Set Policies Now to Solve Future Family Business Problems



We believe that 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. 

Some of the thorniest policy issues that family businesses must deal with include the divorce of a family member, alcoholism and drug abuse, unethical conduct, affairs of family members with employees, a break in trust or confidence, the loss 
of rationality of a family member, moral differences, and poor work performance. 

Discussing these and other potential issues in family meetings offers several benefits. First, agreeing on solutions to problems in advance helps prevent family members from taking issues personally; decisions can be more objective. Second, family communication and problem-solving skills get stronger. 

One way to deal with potential problems is to develop a set of family business policies to guide future decisions and actions in a variety of areas. Here are some ideas that we’ve found effective in the experiences of families we’ve known and 
worked with: 


Families that emphasize that family members should prepare themselves through 
education and experience to make a real contribution to the business seem to find greater harmony and success. Many families also develop policies regarding in-laws working in the business and concerning part-time employment. 


Having a date for the older generation’s retirement established well in advance 
makes succession planning more constructive and less emotional. Setting a date also helps assure financial security and paves the way for fulfilling new interests for the senior generation. 


Open, explicit compensation arrangements are very helpful - they tell family members what they can expect and what is expected of them. Compensation policies often address benefits, perks, and time off, too. 


Develop a formula for dividend payouts or family profit distributions that depend on the level of profits. Family members need to know the amount and variability of dividend income. 


Company Loans 

Many families discourage borrowing from the business. Even permitting the pledging of shares to get a bank loan can be troublesome for a family firm. 

Share Redemptions 

Agreements on how family members can sell shares, if they wish, is important. Redemption eligibility can depend on company profitability. Everyone needs to understand how shares will be valued in the future. 


Consider possible conflicts of interest. What if the company receives gifts from suppliers? What activities are appropriate for company expense accounts? To what extent does the family firm do business with other companies owned by family members? 

Family Behavior 

Family members agree on how they will treat one another and deal with conflict. 
For example, family members can agree to support one another in public, to speak positively of one another to spouses, and to issue no ultimatums to one another. 

We’ve seen virtually every type of approach succeed - and every type fail. When one approach doesn’t work, the family can adjust the policy.  

What matters is the process of working through and building consensus. More important than agreement is the discussion itself. The practice of addressing difficult areas and coming up with ways for the family to solve problems together is what really makes for long lasting family businesses.