurt feelings, built up due to a lack of communication and understanding.

During the process, we interview the principals involved to get a complete picture of the relevant issues. This process allows us to learn about each person’s perceptions, values, issues and the hidden agendas that seldom surface when owners or family members meet on their own. This provides a view that none of the partners have completely seen.

Our task in these projects is to guide the owners to develop a clearer picture of the whole situation. Prior to the group meeting, we give each person a summary of the key issues and each principal’s perspective that was developed from what we learned in the individual interviews. The group meeting provides a format to discuss, understand and hopefully resolve any significant roadblocks.

This formula is not magical and does not necessarily require an outside consultant. However, it is better to begin with a solid foundation for a successful business relationship, rather than having to rip out an old unstable one and start again.

Lay down a stable foundation
There are a few steps that business owners, family or not, can take to lay down a stable foundation for effective business relationships. This will help increase the odds of achieving more harmony and thus improved financial success.

The first step is to create a business charter. This document will clearly spell out the purpose for the business relationship, the various roles involved, responsibilities, ownership rights and the decision-making process, along with compensation and perquisites.

The intent is to clarify and agree to key expectations, enhance teamwork, and reduce conflicts and misunderstandings. It provides a framework from which all parties can agree is the starting point when issues arise.

The next step is simply maintenance and execution. Owners need to incorporate into the regular business meeting, time to discuss and review the business charter. A business charter is a living document, so changes will need to be made as things change and evolve.

Family businesses need to add two more steps. The first is to add a section in the business charter that outlines how the family members will work together in a business environment. Often, this involves resolving the dual role a parent might play as boss and as a parent. It can also be used to address the possibility of a younger child being the boss of an older sibling.

Families also need to develop a family contract. This will address the “big picture” issues involving families, the business, its wealth and estate planning. The family contract will bring in family members that are not involved in the business. It will address how the family’s wealth will be treated for estate planning activities.

For a copy of a business charter outline, e-mail:

bill@oakandassociates.com, or call 707-935-6565.

Bill Schoeffler and Catherine Oak are partners at Oak & Associates. The firm specializes in financial and management consulting for independent insurance agents and brokers. They can be reached at 707-935-6565, by e-mail at bill@oakandassociates.com, or visit www.oakandassociates.com.