How to Create Family Business Policies

In developing family policies, I used to think it was the documented policies that made the difference in preventing future conflicts. But, I have come to believe that it is not the policies themselves that promote family harmony. Rather, it is the process of developing the policies that really make the difference. Family businesses have been a subject of formal research for over 20 years and developing policies is definitely a best practice of those that last. But, what research seems to bear out is that it is the family that is flexible with one another and trusting of one another that really makes the difference. The process that gets everyone involved is a process that allows family members to work together and build trust with one another.

The process depends on the stage and make-up of your family and business. If you’re a sole founding owner, proceed with developing policies by getting input from your advisors and spouse. If you have family members already involved in the business, follow these 5 guidelines to ensure effective family policy development:

1. Assess family harmony. Ensure that your family is ready and able to emotionally spend time together dealing with these important issues. If there are unresolved issues, bitterness, or resentment in family relationships, this will be a fruitless exercise that has the potential to create long-lasting relationship damage. If there is distrust among family members, remedial action is needed to re-establish a foundation of trust from which the family can grow. I don’t recommend attempting to proceed to the next step until family harmony is strong enough to withstand the challenges of developing family policies.
2. Show respect for family member input. Make sure you have included everyone that should be included. If you fail to respect the input of your family members, you will fail to achieve “buy-in.
3. Establish family meeting ground rules. Create an environment of open communication and trust in the process.
4. Review the communication skills and guidelines that will be used. Most importantly, decide how decisions will be made. Review your family values as they will guide the decision-making with regard to policy development.
5. Develop policy drafts. List all potential policies that could be developed and then work through them from easiest to hardest. Make sure you include provisions on how the policies may be refined.
6. Review draft policies with outside advisors and make refinements as necessary.
7. Review the final draft with all pertinent family members and adopt the policies.

Let me reiterate the importance of having a foundation level of family harmony before beginning this process. Trust is the foundation of any relationship and without it, trying to develop family policies could be destructive. Don’t be afraid to seek professional help if your family needs it.

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