Family constitutions and family councils are two common ways of managing these problems.
A family constitution (sometimes called a family creed, family charter or family agreement) is a formal document that:
- documents the values and principles underlying the conduct of the family business
- defines the strategic objectives of the business
- sets out how the family makes important decisions affecting the management and ownership of the business.
A family council creates a formal mechanism for deciding important issues concerning the family business, including succession planning and deciding how wealth generated in the business should be distributed within the family. The council also decides important business matters such as major investments and key executive appointments.
Neither a family constitution or council will avoid family differences, but they do offer a means to facilitate communication and resolve family and business issues in a measured and constructive manner.
The effectiveness of family constitutions and councils depends a great deal on how they’re structured and documented. Initial family buy-in is vital.
KPMG has a wealth of experience in helping families establish successful constitutions and councils. We understand the pitfalls of the process. We’ve observed the mistakes families commonly make in establishing these structures and advise our clients in how to avoid them. We provide advice and guidance the entire family can understand.