The nature and benefits of a family charter

A Family Charter is a written statement that serves as a record of a family's heritage, culture, hopes and ambitions for future success as well as a plan for the future. At its core will be the mission statement for the family and some clearly stated aspirations for the current and future generations.

A Family Charter also typically sets out broad principles around governance management, the use of family assets and profits. It might also include specific policies on things like investment, education, the family business, and the resolution of conflict within the family.

A Family Charter is a humanistic not legalistic document

Much family wealth is held in legal structures constituted by shareholders' agreements, trust deeds, and other documents which are drawn up and interpreted by lawyers. These are very important for commercial and legal reasons but they may not resonate with the family in the same way as a more humanistic document, such as a Family Charter. A Family Charter is expressed in human, non-legal terms and often encompasses and embodies emotional considerations rather than pure legal, financial and commercial factors.

The greatest transfer of wealth in modern history is underway

I think many families are unprepared for this transition of value and power. Much of this wealth has been created in only the last generation, particularly in countries which don't have long, deep histories of wealth aggregations, such as the Asia Pacific region. Many families and their advisors are in new territory and traditional estate planning techniques are not fit for purpose.

In many estate plans, the people that are designing and executing them are either family members or advisors that have been close to the family, but may not be experts in the field. A Family Charter is intended professionalise and organise the family wealth. This bring in experts and defines their roles, powers and responsibilities in one document. The Family Charter binds together all the legal documents in a way which can be clearly and easily accessible and readable for the family.

A Family Charter will be a bespoke document

There is no template, but there are certainly some common themes that emerge organically as members of the family and business and the advisors engage in dialogue. Usually there will be a mission statement. Often it is quite common to document the history of the family. There may be a family tree, family crest, family mantra, structure chart, a map of all of the main assets, liabilities, and the way they are held.

Often there will be an assessment of risks relevant to the family, there will be a summary of strategic assets, identification of family leaders, and then there will be some decision making protocols, organisation chart, and allocation of power and responsibility. And then there will be often a section dedicated to the family business. The section relating to the family business will reference the shareholder agreement, the board share ownership arrangements, voting rights, dividend policies, etc. And then there might be employment policies, profit distribution policies, dispute resolution procedures, conflicts of interest procedures, contingency planning.

Things like media policies, family meeting protocols, codes of conduct can also be included in a Family Charter. And then at the back of the document, you might have a section which has references to key legal documents such as trust deeds and shareholders' agreements, and business plans.

Advisors must have intrinsic knowledge the family dynamic, core values and assets

The Family Charter needs to be an embodiment of the personal ethos and principles of the family. In my experience, it takes a long time to really understand the family dynamics and objectives. The best outcomes occur when discussions begin well in advance of any trigger events such as the death or incapacity of a family leader or the sale of a family property or business or other liquidity events.

If any of those events are anticipated at any time in the near future or even the medium term now is a good time to at least start the discussion. No time is too soon, but certainly the anticipation of those events is a good motivator. There needs to be meaningful discussion to understand the family dynamics, and that takes time and effort to not only have those conversations with family members, but then to document those conversations and all the circumstances relevant to them.

There needs to be genuine and early engagement with all the stakeholders

Often the process is initiated by the patriarch or matriarch of the family, but that need not always be the case. There needs to be genuine engagement with all the stakeholders, including family members, the incumbent generation, the rising generation, the management team within the family business, trusted advisors, etc. This should involve a range of professionals, including lawyers. Sometimes those trained in the science of human behaviour, such as psychologists, are best to lead this process.

I think the depth and quality of the engagement with the wider family is most important, and that's what differentiates a successful outcome from those which are less impactful. In my experience, where family members are just informed about the purpose of the charter and what it contains and are asked to just sign off on it, results are generally less successful than those where family members are actually involved in deep, meaningful and robust conversations with the benefit of full disclosure of all the relevant information.

That's not to say that the views of the founder or the creator of the wealth or the current stewards of the wealth is not very important. Of course it is, but in my experience, a command and control structure is not desirable. Generally, getting together with family members both collectively and on an individual basis and carrying out a series of interviews in a facilitated way is the best way to start the process. Then the results and the data that's taken from those interviews should be recorded and presented back to the family.

And from there you have a framework and can start to put together a Family Charter, which will then go through various iterations until it's finally agreed and approved by the family. That is not to say also that it's a set and forget process. A Family Charter will be a living document. It’s different to a trust deed or a shareholder's agreement, which are difficult to amend. A Family Charter will be a living document. It will evolve over time and should be updated and constantly referred to in family meetings.

The process is often just as important as the outcome

Spending time with the family to help win their confidence but also just to understand a little bit more about them and how they think is really important. Often the things that family members need to discuss could bring out some historical controversies or tensions.

And then if they all buy into the purpose and are comfortable with the process, then that's a really big first milestone. And from there it is really a question of just sitting down and asking each of them a series of questions. And those questions start with some simple headline queries like:

• Do they want to stay together as a wealth collective?
• Does the family member see merit in staying together?
• Is it better for the family to fragment the wealth and each branch manage that wealth on their own?

Distinguish between rules and principles

I think one of the fundamental mistakes made in Family Charters is the failure by inexperienced advisors to distinguish between rules and principles. Family Charters really should contain principles, not rules. If they do contain rules, then they can't duplicate or complicate or contradict rules and other documents such as shareholders' agreements and trust deeds. I frequently see that common mistake.

Consider working with a professional trained in the science of human behaviour

Sometimes I work with a registered psychologist who is also an expert in guiding families through the transition of wealth and power between the generations. Often I'm only introduced at a later stage in the process. Sometimes it works the other way, and I'm the one that will introduce the psychologist first, but for the most part one of us would have worked with the family over several months to draw out from the family answers to the questions that I said were important to ask earlier on. A person who is professionally trained in the science of human behaviour (as opposed to a lawyer) is a great person to have on the team to understand the family dynamic purely from an emotional and psychological sense.