Global

Details

  • Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 11/15/2012

Developing, implementing and reviewing a Family Constitution 

Developing, implementing
We’ve previously discussed the three components of a family business – the family constitution, family assembly, and family meetings – why they’re important and how they interact with the key governing bodies of the family business. I want to focus on the how-to’s of the family constitution – how to develop one, implement it, and review it.

Often referred to as a family creed or family charter, the family constitution is a statement of principles which outline the family’s commitment to the core values, vision and mission of the business, and sets out the ways in which family members will make decisions affecting ownership and management of the business. The constitution also defines the key governing bodies of the family business and their roles and powers.

Getting business buy-in for a family constitution

You might be convinced that a family constitution’s a good idea. But before you draft one, you’ll no doubt have to convince other family members of the need for a constitution, and that could take some time.


Here’s how you could go about getting buy-in for your family constitution:


  • Educate the family about family constitutions, and how they can benefit the business
  • Enlist the help of family members to help you with the education process – make sure that you include a cross-mix representative of the different generations of your family
  • Engage the services of a professional family business facilitator or expert on family business constitutions, if you feel you need extra help
  • Distribute educational material – newspaper or magazine articles, for example, on the subject of family-owned businesses; those in crisis, or those which have benefitted from developing and implementing a family constitution
  • To encourage a feeling of inclusivity, encourage family members to chair family meetings on the issue
  • Arrange a seminar on family-run businesses for all to attend
  • With your family, agree on a way forward, including a decision-making process.

Drafting a constitution

Once the family has agreed to press ahead with drafting and rolling out a family constitution, the next step is to develop one. This is no mean feat either – this process could take 12-18 months. How the process unfolds is dependent on your particular family business.


Consider:


  • Who will be involved in developing the family constitution?
  • Will you opt for a committee approach, or have a task team work on it and report back to the rest of the family?
  • Will you adopt a business-first approach (in which case, the CEO of your family business can lead the way)?
  • Or will you adopt a a family-first approach (where the family assembly or family council takes responsibility for its development)?
  • Will you have a family business consultant advising you, or driving the process?

Once you’ve decided on the nature of the process, and the individuals or teams involved, define a time frame and set a schedule for the development of your constitution.

Issues to address

You will also need to agree on decision-making processes and which precise issues you wish the family constitution to address (for example, ownership issues and family values). Once you’ve drafted a constitution, it will be communicated to the family, deliberated upon, and finally, accepted.


Family constitutions are not merely lip service; they are meant to be implemented!


Rolling it out could take anywhere from 6 to 18 months, and it may not always be an easy process. The individual(s) responsible for its implementation depends on whether you opted for a business-first or family-first approach. Remember that it may take time for family members to get used to referring to this formal document when, up until now, they’ve been going about business and attending to family matters which impact the business on an informal, ad hoc basis.


Your family constitution is a living document; it needs periodic review and adjustment, to ensure that it remains relevant. Set review dates – this could be every 3 to 5 years, or when a new generation joins the family business.

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.
 

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