Happy new year!
I wish you all the best for a fantastic 2025. To start the new year, here are a few thoughts on family constitutions:
What’s a Family Constitution?
I have been saying for years that if you have a family business it is very important that you have a succession plan for that business . By ‘very important’ I mean that it is even more important than a business plan, a marketing plan, and other similar operational plans. If you don’t have these other plans, then your business will struggle, but if you don’t have a succession plan, it is more likely than not that your business won’t survive .
How do I Start?
One of the most common questions I get from families is ‘How do I start?’
In myexperience, the beginnings of this process often involve some thinking, some family conversations, and also typically a bottle (or two) of wine. How you start is not so important, what is important is that you do start. Don’t delay. Leaving the process too long typically reduces your possibilities and makes everything harder – sometimes much harder.
Once you have begun your journey, you should find a specialist such as myself who can guide you through the process. One of the first things I am likely to do is to work with you to help you put together a family constitution (FC). That document is the subject of today’s article.
Despite what many lawyers think, your FC is not a legal document. That means that you don’t need a lawyer to create it, even if, sometimes, some input from a lawyer can be helpful.
Instead, your FC is an expression of your, and your family’s, vision for the future and the principles that guide future decision-making. It is a living document. That means that it evolves and is updated regularly as your family learns and understands more. Quite often FCs start relatively short; two or three pages. Over time they transform into considerably longer documents; typically in our experience 15-20 pages. That’s fine. A start, even an incomplete start, is the most important thing.
Even though it’s not a legal document, your FC is the most important part of the succession planning process. Lawyers focus on company structures, trusts, foundations, shareholder agreements, family office models and so on. But none of these things make any sense at all without a clear FC at their core.
In fact by building a good FC, you can often save a lot of money on legal fees. That’s because a good FC will create a ‘roadmap’ which will make the design and implementation of legal structures much easier.
Your FC is a written statement that records your family’s history, culture, hopes and goals for the future. It also includes some guidance and plans how to achieve those goals. Sometimes it is dictated by the wishes of the founder of the family business, but more often, it is the result of family discussions; reflecting the wishes of the founder, but also taking into account the wishes and opinions of other family members.
What’s in a FC?
A good FC might answer some of these questions. (You will notice that some parts are in italics. I would say that these parts are the essential core of a good FC and also a good place to start):
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- Who is our Family? (This varies from family to family, but often means blood descendants of the Founder)
- Where do we come from?
- Where are we now?
- What is our vision for the future?
- What are our family values and beliefs
- What are our guiding principles?
- As a family member, what should I expect from the family?
- As a family member, what should the family expect from me?
- Should the business always be owned by the family?
- Can the family release their interest in the business, and if so, on what terms?
- What criteria should there be for the employment of family members in the business?
- How do we make decisions?
- How often should we meet as a family?
- Who leads our family after the founder has passed?
- Should there be a family council?
- Do we have an ‘enforcer’? If not, how do we make sure that these rules are followed?
- What is the role of our family in our community (Philanthropy, ESG, etc)
Though a FC is not binding, these basic rules will help prevent future family conflict. As I said above, they also provide a great ‘roadmap’ for advisers as they develop current and future structures to give effect to the family goals
Involve everyone
As I mentioned above, the development of your FC will vary from family to family. Sometimes the FC can be similar to the tablets of stone that Moses brought down from Mt Sinai – in other words, commandments imposed from above. More often, and in our view much better, is a FC that reflects the input and opinions of all the adult family members at the time it is created. Although not everyone may like the outcome of any particular decision, they will respect that they have been involved in creating the FC, and are less likely to protest if decisions are not in their favour.
Either way, what is essential is that all the family members should sign the FC. The signature indicates that the person understands and accepts the guidelines and agrees to play by the rules. I recommend that signature be a prerequisite for any benefit from the family wealth. As new family members reach adulthood in the future, their signature becomes a symbolic marker that they have become a full member of the family. In this way, we can make sure that the FC is a meaningful document that lives on into future generations.
Let me know if I can help you build a FC for your family.