Table Of ContentDeveloping
Family Business
Policies
AFAMILY- --
BUSINESS
PUBLICATION
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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
