Family Business – Mails to my Clients – 13 – Family & Business Agreements/ Constitution/ Protocol: Ground Rules – November 12, 2008 – Raju Swamy
My dear friends from the XYZ Group,
The meeting of November 08, 2008 was extremely positive, and credit for this must go to the ‘Elders’ and the CXOs for breaking the ice on long pending issues, and to all of you for contributing to the harmonious atmosphere throughout the day. We are now on the threshold of a great new beginning where you have absolutely nothing to lose, for mutual understanding mixed with professionalism can only make you winners, all the way.
I am sending this Note on Ground Rules to all of you to establish a common wave length across the board to ensure constructive implementation.
This Note is directed at understanding the interdependency of Family and Family Business while at the same time understanding the need for two autonomous Agreements/ Pacts/ MOUs to ensure mutual support to both entities for long term bonding and togetherness.
The Agreements primarily lay down basic Ground Rules and supporting policy and procedures to provide solid shape to family members’ relationships with the business and with one another as investors, owners, managers and employees. They promote sensible discussion, reduce arguments, and increase predictability.
If a Family together did not own or jointly invest in Business, it is possible that there is absolutely no necessity for even a Family Agreement as there are no underlying conflicts of interest. It is however essential for Families associated together in Business to believe in basic ground rules:
- The business must be acknowledged and respected as the source of the family’s financial security. Though obvious, this is very important because family members who do not work in the business, or contribute fairly to it, but share the fruits from it, may not understand the business’s importance to the family’s overall welfare.
- Any qualified family member may apply for a specific job in the existing business, or propose a new business. The key words here are “qualified” and “specific.” From the moment that a family startup grows enough to make employing additional family members feasible, it should be well-understood that just walking in the door and expecting a place to sit and get a check every month is not acceptable. Similarly, proposing a new business entails responsibilities and accountability on the part of the family member without which the ‘Family’ is not duty-bound to support the venture, risking the resources of the entire ‘Family’.
- Family members who are designated to assume professional managerial responsibilities must be pre-qualified for the position or undergo the desired professional preparation that may include managerial as well as technical training. Family members cannot assume ‘qualification and capability’ just by being members of the ‘Family’. The need for health and growth of the business must over-ride feelings of family relationships as only a successful business will contribute to the well-being of a Family and its togetherness in business. This ground rule will also apply in the case of planning family ownership continuity and succession that qualification, experience, and preparation are essential.
- The ‘Family Agreement’, as distinct from the ‘Family Business Agreement’ – we can modify the nomenclature if desired at the finishing stage – will primarily revolve around the funds generated from the Family Business to Families/ Family Members as investors in the Business, and how the funds will be managed through a Group Family Office and be used to provide/ enhance wealth and financial security for each of the families, in ways that can be defined specifically including covering old age, medical insurance, education, emergencies, celebrations, etc. The Family Holding Company will be the institution that will manage and fund the above on behalf of the families who will also be investors in this holding company.
With best wishes and regards,
& Advisor to Family Business
PROMAG Consultancy Services
Apt. 206 Brigade Rathna
42 Ranga Rao Road
Bangalore – 560004 INDIA
Tel. +91-80-26676298/ Cell: 9845271498
Strengthening Family Dynamics for Family Business Growth…….since 1985