Families can create policies without realizing it. A decision made about who can come into the business and when they can come into the business can develop into an expectation of how things will be done from then on, which then becomes a policy. In other words, it is an implicit policy and, as such, becomes an expectation of how things will be done. One of the Purdue Institute for Family Business’s Question of the Month results shows that 89% of family businesses did not have clearly laid out family policies. Only 39% had policies that guided decisions inside the business, yet only 11% had a policy that guided decisions about the relationship between the family and the business. A key to family business sustainability is understanding how the family and the business interact and how that dynamic affects members (family, employees, suppliers, and customers) in each system.
Policies are a way of setting expectations. A family unit and business are stronger and more sustainable when family members go through the process of setting policies. These policies can range from the timing and business conditions under which a family member can enter the business, who and how many family members are on the board, the need for prenuptial agreements, to choosing the next business leaders. The process of thinking through these tough decisions not only helps a family navigate difficult conversations but, if done properly, enables the family members to navigate other future crises. An important outcome of setting policies for the family business is that these guidelines are set in place before they become rules based on a present situation. For example, no couple wants to hear at the time of their engagement that they need to sign a prenuptial agreement in case they get a divorce. Not only will the family business member be caught by surprise, but they will also be upset with whoever brings it up. Not to mention that the prospective spouse will likely be unhappy as well. They will both have lingering resentments that will last long into the marriage and will affect not only the family but also the family business. However, if the policy is that family business members are required to have a prenuptial agreement and this policy has been in place and members of the family have always known about it since they were teenagers and they understand why, then a prenuptial agreement is no longer a statement about that particular family member or prospective spouse. The prenuptial agreement has no bearing on the marriage or is not a statement of dislike of the spouse by family members, then it is no longer a matter of “now that you are getting married, ask Dan to sign a prenup”.
It is important to have policies and guidelines for decisions that are thought out and written down. Creating policies and guidelines for the family business is hard and time-consuming. It is up to the family to decide if the policy will be made within the family system or the business system. To be able to create policies, a family should have fostered an environment where family members feel heard and encouraged to speak and listen respectfully to one another. It is usually easier to start the process with a simple or agreed upon policy and slowly move on to more contentious policies that may require more research and discussion. Policies are also not written in stone. They can be adapted as time passes and the family and business change. It is hard work, but every family business should have a family business handbook.
Recommended Reading: Aronoff et al. (2011). Developing family business policies. A Family Business Publication.