Key benefits of family constitution

The family constitution will help to ensure that family is equipped to deal with certain scenarios, help set up the structure of family business management and long-term goals.
  • Promoting Common Understanding of Family Values

Unlike members of a company who typically make a conscious and educated decision to enter into a business venture with its partners, becoming a member of a family and a family business is usually by birth or marriage right, meaning that its members may not be equipped or even interested to actively participate in a family business or manage family wealth.

This lack of understanding of or even interest in the family business are huge contributing factors to the fact that family businesses rarely successfully pass as far as the third generation. By creating a Family Constitution, the family members will be brought together to agree on the mission and vision of the family and its business, strengthening its understanding and building common family goals. In case of high- and ultra-high-net-worth families, defining family values, may help the family create its long-term investment or charitable objectives.

  • A Transparent Governance System

A Family Constitution can serve as a family governance framework and ensure that the family is equipped to deal with certain foreseeable scenarios, such as succession, entry and exit of members or sale of main assets.  It may also set out procedures and committees for effective decision-making on those matters which are unforeseeable.

A Family Constitution may also identify members of the family who will be directly involved in the day-to-day management of the family business or investment decisions and create a platform for communication with the remaining members. As an example, all family members may meet periodically to discuss and decide on key issues not related to the day-to-day management of the business, ensuring that the family business is managed with the agreed family goals in mind and protecting their future inheritance.

  • Better Communication and Avoidance of Conflicts

Conflicts may arise even in the most loving and close families, especially where the family business and wealth is concerned. The situation with family members however is rather more delicate due to the more personal and intimate relationships between its members. If conflict is not handled appropriately, it can lead to damaging results to both family relationships and the family business, which are sometimes beyond repair.

Whereas it is clear that human interaction and emotions cannot simply be controlled or resolved by a  framework of documents or procedures, a Family Constitution can certainly help. It may not completely eliminate disagreements, but it can assist the family to effectively deal with them in a constructive manner. A Family Constitution may resolve or avoid potential future conflicts for example, by reminding the family of its overall objectives and aims, encouraging open communication between its members, and by setting out ground rules and procedures in relation to specific important matters (i.e., how main assets should be distributed, which members of the family will be employed by or involved in certain decision making of the family businesses).