By now it’s a widely circulated fact that nearly 90% of
Australian family businesses don’t survive into the third generation. It’s a
really big problem, and no problem that large has a simple solution. But that
doesn’t mean your family business can’t take a few simple steps to protect
itself from falling apart when it’s time for the grandkids to lead.
Let’s classify family business failure into two groups. The
first is business failure, which every business must deal with in their own
way. The second group is family failure, which is a unique problem for family
businesses. If you really want to put your company on equal footing over the
long term, you need to be able to handle family problems before they hit crisis
mode. To accomplish this, I’ve long argued for a written family constitution.
Family constitutions intimidate some people, but they
shouldn’t. All a family constitution really does is clarify family values and
create better rules for working together. I think it’s well worth every family
business member’s time to learn about family constitutions.
If, after learning more about family constitutions, you are
still afraid to start, consider this: the very process of building your own
unique constitution will likely bring people together, strengthen family bonds,
and create more emotional investment in the business.
The Benefits of a Formal, Written Family Constitution
I’ve recently outlined six good reasons to write a family constitution, but I’ll focus on a few more
here.
Begin with one of the most obvious and easiest to overlook: the constitution is
written and formal.
There’s an old Chinese proverb, “the palest ink is better than the best memory.” This is one of the
unofficial themes of the Family Legacy Asia, a pro-family constitution advocacy
group based just North of Hong Kong. The benefits of written rules are obvious
for governments, schools, and even recreational sports leagues. Those same
benefits can apply to families.
A family constitution creates rules and boundaries for
family members. This isn’t a gimmick; the rules are intentionally created
during a sober moment, before emotions run high, so everyone can agree on
fairness and process.
The idea is to create a strong, unifying bond based on love
and emotional acceptance, then codify it in a document for making decisions and
resolving conflicts. A lot of family issues fester because members don’t have a
safe, understandable way to discuss them.
A family constitution helps identify difficulties so they
can be conquered. Every year, the KPMG and Family Business Australia survey
family businesses. Every year, those surveys reveal that “balancing family and
business issues” are a top concern, yet only a small minority of family
businesses use a constitution.
Most importantly, a family constitution lets a family
express and share its own values. Sharing values and teaching them to children
is a highly underappreciated aspect of building a lasting family business
model. Those values will inform the leadership structure, succession, community
involvement, and long-term goals.
Get It Right the
First Time: Use an Outside Facilitator
Each family constitution should contain certain rules, or
themes, for successful implementation. This creates a problem or two. First,
whomever negotiates and writes the family constitution should know what they’re
doing. That person probably needs strong interpersonal skills and some kind of
arbitration experience. Second, even if a family member possesses such skills,
there might be budding conflicts of interest. It’s difficult to trust the
impartiality of interested parties.
Of course, a family could write a constitution and amend it
over time using trial-and-error. This approach isn’t very efficient, though,
and leaves plenty of room for conflict or emotional hang ups. The better
solution is to use a trusted outsider. Ideally, this should be an expert whose
credentials aren’t questioned by the whole group and who can ensure the process
is open-minded and accessible for everyone involved.
Only you and your family can decide if
it’s worth creating a family constitution. The first step, though, is to learn
about what a family constitution is and how it can help ensure long lasting,
multi-generational success.
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