Families need to ensure that flexibility is built into the legal framework of their businesses and family trust vehicles to avoid “context conflict” and safeguard governance, a legal whitepaper suggests.
Context Conflict: Preserving Goals and Values in the Family Enterprise highlighted the potential conflict in family businesses between value maximisation in the present and creating long-termvalue for the family in the future.
It said that the usual markers in any business are growth in revenue, market share and product success, but family businesses also include long-term family financial success and multigenerational participation in measuring success.
This can lead to context conflict when a business operates with different goals and values to the family.
The paper, by Boston law firm Hemenway & Barnes, suggests families can include specific language in shareholder agreements or articles of organisations that permits boards of directors or managers to prioritise factors beyond economic return.
“One effective route is to identify the highest priority goals, such as preserving family ownership, preserving the composition of stakeholders, or preserving independence.”
The whitepaper also said corporate documents and trust provisions should be closely linked so that the same voting guidelines that help steer a company are in place for trust management.
“Trustees can and should be allowed to balance their fiduciary duty to grow the assets of the trust in a way that aligns with family requirements and mission,” it added.