It is
important for every family to communicate effectively – especially for families
in business. This
communication is necessary to reach decisions that optimally balance the needs of
both the family and the business. As the complexity of family and business
relationships increase, families can turn to the process of developing a formal
“family constitution” as part of a healthy communication and decision-making
environment.
While not
legally binding, a family constitution is accepted by the family when there is positive
recognition and buy-in from all involved. The process and the policies created
within a family constitution are always reflective of the values and beliefs of
the family group. The intent is to build around a sustainable model that
promotes generations of pro-growth decisions.
Here are six
reasons why you should start developing your family constitution in 2016.
1. It
Will Lay the Groundwork for Tough Decisions
Family
business leaders have to make the same difficult decisions that any regular
business leader needs to make, except that the family business leader often has
to consider complex personal and family relationships.
It’s easy to
make judgments based on emotion in family businesses, which is why a
pre-determined, rational family constitution can help cooler heads prevail.
Through developing an effective constitution, the family will have already
identified the basis on which critical decisions will be made.
2. Your
Chance to Create Ethical Guidelines
Family
constitutions are bound by moral force. If you are serious about building a
unique, marketable brand, for both employees and customers, then it’s important
to have a business code of conduct. Equally, your family constitution can lay
out the preferences of the family in how they, as shareholders, would like the
company and it’s capital to be directed, provide family thinking around certain
shareholder decisions and influence the culture of the business and its
employees.
These
guidelines can also include family conduct outside of the business, conduct
with any social media interaction, and communication processes between family
members.
3. Build
Cohesion and Internal Harmony
A family
constitution is developed by the family group. Ideas are workshopped and
opinions are shared. When consensus is reached, it’s done so based on education
and robust family communication around the relevant matters. Members of the
family learn together through a participative process. The resulting document
is a codified representation of internal agreement and harmony.
4. The
Chance to Improve Your Bottom Line
Though not a
cure all, the process of creating a family constitution performs a lot of
critical functions that can make businesses more effective and, by extension,
profitable. The family constitution defines the leadership structure, provides
a tool for succession, informs communication and conflict resolution guidelines.
Perhaps most importantly, it clearly and concisely identifies the family’s
long-term goals. With that clarity in mind, it’s easier to take effective
action to build a profitable company for the long term.
5. Establish
the Rules around Conflict
Conflict is a natural part of running a business. However, when
colleagues and employees are also family members, ordinary conflict can take on
new dimensions. You
should have a plan in place to deal with conflict if your business is going to
build a strong, multi-generational legacy. No family constitution can prevent
conflict entirely, but it can provide a road map to successfully manage,
resolve and define conflicts in a constructive way.
6. Plan
Ahead for Those Entering and Leaving the Family Business.
No challenge
is as serious or as easy to mishandle for family businesses as the issue of family
members transitioning both in and out of the organisation. Creating a family constitution
provides a robust framework for families to commence their communication and
education around succession. Policies
such as the employment and remuneration of family members in the family
business, education expectations, stewardship and philanthropic activities can
all be discussed when writing the constitution. A constitution is a dynamic
document so initiating
formal family meetings as part of this process can ensure the items previously resolved can always be open for discussion and
improvement.
+Cleardocs Thomson Reuters
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