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Family Business: Creating Family Policies

A family-business expert explains how a family-business policy plan can reduce discord and conflict.

Managing a family business becomes tougher with each generation; the number of family managers and owners often increases, as does the potential for discord and conflict. According to Craig Aronoff, director of the Family Enterprise Center at Kennesaw State College, in Marietta, Ga., and executive editor of The Family Business Advisor, businesses can avoid conflict by creating "family-business policies."

Inc.: What exactly is a family-business policy?
It's usually a written document that governs the family's relationship to the business, and it's based on the principle that the best way to manage conflict is to anticipate problems and determine how you will deal with them before they come up.

Inc.: What might be included?
The policy might specify how decisions are made -- by majority rule or consensus. Also, it might cover the criteria for entering the business, how successors are chosen, compensation, dividends or distributions, and the appointment of a board. There also can be policies about how family members are expected to behave toward one another. In families with a lot of conflict, that can be very helpful.

Inc.: How are these policies created?
The worst way to do it is to go to a lawyer -- the policy won't be specific to your family's goals. One way is for a senior family member to draft a policy and get the rest of the family to go along with it. But the best way is for the family to start meeting regularly to consider family and business issues. Over time, agreements can be made about how to deal with particular issues.

Inc.: So the first step is regular family meetings?
Yes. It's the process of learning how to make rules and resolve conflict that is so valuable. And that begins with regular communication.

Inc.: Who should be involved in the process?
Everyone who owns stock, family members who are involved at an executive level, and those destined to be managers. Also, spouses and other people who exercise influence, whether they're working in the business or not -- a retired or semiretired patriarch, for example.

Inc.: Should the policy be regarded as a legal document?
No, that's not how it should be viewed. The goal is to build a means of resolving conflict into the family culture so that you don't have to resort to the legal system.

Inc.: Who should see it?
Often, families will use a policy guide to show others that they are approaching ownership in a disciplined way. They might show it to key nonfamily managers, a supplier, or a lender.

Inc.: Should you show the guide to family members who aren't in the business?
Absolutely. Policy guides are very useful educational tools for the next generation, such as teenagers, or for people marrying into the family. It helps shape their expectations of what's to come.

Last updated: Apr 1, 1996

DONNA FENN is the author of Upstarts! How Gen-Y Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.

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