Developing Family Business Policies: Your Guide to the Future PDF
Preview Developing Family Business Policies: Your Guide to the Future
Developing Family Business Policies AFAMILY- -- BUSINESS PUBLICATION Family Business Publications are the combined efforts of the Family Business Consulting Group and Palgrave Macmillan. These books provide useful infor mation on a broad range of topics that concern the family business enterprise, including succession planning, communication, strategy and growth, fam ily leadership, and more. The books are written by experts with combined experiences of over a century in the Held of family enterprise and who have consulted with thousands of enterprising families the world over, giving the reader practical, effective, and time-tested insights to everyone involved in a family business. f:. .... '" ....t. ;, founded in 1994, is the leading business consultancy exclusively devoted to helping family enterprises prosper across generations. FAMILY BUSINESS LEADERSHIP SERIES This se ries of books comprises concise guides and thoughtful compendiums to the most pressing issues that anyone involv~d in a family firm may face. Each volume covers a different topic area and provides the answers to some of the most common and chaBenging questions. Titles indude: Developing Family Business Policies: Your Guide to tbe Future Effeetive Leadersbip in tbe Family Business Family Business Compensation Family Business Governanee: Maximizing Family and Business Potential Family Business Ownmbip: How to Be an Effective Sbarebolder Family Business Sueeession: Tbe Final Test of Greatness Family Business Values: How to Assure a Legaey of Continuity and Sueeess Tbe Family Constitution: Agreements to Secure and Perpetuate Your Family and Your Business Family Edueation for Business-Owning Fami/ies: Strengtbening Bonds by Learning Togetber Family Meetings: How to Build a Stronger Family and aStranger Business Finaneing Transitions: Managing Capital and Liquidity in tbe Family Business From Siblings to Cousins: Prospering in tbe Tbird Generation and Beyond How Families Work Togetber How to Cboose and Use Advisors: Getting tbe Best Professional Family Business Advice Working for a Family Business: A Non-Family Employee's Guide to Suceess Letting Go: Preparing Yourself to Relinquisb Control of tbe Family Business Make Cbange Your Family Business Tradition Making Sibling Teams Work: Tbe Next Generation More than Family: Non-Family Exeeutives in the Family Business Nurturing the Talent to Nurture the Legaey: Career Development in the Family Business Preparing Sueeessors for Leadership: Another Kind of Hero Preparing Your Family Business for Strategie Change AB of the books were written by members of the Family Business Consulting Group and are based on both our experiences with thousands of dient fami lies as weB as our empirical research at leading research universities the world over. Developing Family Business Policies Your Guide to the Future Craig E. Aronoff, ]oseph H. Astrachan, and lohn L. Ward pa Ig rave macmillan * DEVELOPING FAMILY BUSINESS POLICIES Copyright © Family Business Consulting Group, 1998,2011. All rights reserved. First published by the Family Business Consulting Group Publications, 1998. This edition first published in 2011 by PALGRAVE MACMILLAN® in the United States-a division of St. Martin's Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-0-230-11109-7 ISBN 978-0-230-11597-2 (eBook) DOI 10.1057/9780230115972 Library of Congress Cataloging-in-Publication Data Aronoff, Craig E. Developing family business policies: your guide to the future 1 by Craig E. Aronoff, Joseph H. Astrachan, and John L. Ward. p. cm.-(Family business leadership series) Includes index. 1. Family-owned business enterprises-Management. I. Astrachan, Joseph H. Uoseph Henry) II. Ward, John L., 1945-III. Title. HD62.25.A7542011 658.4'01---dc22 2010036204 A catalogue record of the book is available from the British Library. Design by Newgen Imaging Systems (P) Ltd., Chennai,lndia. First Palgrave Macmillan edition: January 2011 10 9 8 7 6 5 4 3 2 1 Contents E X H I BIT S . . . . . . . . . . . . . . . . . . . . vii Introduction: A Wonderful Gift. . . . . . . 1 2 What Policy Making Can Do for Your Family and Your Business. . . . 7 3 How to Develop Your Policies. . . . .15 4 What Policies Do You Need? And When? . .35 5 Shareholder Agreements. . .49 6 Other Policies to Consider . .55 7 One Policy, Two Ways ... .67 8 A Word about Implementation .79 9 Summary .. .83 APPENDICES Appendix A: Family Business Policies to Consider. . . . 