Proper Planning of Family Governance & Family Charter

Evanna Phoon wrote the below article and she is a Senior Franchisee of Rockwills. She can be contacted at info@malaysiawills.com * This article written by Evanna Phoon appeared in Malaysia SME newspaper * 

When initially setting up the structure of family governance or family charter, the founder will get a few family members to form a family council to speak for the families. Some practitioners will also call it protective committee.

If you go to this website called, http://www.thewilliamsgroup.org/, The Williams Group is an organization in North America which has researched the causes of failure with 3,250 families and offers post-transition planning for families and professionals. They found that only 30% family businesses are successful but 70% failure in family business whereby they sold their business involuntarily.

Samuel Steinberg (1905 – May 24, 1978) successfully transformed the grocery store founded by his mother, Steinberg’s Supermarket, into one of the largest chains Canada. Disagreement among his daughters led to the sale of the family business in 1989, and the company went bankrupt in 1992, after 79 years in business.

The Steinberg’s is one of Canada’s largest supermarket chains in early 1940s. In their hiring policy, it stated that they should hire family first. Then there’s lack of family governance, you’ll have a mismatch of the right skills and knowledge to do the right kind of job. Because they just bring in family members to the business. The founder’s son had successfully grown the business and pass on to his three daughters and his daughter in law to run the business when he is no longer around. Tension builds up and little family togetherness remained disintegrated into hostility. Eventually, the daughters ended up in court. Disagreement among the daughters led to the sale of the family business in 1989, and the Steinberg family name crumbled and disappeared from the stores in 1992. The company went bankrupt in 1992, after 79 years in business.

From the Williams Group Report, their research showed that the reason of failure in family businesses is not because the professional didn’t advice well, it is because the family members had lost of trust among each other, and one might feel short changed in some way or another. Money is not uniting the family; money will more likely be the dividing factor of family members. Therefore, a proper family governance or family charter should be well thought of.  Normally when we do this, the founder will call their children back and get their children involve because the family governance or family charter is to be lived by the children. They should be consulted and take ownership of the family governance or family charter.

The first question I normally ask them is “is who is considering a family member?”

Of course, the first thing that comes to mind is blood line. Ok, then next question is does it have to be a legitimate bloodline? How about illegitimate child? Are they consider blood line? Some traditional thinking family member will say No, if my children have a child without getting married, then their illegitimate child is not consider part of the family. But at this time, the children will say, “How come? It’s still our children.” We often see a long debate between family members just when we are just about to start drafting the family governance or family charter.

The next question is, “What is consider a marriage recognize by the family?” We’ll explore that in the next issue. Stay Tuned …

MalaysiaWills CEO, Evanna Phoon.

About the Author: Evanna Phoon is CEO & Founder of www.MalaysiaWills.com, Malaysia’s first online will writing service provider for Rockwills Corporation Sdn Bhd & as-Salihin Trustee Bhd. She can be contacted via info@malaysiawills.com.

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Monday, July 16th, 2012 article

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