Family Business Policies: Definitions

Entry. Governs when people are eligible to work in the business, what criteria they
need to meet and what is the process by which they are hired.

Employment. Governs what happens once employed, how family employees are
reviewed, how their career paths are set and evaluated, who they report to at various
points in their careers, and how they are promoted or demoted. May include
mentoring.

Exit. Governs how and when family members leave the business, including what
happens to them and other issues around voluntary exit, retirement, termination, and
leaves of absences.

Compensation/ Perks. Describes the philosophy of compensation and the process that
is used to set compensation of family members in the business.

Shareholder Agreements. Defines who can encumber, buy, sell or transfer stock; the
conditions that must be met for stock transfers; when stock transfers are compulsory
and they are optional; and how stock values are set in the event of transfers. Buy-sell
agreements are one type of shareholder agreement. These agreements are often
combined with liquidity policies.

Liquidity. Governs how family members may sell their stock. Sets price and defines
where resources come from for stock purchases. Defines terms of sale. It may also
define when stock can be sold (for example, once a year, once a decade, anytime), and
a percentage that must be sold (for example, at least 10% of holdings or all of
holdings). Defines how much stock can be sold in any given time period.

Loan Program. Defines how family members may take out loans from company or
other family assets. Sets terms for loans, amounts, approval process and may cover
reasons loans can be given. May also define the amount of funds available in any
given time period.

Venture Investment. A policy covering how company or other family funds can be used
to help incubate family shareholders’ businesses. It may outline terms, equity
percentages and minimum investments, rights to future equity purchases, how
decisions are made about what businesses are funded, and total funds available.

Joseph H. Astrachan and Kristi S. McMillan © 2004-2009 Page 1

Family Office. A family office usually serves four purposes. These are coordinated
investment activities and managing the family’s holdings, coordinated legal activities –
especially as regards estate planning and legal issues regarding the family’s holdings,
family training and education, and concierge services (travel, entertainment, medical,
etc). Such a policy would govern what the family office does, how it is overseen,
whether the family’s joint investments were compulsory or optional, when the services
of the office would be available to family members, and whether family are
compensated by the office.

Dividends. Sets the basic philosophy behind dividends, who is responsible for actually
setting dividends, on what basis dividends are paid, when family might expect
dividends to be reduced or suspended, when they might expect them to be increased
or an extraordinary dividend declared.

Board of Directors. The board holds senior management accountable for doing what
senior management says they will do. This policy defines who is on the board, how
board members are selected and approved, how they are compensated, what the
board’s job is, how it will interact with shareholders, how often it meets, who can call
meetings, who runs the board meetings and who sets the agendas as well as what
issues might typically be on the agendas.

Family Council. This is a body that allows the family to convey to the company and its
board the opinions of the family and their concerns. When the family is small, this
might be a meeting of the whole family (family assembly). As the family grows, the
council usually becomes a representative body of the family. Its focus is on family
issues and on managing the interactions between family and business. It may be the
mechanism by which policies are created and reviewed. It may also be the mechanism
that helps assure family unity and cohesion as well as serving as an information
conduit for family and company news.

Family Mission and Values Statement. This is fairly self evident. It is a statement that
describes the values that the family holds dear and the purpose of the family.

Help in Crises. This is a statement that describes when family members can expect
help from other family members. It may define what kinds of events or problems they
can expect help around and when they should not expect aid.

Education (general and about business). This defines how family members are
educated about the company and the family and about business in general. It defines
expectations for learning as well as how this will be monitored and managed. The
Joseph H. Astrachan and Kristi S. McMillan © 2004-2009 Page 2
policy may also define how general education is paid for and how such decisions are
made. It may set criteria for when education is paid for as well as a process for how
requests for educational funding are handled.

Communication. This policy defines how often family members can expect to be
communicated with by the company and from each other, how soon communications
are responded to, what information is passed along when heard from third parties and
what is not, and how interruptions are handled. This policy may also cover when and
how family members can disagree in public as well as who can talk to the media and
what they can say. Sometimes this policy covers how and when family members
resolve their conflicts.

Code of Conduct. This defines the spirit with which family member will treat one
another and how the would like to be treated.

Philanthropy. This defines how family members will coordinate their giving and what
amounts come from family, from company and from other assets. It defines how
giving decisions are made and the philosophy and purpose behind giving.

Archives. This is a repository for objects and correspondence having to do with the
history of the company and the family. The policy governs who will coordinate the
archives, how that person/people are selected, how they are compensated, how others
have access to the archives, and whether the archives produce any documents or
histories.

Family Legacy Items. This policy sets forth the rules for how heirlooms and other
legacy items may be borrowed and exchanged between family members. It describes
how requests are made between family members, when requests can be denied, how
long objects are on loan for, and how they are insured.

Policy Creation, Review, and Change. Each policy should be created with a specific
timeline and procedures as well as rules about how many family members are required
to agree before the policy can be implemented. Each policy should have a very clear
review cycle as well as a procedure for making changes that may be needed between
reviews. Importantly, each policy should have a specific percentage of family needed
to approve a policy before it can be changed.

Joseph H. Astrachan and Kristi S. McMillan © 2004-2009 Page 3