Family Businesses, New Charter for the Transition between Generations

The usefulness of this tool increases with the size of the entrepreneurial family. "When generations follow one another and the number of family members increases, the adoption of a family constitution becomes necessary," explains Gianpiero Succi, partner and leader of the private clients focus team of the law firm BonelliErede. - Often it is the family itself that realises that it needs a constitution, also perhaps at the instigation of some member who has had international experience and seen the usefulness of the instrument'.

In terms of content, 'a good family charter usually consists of a part that defines principles and another that sets out rules,' adds Succi. 'First of all, at the level of principles, the role of the family as 'shareholder' (rights and limits) must be clarified; the principle that the company must be adequately managerialised; the circumstance that being a member of the family does not determine rights with regard to internal careers, nor at the same time must it be a reason for discrimination. Concrete rules then need to be established mainly on: internal decision-making processes within the different family branches and the identification of representatives for internal confrontation; mechanisms for the selection of external directors and managers; rules and conditions for the access of family members to corporate roles. It is not, however, always necessary to define the values principles. We usually include them when it is the founder of the company who wishes to leave his imprint on the family constitution'.

Also driving the spread of family charters is the transformation of companies. According to the Aub Observatory, in recent years there has been an increase in the involvement of non-family leaders and the inclusion of leaders under 50 years of age. "The Italian family business has opened up to finance and to the entry of third-party capital that demands clear governance," adds Roberta Crivellaro, Managing Partner of Withers in Italy. And in this direction pushes the desire to attract external managers who need stability of governance and clarity of roles'.

"The adoption of family charters," continues Crivellaro, "is linked more to the diversification of business activities and the multiplication of people, needs and expectations than to the size of assets. In large families, the issue of how to invest the income derived from business or diversification is in fact part of the family constitution in the broadest sense. Another increasingly important area is the protection of the reputation of the family: the behaviour of family members on social media or media in general can in fact have profound repercussions on the image of the company and the family'.

By the Withers Law Firm

The Family Charter is a document resulting from a plurilateral agreement, which outlines the vision and objectives of the entrepreneurial family. It has a very broad scope and may contain more or less legally binding agreements and commitments. Even 'moral' bonds have legal protection in our legal system. It can also define the roles of the family's governing bodies and key policies relating, for example, to the commitment of family members in the company, their characteristics, the succession of top managers and the head of the company, and the transfer of shareholdings between family members and externally

The first step is the knowledge of the family, the business and its assets, which include both the company (or companies) held and other assets, such as real estate or furniture, participations, art collections, etc. It is necessary to study the historical origin of the company, the founders, the evolution and how it came to its current ownership structure. A key activity is meetings with family members and the people who make up the family-business universe. In more structured businesses, interviews with managers outside the family and with trusted professionals who, having an external point of view, are often better interpreters of the business reality are also relevant

The Family Charter identifies:

family and corporate values
and the vision in running the family business;

the family governance structures (the Family Assembly, which brings together all members including those not involved in management, the Family Council, which has executive functions, and the Advisory Committee, which may be open to external advisors)

criteria to identify who, among the members of future generations, will be able to hold management positions.

the remuneration policy of family members involved in the management of the enterprise

relations with spouses or partners of family members

The drafting of a family charter often goes hand in hand with reflections and activities concerning the planning of the generational transition and culminates with the preparation of the relevant legal documentation (such as, for instance, a will, donation or family pact pursuant to Article 768-bis et seq. of the Civil Code).

It is very useful that the Family Charter accompanies these documents as it contributes to creating

awareness, commitment
and responsibility in future generations with regard to the inheritance, moral and

material, which will receive

The family charter will have to interact with the legal structures of the company. Often it is also necessary to get to grips with the legal structures of the company (articles of association and shareholders' agreements), or with the rules governing its operation, in order to create coherence and harmony between the family governance structure and the corporate governance structure. Very often, together with the family charter, a corporate-equity reorganisation is prepared, culminating in the creation of a 'family holding company'. The establishment of the holding company together with the family charter is useful to plan and implement the generational transition

The drafting of the Family Charter must be the result of multi-handed work involving not only the professional in charge but also lawyers, tax experts and the family members themselves. Moreover, its signature is not the final moment because a period is necessary in which the family members understand whether the structures that may have been set up (such as the family assembly or the family council) are working properly or whether it is necessary to change the rules to improve them.

The Family Charter will also regulate how it can be revised or updated, e.g. by a majority vote of its members