Shirtsleeves to shirtsleeves

April 01, 2013

Thom Penmaen has a vision: to pass his tool and die business along to his children. However, his greatest fear is that they will not see eye-to-eye and sibling rivalry will escalate to the point where the business and family relationships are permanently damaged. This fear is so paralyzing that Thom cannot get his head around planning for his impending exit. With this lingering uncertainty, he has no concrete plan and is spiralling towards an involuntary sale.

Just outside of town, Kurt Harrowfield is also hoping to pass the business to the next generation and is looking forward to it becoming a legacy for his grandchildren. While he knows his eldest daughter is happy in her teaching career, he is confident that his two younger children will take over the family enterprise. They get along well so he expects it will be 'smooth sailing' ahead.

Kurt might be sleeping much easier at night, but he has not considered the possibility that his adult children might disagree on how the business should be run, or if the eldest daughter's children will be eligible to work alongside their cousins when the business eventually passes to the grandchildren.

While Thom and Kurt have differing levels of confidence in the future, they have both failed to see the importance of clarifying their family philosophies and ensuring their businesses and ownership philosophies are aligned.

In this article, we continue to examine a roadworthy Communication Vehicle™ that is equipped with structures to ensure clarity and support the preservation of wealth and family unity. These structures should comprise policies, plans and places to talk. In fact, the process of developing policies and plans within a suitable forum is as valuable as the policies and plans themselves. Not only do both generations discover a lot about each other and develop a stronger "we focus", the next generation also learns some very valuable communication and decision-making skills for its role as future directors or shareholders in the business.

The family charter

A charter is an agreement or document outlining the conditions
under which a body is organized, defining its rights and privileges.​

Sometimes called the 100-year plan, the objective of a family charter is to promote family continuity over the long-term. Based on the concept of a sovereign, state or business charter, it is essentially a guidebook or roadmap that outlines the family's overall philosophy for the current generation, as well as generations to come.

The Communication Vehicle™


In the Communication Vehicle™

The development of a family charter brings families together in a common cause. Consider how the following key elements of a family charter not only can engage family members in their development, but also provide a roadmap for future generations.

A family creed or mission statement that will communicate your family's founding principles

To paraphrase John D. Rockefeller Jr., a creed of this nature conveys "the things that make life most worth living" and later can become a key part of the family heritage. This is a powerful way to pass a legacy to future generations.

An ethics policy that outlines the rights and responsibilities of family members

The objective of an ethics policy is to uphold the family's principles and overall reputation, while maintaining an environment that supports mutual respect. It also contains guidelines on how family members are expected to behave and the consequences of unacceptable conduct or conflict of interest.

An overreaching purpose for your family wealth that reflects your principles

As Mahatma Gandhi wisely noted, wealth without work can be very destructive. Through a family charter, you can ensure that both current and future generations have a clear purpose for the capital they have built over the years. This might mean using the family assets in areas such as philanthropy, citizenship and neighborliness. For some families, this is their 'third child'.

The 'third child'

In a recent meeting with Gail and Marty to discuss their estate plan, and how they wanted to treat their two children fairly and equitably, they suddenly brought a so-called 'third child' into the equation. This is how they described their need to create something that would be a permanent part of their family. It was something that not only would directly influence their son and daughter, but also have a profound impact on generations to come.

It became clear that they were trying to formulate a way to bequeath a strong value system about wealth, either in their lifetimes or through their respective wills. They were both aware of the story "Shirtsleeves to Shirtsleeves" and wanted to ensure that this affliction did not hit home.

The story illustrates how a business is often built by a hard-working, frugal individual whose attire is generally shirtsleeves instead of a business suit. The wealth created during an owner's reign is subsequently passed along to his children who then enjoy a much easier lifestyle. Eventually, that wealth transfers to the grandchildren who, not knowing any lifestyle beyond large amounts of money and the freedom to spend, promptly deplete that wealth. The wealth has no meaning to the third generation - therefore, it is disposable. At this point, the family is back to rolling up its shirtsleeves and working hard to make a living.

Through the process of clarifying what is important to you and developing a family charter, you will lay the foundation for both stewardship and governance. You will initiate a system that serves to build trust and respect in the next generation of leadership, while enhancing family relationships and reputation.

For more information on what constitutes an effective family charter, or assistance in designing your Communication Vehicle™, please contact your BDO advisor or call the BDO SuccessCare Program™ team at 1 800 598 6400.

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