By Amanda Lima

In October 2018, the Brazilian Institute of Corporate Governance (“IBGC”) launched its first instruction manual on Family Protocol on its knowledge portal, given the significant participation of family businesses in the Brazilian corporate sector.

In addition to holding more than half of the Brazilian private market, they share the same difficulty: surviving after the third generation of the family takes over. Investing in a solid structure of Corporate Governance and Succession Planning are fundamental elements to ensure solidity and competitiveness in the market.

There are Corporate Governance mechanisms that can assist the succession process between family members. The Family Protocol aims to advise the family, which is part of one of the three pillars of the family-controlled company system, also supported by the pillars of ownership and management.

Each of these pillars must be managed according to its own nature, guidelines and basic documents. The protocol governs, above all, the family sphere, acting between (and within) generations and in its relationship with the company. The shareholders' agreement acts in the ownership sphere, and the bylaws or articles of association act in the management sphere.

The Family Protocol is a document signed between the partners and heirs of business families that represents the transformation of expectations into agreements transcribed into a formal instrument. It represents values, principles, rules and conduct. It defines roles and responsibilities, rights and obligations, rules and sanctions, which are valid for all those who are part of the business family.

It should reflect the dynamics and needs of each family. Ideally, the process should begin with the selection of topics considered relevant by the group, and the discussion of each person's expectations and desires. Succession strategies and minimum criteria should be defined for management actors and those who wish to participate in the company in another way, defining roles and responsibilities. It is also necessary to address the different governance bodies and their activities, such as the board of directors, the family council and the assemblies, as well as the matters that each body is responsible for deliberating.

It is in the context of prevention that the Family Protocol represents an extremely effective and relevant element for family governance. Investing in a document that is well-founded on family values and aspirations would help to clarify the rights and responsibilities of each member of the group, help to avoid conflicts and strengthen better connections between the various family members and make the business viable over generations.

The role of the Corporate Governance professional in the preparation of the Family Protocol is important to overcome tensions and achieve the desired alignment, because he or she is able to use his or her neutrality to moderate the negotiation of controversial points and create a truly effective document. Therefore, it is important to emphasize that his or her role is not to simply propose a standardized protocol model to be adopted by the group. In reality, his or her role is to help the family extract the essential aspects that will make up the document, based on the particularities and needs of that specific group of people.