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  • Writer's pictureTrella Advisory Group

Crafting Cohesion: The 8 Benefits of a Family Constitutions in Family Business Governance 

Updated: Apr 16


Family Constitution

As family-owned businesses journey through the intricacies of generational shifts and collective decision-making, a Family Constitution emerges not merely as a profound tool for governance but also a way to create greater cohesion in the family. This article explores what a Family Constitution is and its roles in shaping the governance of family-owned enterprises.  


Defining the Family Constitution 


A Family Constitution, also known as a Family Charter, is a formal document that outlines the family history, the guiding principles, values, and rules governing the interactions and decisions within a family, particularly in the context of a family-owned business. It serves to remind and connect families to their past while at the same time, act as a blueprint for fostering unity, preserving family legacy, and ensuring success of the business across generations.  The Family Constitution can be printed in a book form or it can remain in a digital format.  Regardless of what form it takes, we encourage families to think about it as a changing and adaptable representation of the family over time. 


  1. Clarifying Roles and Responsibilities:  At the heart of a Family Constitution lies a crucial element: clarity.  The Constitution helps clarify roles and responsibilities and lays out clear expectations for every family member involved in the business, whether leading or supporting. This clarity removes confusion, minimizes the chances of conflicts stemming from uncertainty, and increases family business performance overall.  

  2. Establishing Decision-Making Processes:   In a family-owned business, the Family Constitution serves as a guide for decision-making processes. It lays out how major decisions, like ownership structures, family employment, succession, and financial matters, will be handled. By doing so, it ensures that the right people – family members, board members, family council members, advisors, etc. are part of the appropriate decisions. This inclusivity not only fosters a sense of ownership and accountability among stakeholders but also ensures that decisions are in line with the family's values and long-term goals. This structured approach helps maintain alignment between the interests of the family, the business, the family office and other entities and ensures decisions benefit everyone. 

  3. Addressing Ownership and Management Succession:   Ownership transitions and management succession planning are critical components of family-owned businesses. In a study examining family firms in Spain, conducted and published by SageJournals, it was revealed that the main driver for implementing a Family Constitution was succession in almost all of the cases examined. Without an effective plan for passing the business to the next generation, we know that succession may be compromised.  A Family Constitution provides a framework for these processes, specifying how ownership will be transferred, the criteria for leadership succession, and how any disagreements about ownership and succession will be resolved. 

  4. Preserving Family Values:   Beyond just business, a Family Constitution embodies the values, beliefs and purpose that are important to the family. It holds the family’s shared identity and brings everyone together with a common purpose. By anchoring decisions in these core values, the constitution helps preserve the family's unique legacy.  

  5. Promoting Emotional Unity, Communication and Transparency:   When it comes to emotional investment, studies on family-owned businesses in Germany revealed that among those with a Family Constitution, 93% view the family business as a significant part of their lives, compared to 85% without a constitution. These results highlight the significant influence of participating in meaningful conversations within a secure setting, resulting in increased levels of trust, transparency, and emotional bonding among family members. Effective communication lies at the heart of successful family business governance. A Family Constitution serves as a channel for open dialogue and transparency, offering a platform to discuss expectations, aspirations, and concerns. This proactive communication plays a vital role in reducing misunderstandings and fostering trust among family members.  

  6. Mitigating Conflict:   Conflict is a natural part of running a family business but having a Constitution can help manage it. By providing clear guidelines for decisions, the constitution provides a structured approach to preventing conflicts from escalating, disrupting business operations and more importantly from tearing the family apart.  

  7. Adapting to Change:   A Family Constitution is not set in stone; it evolves with the family and the business. A proper constitution is designed to adapt, with flexible processes to reflect changes in family dynamics, the family structure, business landscapes, or market conditions. This adaptability ensures that the constitution remains relevant and effective, serving as a dynamic guide that evolves with the family’s journey. 

  8. The Process is more important than the Result:  The Family Constitution is a concrete representation of the family history, guiding principles, values, goals and decision-making protocols.  Although having this writing provides clarity for all stakeholders and is extremely valuable, the most valuable part of creating the constitution is the dialogue required to create it.  The process of creating it is where the primary values lies. 

 

In reflecting on the multifaceted roles of Family Constitutions in the governance of family-owned enterprises, they shape the very essence of family dynamics and business continuity. Through defining family history, clarifying roles, and establishing decision-making processes, Family Constitutions provide a roadmap for preserving legacy, fostering unity, and ensuring viable success across generations. By addressing ownership transitions, preserving core values, promoting emotional unity, and mitigating conflicts, these constitutions facilitate open communication, trust, and transparency among family members. As families navigate the complexities of generational shifts and business landscapes, Family Constitutions act as a compass, guiding the family's journey to provide stability, cohesion, and resilience in the face of change. 

 

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