What is a Family Constitution and Why is it Valuable to Your Family?

What is a family constitution? Simply put, it is a document that outlines how a family will govern itself. Your family may have a “code of conduct” or “mission statement,” many of which do not address governance. Or, your family may have never considered the idea. If yours is a family of wealth or if the family business is integral to your family, you should consider the idea of a family constitution. I use the term “constitution” because, just like the family business has a governance structure, so too should the family.

Assembling Your Family Constitution

A discussion of how to develop the constitution, what the process is, and who is included is too involved to discuss in a short blog. Needless to say, though, the constitution should have a preamble which outlines the basic vision and goals, a second section devoted to the governance structure, a third outlining family member rights and, lastly, a method for amending it. Sounds a lot like our U.S. Constitution, which has served us pretty well over the last 200+ years. The governance section would outline who is a member of the family (and consequently who has a say or vote), what the ruling authority is, how family meetings will be handled and the relationship with the family business, among other things. Family member rights might be a little more loosely defined, but should center around one’s ability to either be involved or not be involved in the governance and how he/she may or may not benefit from the family business or family wealth.

Why Create a Family Constitution?

The family constitution provides value in several ways. All businesses plan for the future, whether it is through strategic plans, budgets and forecasting, etc. Similarly, families need to plan for the future and a family constitution provides the framework for this process. Good planning and preparation usually begets good results. All can agree that good communication is important in any relationship, and this is even more so in the family business setting. The family constitution communicates very clearly to all members of the family how life will be conducted in the family business. It shows and reminds all family members, young and old, the commitment that all have made to the success of the family and the family business. Finally it adds structure to an environment that may otherwise have a void. That structure will allow disagreements to be handled and decisions to be made in a way that should be fair and just.

Who Should be Involved?

One critical factor necessary to have a bona fide constitution is that the creators need to be as many members of the family as exist at that time that are capable of understanding the document, and the constitution needs to be ratified by most if not all of those family members. Even in that circumstance, there will probably be certain family members responsible for drafting and redrafting, and, perhaps, others who will be more forceful with their opinions, but everyone needs to feel included and that they had an opportunity to participate.

For those who are skeptical about family constitutions I would invite you to think about some circumstances involving your family business or family where important decisions had to be made, or disagreements occurred which were not resolved. The negative impact in many cases was probably devastating. Now think about how that event might have worked out if a document outlining how those circumstances were to be addressed had been in place at the time. A constitution is well-worth the time and effort it will take for you to develop and can provide necessary guidance to drive effective decisions and constructive interactions.

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