Monday, May 23, 2016

3 Essentials for Writing Your Family Constitution

David Harland, Managing Director of FINH - Guest Blogger

Develop a structure to improve communication and strengthen your family and its business.

A family constitution acts as a governing document, much like the constitution for a country. It creates a process by which different members may settle disputes. It establishes a process for how rules are changed. Critically, it sets up a system for the family's policies for achieving family harmony and maintaining wealth over many generations.

Writing a constitution will not guarantee that your family and business will exist and grow in harmony, but it is an extremely useful tool to help accomplish those goals. If you are serious about creating a lasting, multi-generational legacy, you should consider a written and formal family constitution as a necessary step.

1. Create a Purpose Statement 

Some members of your family might initially reject the idea of a constitution. This could be because of pre-existing grudges. The family leader (or counsel) should facilitate conversation about the purpose of the constitution and why it is important to the family and the business. Make it known the process is collaborative and that good communication is an important accomplishment, not just a means to an end.

A purpose statement is different than a family mission statement. Whereas a family mission statement — a very good idea and something you should strongly consider putting in your finished family constitution — is a unified expression of timeless values and principles, the purpose statement pertains specifically to the family constitution.

Your purpose statement doesn’t have to be formal or written into a signed document. Instead use it as a compass to guide conversation, stay on track, and generate buy-in for the process. It is often a good idea to get the respected voices in the family to accept the purpose statement first.

2. Respect the Process 

J.R.R. Tolkien once wrote of his novels that “The tale grew in the telling.” In other words: The journey mattered just as much as the destination, and the story grew stronger just by sitting down and writing it.

This same principle applies to family businesses. Your family will grow stronger simply by trying to define its course. It is very difficult for this type of growth to happen, however, if there isn’t sufficient commitment from all those involved. A lack of focus or seriousness weakens the potential for intra-process growth. In a very real sense, the character of your family enterprise is defined as much by interaction between family members as the revenue generated through business activity.

Done correctly, the act of writing your family constitution should: 
1.       Improve family communication;
2.       Highlight which skills family members need to develop, encouraging self-awareness;
3.       Encourage a real conversation between executives, board members, counsel, and those with less authority;
4.       Reveal potential tensions or conflicts that otherwise may have gone unnoticed;
5.       Marry the similarities and expose the differences between family life and business life;
6.       And Cultivate the next generation by discussing what it takes to run a successful and innovative business.

3. Embrace Outside Ideas and Counsel
Unless you have been through this process before, take the time to read outside material and contact expert sources. Ideally, outside ideas and counsel are sought out both before and after the review and implementation.
As long as you understand the differences and realise which is best for your specific needs, it does not really matter if the outside source is a professional “process consultant” or family business advisor. The most critical element is that the source be outside the existing family and business.
An outside counsel is likely to have interacted with many different family businesses. This allows the counsel to foresee potential conflicts that are outside of the scope of your family. The counsel is also likely to know which processes and remedies are best suited to the family business arena.
Outside counsel does not replace internal leadership. Nor can counsel write the entire constitution on its own. It is essential that the entire process be organic, inclusive, understanding, and taken seriously by all involved. When these pillars are in place, outside ideas and innovations can only help your family and your business grow stronger.

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