The Family Constitution

According to Prof Ward, the two most effective practices implemented to protect and preserve the family business are:

* To create an independent board to strengthen the business

* To draft a family agreement to strengthen the family.

In some countries, a Family Constitution is referred to as a Family Agreement. For some, it is a family creed or a charter. But regardless of the name, there is absolutely no doubt that a family agreement, when done correctly, can be the most important document that will perpetuate the family business for generations to come.

What I meant when I said, “when done correctly” refers to the need to customize and tailor fit rules and protocols based on the uniqueness of each family and business. Just as each family business is unique, so each family constitution will need to reflect the peculiar characteristics of both the business and the family.

Common, Predictable Yet Tragic

Suddenly, the patriarch (or matriarch) is diagnosed with a debilitating condition and siblings representing several branches of the family are in a state of panic as they find themselves in charge of the business, unsure of where to go next. The situation is compounded if the abrupt change happens from the second to the third generation where the number of owners multiplies, the complexities of decision-making and the changing lifestyles of the cousins including the diversity of their ambitions for the business manifests and rears its ugly head!

Tragically, generational change is unplanned all because of the unexpected death or disablement of the business owner. This possibility strongly suggests that the constitution should be drafted and agreed well ahead of the expected transition.

A family constitution helps the family deal with the changes constructively. It requires the family to think about important decisions before they have to be made and find agreement on important family business goals.

The crucial and possibly two of the most important component of the family constitution is the articulation of the importance of shared values and the vision of the family business.  Family business authority Professor Ward likens successful family partnerships to the bunch of sticks in Aesop’s fable. “If you take a bunch of sticks together, you can’t break them. But, if you take the sticks one at a time, they snap.” Shared values and a compelling vision bind the business owners and sharpen the business focus.

Formulating a family constitution will take time to develop and may require a series of family meetings. Even if there isn’t an agreement on all issues, it will form a good basis for family to work from when issues arise. Before drafting the Constitution, the family needs to agree on some general guiding principles.

Your Legacy is in Peril

So why am I strongly advocating for a Family Constitution in every family owning business?  Here are the reasons in no particular order:

* To avoid and minimize family conflicts

* Solve the problems before they happen

* Reduce future family tension

* Strengthen the family with experience in coming to agreement

* To avoid role confusion among Owner/managers

* By having forums for discussion of family, business and ownership issues and preventing such issues from becoming a public scandal

* By providing a fair and just exit mechanism for those that are no longer interested to join the family business

* To keep the ownership united based on a stewardship mind-set./WDJ