87 Appendix B: SampIe Conflict-of-Interest and Self-Dealing Policy. . . . . . . . . .89 Appendix C: SampIe Philanthropy Policy . . .91 INDEX. . 95 THE AUTHORS. .103 Exhibits Exhibit 1 Reasons to Develop a Policy Guide . . . . . . . .10 Exhibit 2 Factors that Influence Policy Development. . . . . . . . 16 Exhibit 3 Steps to Developing Family Business Policies . . . 18 Exhibit 4 Impediments to Policy Creation and Implementation. . . . 21 Exhibit 5 Family Meeting Rules . . . . . . . . . . . . . . . . 22 Exhibit 6 Start with the Easier Policies ........ 24 Exhibit 7 Eight Keys to Successful Policy Making. . . . . . . . . 28 Chapter 1 Introduction A Wonderful Gift C onsider the Lawrence family, owners of astring of hardware stores in the Midwest. The members of the second genera tion and leaders of the business-two brothers and a sister and their spouses-invite all the family members to a big weekend retreat, and during the retreat, for the first time, the members of the third generation, ages 15 to 24, meet together. Adrian Lawrence, CEO, explained to the family that businesses create policies to assure consistency, fairness, and efficiency in decision making. "Rather than making lots of ad hoc decisions, they create policies to guide actions related to matters ranging from compensation to extending credit to customers," he said. Most businesses develop loose-leaf policy manuals to give manag ers a ready reference aid to decision making. Adrian then passed around copies of the policy manual used in the family's business. Adrian's sister-in-Iaw, Jean Lawrence, vice president, then picked up the discussion. "As we thought about the future of our family's business," she explained, "we realized that we needed policies not just to guide decisions inside the business, but we needed policies to guide decisions about the relationship between the family and the business. We were facing some very tough questions about pay, about how our children would enter and advance in the business, about how our board of direc tors would operate ... and many more. If those decisions, which 2 DEVELOPING FAMIL Y BUSINESS POLICIES would be required many times in the future, were not seen as consistent and fair, the potential for disastrous family conflict was very evident." "That's why we put together our family business policy guide," added Alex MacMillan, a brother-in-Iaw who practiced dentistry, as individual copies of another bulky notebook were passed out to each family member. "We believe that this book of policies to guide our family's decisions and actions in relation to the business and to each other contains the most important policies of all." Inside the three-ring binder, the young people found, in writ ten form, all of the policies that the Lawrence family had cre ated to guide and govern the family business-a family mission statement, a policy spelling out the rules for joining the family business, a shareholder agreement, a statement setting forth the family's beliefs about philanthropy, a code of conduct, and much more. It also included background on the discussion that went into each document so that the third generation could see their parents' (and, in so me cases, grandparents') thought processes. It even included dissenting opinions. The parents encouraged their children to read the manual carefully and discuss it among themselves, and to ask the par ents any questions they might have. As one parent put it, "These are the rules of the game-our constitution, so to speak-with background information to help you understand why we came up with the rules we did. It will be up to you to review wh at we have done and, when the time comes, to revise the rules to fit the needs of the family and the business in your generation." That book was one of the best gifts that they could ever have given their children. Most family businesses haven't worked as hard as the Lawrence clan to develop family business policies. (Like other families dis cussed in this book, the Lawrence family is fictitious but based on real cases.) If you are like most family business owners, you probably have a basic will in place and, hopefully, a share holder agreement. Perhaps you've thought it would be a good idea to put together some other documents and policies to guide the
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