How to create a successful Family Business Constitution

Conflict, infighting and family politics are among the biggest risks to the bottom line for any family business.

We all know that disagreements at work can happen. But as a family business it is critical to take the right steps for keeping family relationships and profitability intact.

One of the most important assets a family business should have is a family business charter, or family business constitution. Over the years we have seen families and family members flourish having invested in this process, plus some families have literally doubled their business in two years due to be able to focus purely on the business rather than worrying about conflict in the family.

What is a family business constitution?

Simply put, it is a set of agreements made by the family around issues ranging from succession, leadership and ownership, values of the family, setting up a family council, through to family policies on education for the grandkids, how to help family members in crisis, how (and how much) family members receive money and how things like holiday homes and family farms are to be managed.

It is an amazing process and as we go through this we see families have discussions they have always wanted to have but have often been too afraid to do so – and usually, these discussions are never as bad as family members think they are going to be.

The biggest thing we see are families becoming more united and conflict and disagreements reduced.

In these recent crazy times, when everyone has been so busy, we’ve identified the core areas that families need to work on – you can see these in our Key Family Agreements, which is a resource for family businesses from Family Business Central. The Key Family Agreement document gives your family the most important areas to get agreement on between the family and will help provide direction during the pandemic. Then, when you have time, you can use it as the stepping-stone to developing a full family constitution.

Regardless, we firmly believe that all family businesses should eventually be developing a family constitution or family charter – and the earlier the better. The return on investment is tremendous.

So how do you create a successful family business constitution?

Firstly, you need to be able to meet the three core needs of a successful family business: transparency, honest conversations and fairness.  If you’re a control freak dictator who enjoys ordering people about and ignoring any and all suggestions and advice this might not be for you… However, if you want your family to thrive, your legacy to build and your business to grow then transparent, honest conversations that manage fairness is the go.

However you approach a family business constitution or family business charter you need to have the following things in place:

  • The current generation wanting to leave not only a business to their family but for the family relationships to be solid and long-lasting
  • The family willing to meet and talk honestly about the business and family
  • Family members willing to discuss their dreams and possible expectations around the business
  • The current generation willing to talk about what they want their business to do, their role in it going forward and what their vision for the business is once they are gone. This is big – as they are, in reality, talking about their mortality
  • A degree of transparency in the family. Each family is different in regards to just how much they share and talk about, especially when it comes to money and wills. We’ve seen families where the parents have put their entire wills on the table for all the kids to see and know what is there, through to parents who have only been prepared to show the part of their will that outlines what is going to happen with their shares in the business.

The essence of a brilliant family constitution is that the family has sat around a table and discussed, debated and agreed on the rules for the family. Family business constitutions often look pretty ordinary when they are finished. That’s not the point. The point is that the family has had the discussions and come to an agreement that they’re all happy to live with.

If you’re keen to find out more or if you have any questions about developing your own family business constitution or charter, please feel free to get in touch.

Contact Family Business Central