The Family Business Protocol is an agreement that includes a series of rules and codes of conduct, to which all family members are subject by mutual agreement. We can say that it is their “Constitution”. It is the way to organize and manage the role of the family with the company and the patrimony.
In Arrabe Integra we are experts in the management of the Family Business. We have many clients who are. That is why we also collaborate with the ICAI-ICADE Family Business Classroom. Because all shared knowledge is to everyone’s benefit.
In addition, in those cases where a specialised professional is required, we also have collaborators. In this case, Ana Díaz Montañes, Family Business Consultant specialist in Family Councils and the signatory of this article.
The Family Business Protocol
As new members join the family and the company, the complexity of managing the family, the company and the family estate increases. This situation makes it advisable to search for solutions that lead to the tendency to intrinsic disorder of the system.
Everything begins when one of the members feels uncomfortable because of the drift that is taking the relations in the family business. Many questions arise and you need to start looking for answers. In this process it is contagious to other members attending events where these issues are treated and where they feel reflected with the situation they are living.
They feel that they need rules of the game, a framework of action to stick to and where to move, a framework that responds to their expectations of life and future. But they don’t know how or where to start.
In the transition from the first to the second generation, and rightly so, the transition from the second to the third generation, are the moments where the need for a framework for action becomes more evident.
The implementation of an action framework begins with a very important process of prior family reflection. This process leads to the formulation of agreements, as well as the code of conduct. It presupposes the commitment of all members and is usually expressed in a document called “Protocol or Family Constitution”.
Components of the Family Protocol
The Protocol institutionalizes three real “spaces” of conversation and decision making where members, families, shareholders and the company feel represented individually. They are the governing bodies of the Family Business.
- The Family Council
- The General Meeting of Members
- Administrative body of the company
Three spaces where the topics to be discussed will be different, as well as how to reach agreements, and participants may or may not agree to a large extent.
The main purpose of the Family Council is to maintain cohesion among family members as well as to channel communication between the company and the family, promote the transmission of culture, and plan the process of business succession and patrimony. Agreements are reached by consensus of all its members.
The Family Council draws up the Family Protocol and is responsible for its revision and updating.
General Shareholders’ Meeting
The General Shareholders’ Meeting, a body determined by law, represents the property and its social will. The majority regime is established for decision-making, respecting the legal limits and adapting to the needs of each case. Its functions include the approval of annual accounts and the application of results and distribution of dividends.
Administrative body of the company
As the company’s governing body, as its structure evolves and becomes complex, the formation of a Board of Directors becomes advisable and its main function is to determine the strategy and objectives of the organization.
Legal basis of the Family Protocol
The Family Protocol itself has no binding force other than the moral and legal force of a contract between the parties. But RDL 171/2007 also gives a mandatory component to those signatories of family agreements that are not incorporated into the company’s articles of association. However, if the Family Protocol is incorporated into the company’s bylaws and acquires the degree of absolute internal obligation and third parties (other companies, customers, suppliers, etc.), it benefits the family company that adopts the agreement by generating an image of solidity, efficiency and professionalism.
What these agreements will provoke will be the revision of legal documents such as, articles of association, partners’ agreement, wills, power of attorney, marriage settlements and self-protection.
To carry out the phases of this process requires, first and foremost, the conviction and commitment of all members in the need to do so, accompanied by the coordination of interdisciplinary teams of lawyers, prosecutors, planners and family business consultants.