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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Family Constitutions: Are You Afraid to Start?

David Harland, Managing Director of FINH - Guest Blogger

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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6 Good Reasons to Write Your Family Constitution in 2016

David Harland, Managing Director of FINH - Guest Blogger

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

New product: Family Constitution

Sharmistha Bose, Product Marketing Specialist

Cleardocs is pleased to announce a new addition to our Estate Planning suite.

You can now use Cleardocs to create a Family Constitution. This is a non-legally binding document that sets out a family’s wishes for achieving harmony within an intergenerational family business. It is designed for use in any country.

Order the Cleardocs Family Constitution online for $385.00 (incl.GST) now.

What is a Family Constitution?

The Family Constitution is a record of policies developed collaboratively by the family. The family may choose policies currently relevant to them while leaving others until later. They may also customise the details of the policies for the family’s particular circumstances.

The Family Constitution helps families to:

•           focus on communications, development and harmony;

•           transition the stewardship and ownership of family wealth, including business interests, to the next generation; and

•           maximise benefits and manage complexities of being a family in business.

What topics does the Family Constitution cover?

Having a Cleardocs Family Constitution in place allows the family to record, among other things:

•           the family’s values and principles;

•           family aspirations for their business interests;

•           establishment of a governance structure;

•           decision-making and conflict resolution;

•           policies for important matters such as the employment of family members in the family business and education and development of family as current and future stewards;

•           overarching investment strategy;

•           communication within the family and the business; and

•           liquidity and the entry into and exit from the family business.

The Family Constitution has been expertly drafted by family business advisory firm FINH.

+Cleardocs Thomson Reuters

Successful succession planning for your family business

by Thomson Reuters

Family businesses operate through many different legal structures. Examples include:

• a partnershjp of individuals;
• discretionary trust;
• company;
• unit trust; or
• hybrid trust.

Business succession planning has become a very "hot topic" given the ageing population of business owners. It is all too often a last-minute consideration, but planning for succession involves many issues and should be done well before an owner exits the business.

Family Business Succession Guide, 2nd Edition, written by Sue Prestney, Partner at PwC Private Clients, and published by Thomson Reuters, provides a practical approach to family business succession planning. Owning and operating a family business can be greatly rewarding but involves complexities that result from the interaction of family and business. It is important that families get the right advice when dealing with the issues involved in passing on their life's work. Poorly handled succession can damage both the business and the harmony of the family.

This book takes the reader through a succession planning process using the family business constitutions to address the typical issues involved in succession and the interactions of family and business.

Containing many practical examples, diagrams and case studies direct from the author's first-hand experiences, this guide outlines the practical process to be following under a succession planning assignment. The book also helpfully includes planning checklists that can be used as templates by advisors and SMEs themselves to ensure they get off to a good start on succession planning.

Further information, including details of how to obtain your copy, is available on the Thomson Reuters website. It is too important not to be planned well in advance.

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