What constitutes a family constitution? And why is it important?
As families evolve and successive generations seek to establish themselves as valued contributors to the family business or its philanthropic activities, many families thrive by establishing a ‘roadmap’ for navigating wealth, business and legacy transitions over time, governing how the family will work together and resolve potential conflicts in the future.
These guidelines often take the form of a family constitution – a document that prescribes the family’s values and principles, defines its objectives, and outlines how the family will make important decisions.
The family business constitution
Within the context of a family business in particular, a family constitution can be crucial in smoothing operational and leadership transitions between generations. Indeed, I’ve witnessed this first-hand recently supporting such a business transition through its third generation.
A family business constitution can help the business to crystalise and understand its competitive advantages and what makes its culture unique and sustainable. It should also clearly address and define the various roles of individual family members, both inside and outside of the business.
Of course, this is easier said than done.
Based on my recent experience in this area, the following article summarises my key thoughts on how to create a family constitution that enables seamless business and wealth transitions.
1. Remember, it’s not a product
Many families interested in a family constitution may believe that the implementation process is as easy as a call to the lawyer to get a constitution drafted and in place. However, family constitutions that have been drafted without sufficient input from the family often create more problems than they resolve.
A family constitution is not a simple product, but rather a uniquely personal document. Its development must be a process that occurs within the family.
Indeed, my experience is that it is the process of discussing, debating and expressing the family constitution, rather than the end result, that produces the most benefit. It’s this process of drafting and establishing a family constitution that can bring a family closer, as participants learn more about each other, the family’s history, and shared motivational values.
It can actually help to unite the family and the document itself can become a source of family harmony, as well as providing a focal point for the business going forward. And really, that’s the whole point!
2. Ensure clarity, avoid jargon, make it engaging
Avoid overly technical language as it is often not necessary to achieve the desired legal, tax and administrative results. Technical language does not help in a family constitution, which is not legally binding.
Instead, the family constitution should have accessible and personal language. The family’s philosophy and values should be the cornerstone of the document.
Critically, there should be a section within the family constitution that sets out the family’s statement of values. It’s unfair to expect future generations to uphold those values if the family does not take the time to articulate them. It is the family’s values or mission statement that will serve as the foundations for future generations to lean on.
Fixing into the document a sense of the family’s history and historic personalities can also produce a far more meaningful and enduring commitment than simply asking each family member what his or her values are.
3. Plan for change, deadlock and difficult decisions
No family can predict the future, and no family constitution can accurately address all the obstacles and changes the family is likely to face. So, my thoughts have always that – rather than creating a set of rules that aim to prevent every likely conflict or strife – the family constitution should provide a process for discussion, resolution and management of deadlock.
In other words, the constitution must assume there will be conflict, and provide a roadmap out of the situation. You might also consider testing the concept whilst in the design phase, with the family members foreseeing a challenge to use as a proof of concept.
It’s important to remember that the family constitution will not create specific and binding rules. It’s a framework and guiding principles for making future decisions in each area.
4. Keep it as a live document
Nothing is constant in family dynamics and it would be a fantasy to expect a single, unrevised family constitution to withstand the many changes that will occur in the future. A point often forgotten is that, as generations grow up, future family members may not feel an allegiance to a constitution that they did not have a hand in creating. Revisit the family constitution every five years.
It may be a consideration that the family constitution has a sunset clause activated at a certain point so that new leaders within the family can come forward.
5. Define the overarching goal for the family and its business
The family mission statement is a key part of the family constitution – the family values statement, in a nutshell.
To me it encapsulates the question, “what’s the point of our family trying to pull together?”
The statement may be as simple as: “The mission of our family is to create a secure family environment and to provide opportunity for each individual to become responsibly independent, and effectively interdependent, in order to serve worthy purposes in society.”
While a mission statement may seem like a small piece of the puzzle, a simple statement that encapsulates what motivates and inspires a family can truly lay the groundwork for a more complete family constitution in the future.
Speak to IQ-EQ
At IQ-EQ we have demonstrable and significant experience in mediating and overseeing the creation of effective family constitution documents. The effect being the protection of the family dynamic and a symbiotic relationship with the family business for the long term. Contact me to find out more:
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