Perspectives from ISB

Family firms usually start out as simple organizations. But as they develop and grow they face greater complexities and challenges, often leading to tensions among the owning family over how they run the firm together. A common solution is to develop a family constitution outlining the values, principles and procedures that the family agrees to follow.

Such constitutions are important tools in managing expectations, avoiding misunderstandings, specifying roles and responsibilities, fostering greater harmony, and ultimately taking better decisions. Some family members may find the process of developing a constitution stressful or time-consuming. Six tips to make the process as effective and stress-free as possible:

  1. Build awareness: Many have seen painful examples of conflict in their own family, through friends, or in the media. Once family leaders realize that these conflicts are avoidable the importance of organizing the family side of the business usually becomes evident, and drafting a constitution becomes an investment in the future.
  2. Demonstrate commitment: There are many families where the children obeyed the patriarch without discussion, only for feuding to break out immediately after the head of the family (usually male) passes away. So all family members must commit to listening to one another, speaking up, and be prepared to place the common interest and the long run future of the business above their own individual interest.
  3. Pick the right moment: Some families take a business crisis as a starting point, resolving to learn from mistakes and become better. Others prefer to address family governance when the business is running smoothly and dividends are flowing. Waiting until a full blown feud erupts is not a good time, as even making simple decisions becomes difficult.
  4. Treat it as a journey: Nobody is perfect and every business needs continuous improvement. If all parties accept this and embrace the process of improving, developing a constitution becomes easier. Aim for achievable milestones and keep the pace going.
  5. Create a positive atmosphere: Being in a pleasant environment, and combining serious discussions with enjoyable social activities helps. Humor is another important ingredient for success as it helps to manage emotions.
  6. Get the right support: Make use of the huge range of skilled consultants that are available. Families should find experts that suit their style, as long as it is someone who can effectively lead the process.

With the right starting point, realistic expectations, adequate support and a positive mindset, family firms have much to gain from drafting a family constitution. By taking a few simple steps it need not be daunting to achieve better family governance.

Source: Marleen Dieleman, February 15, 2018;

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