Using Covenants To Build Teamwork and Performance

Using Covenants To Build Teamwork and Performance

Contracts between parties have existed for centuries. Before contracts - there were agreements, or what we also call, covenants. Covenants go back to a time before our language was spoken or before words were printed. Old Testament biblical language showcases the first existence of a covenant between non-equal parties. I don't think anyone would make a case that Abraham and Yahweh were equals. Throughout history, we have seen how covenants have the power to transform. In business today, covenants play critical roles and they are especially powerful in privately owned businesses where relationships with outside influences, such as franchisors, have an impact on your success.

A covenant is an agreement between two parties wherein each agrees to what they are asking for, what they are offering, their commitment to live by their offer, and fulfill what is asked. The reason covenants add extreme value to the operation and growth of multi-unit franchisee businesses is sublimely simple: business leaders, managers, and employees need to make a plethora of decisions in the daily function. Covenants act as the foundation to which decisions are made, making the process simpler in the complex business environment of multi-unit/brand organizations.

When the business was started, with maybe one or two units, the owner made covenants with himself, in areas such as:

  • What shall the lease be?
  • What shall the terms be?
  • How much shall I share with the government?
  • What percentage of profits will go back into the business?
  • How much will I work?

As the business grows, so does the need for the scope of covenants to grow to consider operational, management, organizational, and family expectations as it relates to the business.

Operating Covenants

Effective communication between current and developing partner/owners is required to achieve optimum respect, team synergy, business stability, personal gratification, and business profitability. It is also essential for an owner to work in unity and harmony regarding the ever-evolving complex issues pertaining to operating a fast-paced, demanding business. As such, operating covenants consider areas of expectations including, but not limited to:

  • How will we hold each other accountable?
  • What processes will we put in place to ensure we respect the management structure and each other's areas of authority
  • What expectations does each have in regard to communication procedures and timelines?
  • What responsibilities (if any) are there for any non-participating partners?
  • How much will I expect my partners to work?
  • How will we make decisions?
  • How will we resolve conflict?

Management Covenants

The purpose of management covenants is to achieve clear, concise communication regarding reasonable expectations between the owner/partners and his or her managers. These covenants are designed to express, establish, and maintain the candid and focused communication required to build and maintain a high-performance management environment. Management covenants clearly state the way individuals within the management team:

  • Interact through the chain of command
  • Communicate information needed at each level
  • Make decisions
  • Recognize the management structure and levels of authority
  • Respect the management authority of assigned mentors and department managers
  • Problem solve
  • Address issues with each other, rather than letting them fester
  • Respect long-term values, where there is no business gain worth a family loss

Organizational Covenants

Organizational covenants between leaders and employees set clear expectations on largely subjective issues, such as how long the work week is, whether Saturday is a day off or not, our clock-in/clock-out times, and the authority we yield when "The Boss" isn't on the premises. These are issues that any business must face and they become larger issues when the business grows and during times of leadership transition.

Family Business Operating Covenants

Similar in nature to operating covenants, family business operating covenants consider the unique relationship of family members who are active or inactive in the business to the organization.

In establishing covenants, the expectations of those involved in your business are brought to light. You can negotiate far in advance of potential disagreement and protect your harmony and business success because "Agreements preclude disagreements." We encourage our friends and clients to avoid the temptation to kick the can of conflict down the road and pre-empt it via covenants that are as old as humanity itself. Covenants build partner and team harmony and protects the business as well as the relationships among its leaders. It takes work, but everybody wins!

Doug Howe is a partner of The Rawls Group, a business succession planning firm. Doug specializes in dealing with the issues that must be resolved by multi-unit franchisee owners to implement succession strategies geared towards building business value. For additional information, visit www.rawlsgroup.com or call 407-578-4455.

Published: July 11th, 2017

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