Secure the Future of the Family Business - Draft a “Family Constitution”
Recently, two brothers, a sister and their parents - the owners of a $38 million manufacturing company, which manufactures specialty fuel tanks for construction and other equipment – held a weekend meeting in a quiet retreat near their Stow, Ohio headquarters. The family’s goal was to come up with a plan for the future of their company by drafting a family constitution. Over the weekend, they established standards for employment for family members and determined in broad terms how stock would be passed from generation to generation.
The family constitution spells out the family's history and commitment to the company, and it establishes policies that guide the relationship between the business and the family. Family constitutions do not replace estate plans, legal documents and trusts; they deal more concretely with the goals of the business. The sooner the better for drafting a family constitution; they need to be written before they are needed - while there is a feeling of trust and little conflict.
Some areas that should be addressed:
- The family's vision and commitment to the company
- The family values in their relations with customers, employees, suppliers, partners, and the community
- The desired behavior of family members who are employees
- Guidelines for hiring and retaining talented employees, including prerequisites for employment of family members, including education and experience
- Guidelines addressing who can own stock, which classes of stock, and how shares can be transferred
- A dividends and family benefits policy that advises shareholders on reasonable expectations for returns on invested capital
Source for Post: BusinessWeek " A Guide for Family Businesses" By Ernesto Poza
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