Trusted Advisor to People-of-Accomplishment and Family Enterprise

THE FAMILY CONSTITUTION

By Marta Vago on June 4, 2018

Imagine playing a game without knowing the rules!  Yet, that’s what most families in business try to do.  Rare is the business-owning family who has articulated in detail how it is going to govern its business and personal affairs. Consequently, too few families can both run their businesses successfully and maintain harmonious relationships in and outside the business.  The Family Constitution can help families “win” on both counts.

 

Like any other constitution, the Family Constitution defines the “rules of the game.”  In a family business, the rules pertain to family members’ participation in the business and to the family’s relationship to the business.  It is a set of agreements that answers such important questions as:  Who can work in the family business?  Who will share in the ownership of the business?  Who makes decisions for the family and the business? How will the family balance personal and business priorities?

 

Addressing these and other issues pose a huge challenge to families in business. Most families are loath to deal with them for fear of hurting others’ feelings or “upsetting the apple cart.”  In the absence of clear understanding, family members act on assumptions and false expectations. Mutual distrust and manipulative behavior take the place of candid discussion.   No wonder it is only a matter of time before the business, the family or both become mired in conflict and fall apart.

 

Countless family feuds, control battles and litigation nightmares can be traced to having no clear or workable mechanisms to transfer the leadership and ownership of the family enterprise.  For example: Business growth may lag behind the growth of the family.  In the absence of specific standards for deciding who and under what conditions can enter the family business, conflict between family members who feel entitled to employment becomes inevitable.  Another example: Estate plans that cripple family members who are involved in the daily management of the business pit active and inactive shareholders against each other.  All too frequently this results in a forced sale of the business.

 

The Family Constitution is based in the family’s shared values and principles regarding who they are as a family and how they want to relate to the business as a family.  To make it work, family members must be willing to uphold these values and principles without exceptions.  Changing the Family Constitution should be no easier than changing a nation’s constitution.  Clearly, as new generations come along, they will want to revisit the terms of the Constitution and possibly make changes.  However, the less enduring the nature and intent of a Constitution is, the less likely it is to fulfill its purpose both now and in the future.

 

Creating a Family Constitution is neither an intellectual exercise nor a casual activity.  On the contrary:  it is an intensely emotional process and one that may take many months of concerted effort.  Using “boiler-plate” forms to create a Constitution can be helpful in ensuring that all vital areas are covered.  However, the mere use of them does not guarantee positive outcomes any more than following a road-map guarantees a safe and pleasant journey.   Professional guidance by someone who understands, and is trained to deal with, the complexities of business-owning families may well determine whether the family survives the process.  Trying to create a Family Constitution without professional facilitation is like performing surgery on yourself while reading a “how to” manual.

 

A final caveat:  A Family Constitution that focuses primarily on issues of control, rather than on mechanisms to help the family make good decisions for the business and the family, is likely to be sabotaged, ignored or simply abandoned.

 

Should you consider putting a Family Constitution in place for your family in business?  Yes, but only if every family member understands what a Constitution is, the purpose it serves, and what it will take in terms of time, energy and money to see it through.  And, like any other constitution, a Family Constitution can be only as effective as the family’s commitment to honor it and to make it work.

 

 

 

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