How to Secure Your Family Business Legacy

How to Secure Your Family Business Legacy

When, why and how a family business might get started on the path of a family constitution?

I often speak about family businesses needing to bring everybody together to proactively plan for the future.

At FINH, we openly endorse the development of a Family Council or even a ‘Family Constitution’, the latter of which serves as an emotionally-binding contract, creating a vision for how the family and the business can grow together.

A lot of multi-generational family businesses struggle to get buy-in from everyone. A family constitution can help secure and maintain commitment towards a unified goal. Rather than the default arrangement — jamming business talk into discussions around the dinner table — family businesses can leverage their own unique, formal family constitution. The idea is to build around a sustainable model that promotes generations of pro-growth decisions.

Creating a family constitution

A family constitution can be as simple or nuanced as the family wants, but keep in mind it’s easier to get buy-in by starting with basic principles or values that everyone can agree on.

In other words, everyone wants to succeed individually, as a family, and as a business. Start with the basic premise and go from there.

Just like putting up a house, crafting a family constitution starts with the foundation and framework. The foundation is the people. This means members of the family get together, often with an experienced professional, to speak openly and create commitment. Every family business has its own dynamics and personalities, so the path to consensus is always different.

The framework is made from procedural rules that are drafted directly into the formal constitution. This is when family meetings are scheduled, when the relationship between family issues and business issues is defined, and roles/responsibilities are established.

What to include

Family constitutions will vary from family to family, but each one should cover purpose and values. Succession/Exit, Business and Investment governance, Communication development and the selection and role of the family council to name a few

Emotion is a real dynamic, and it won’t go away just because a family constitution established a formal process. In no way should the family constitution be designed to squash emotions, either; make sure there’s sufficient room in the structure to accommodate intensity and passion when it pops up. Remember that the family constitution doesn’t force agreement. It codifies agreements once there has been plenty of discussion and finally alignment is reached.

Constitutions include family values, family goals, and the process through which those values and goals are synthesized. When used properly, a family constitution both creates a path and sets up guard rails to keep everyone on track. It’s a document everyone can refer to, read, and understand.

Relationship between family constitution and the family in business

Family constitutions are not the same thing as business constitutions. The business needs its own rules and processes, particularly if it includes non-family workers or management. Instead, the family constitution is the physical, documented result of strong family governance — it acknowledges that the business needs and the family needs aren’t always the same, but they aren’t completely separate, either.

A family constitution helps bring the family together in co-operation. This inevitably helps the family business out, especially in families where there is higher tension . It also serves as an example for the inevitable tensions.

Each family constitution gives direction in a way that benefits the family in business, even if indirectly. Sometimes this takes the form of a “mission statement” or a “purpose statement.” The values and principles laid out here will underpin the conduct of the family business moving forward.

Why family constitutions are important?

Creating a family constitution is not a guarantee of a family in business’ success. It won’t make conflict go away in the family. Instead, a family constitution is a living, documented mechanism to reduce the ill effects of conflict and uncertainty. It should provide the foundations for the members of the family to consider what is most important to them and, more importantly, how to live out those values in their personal and professional lives.

Most families in business fail to make it to a third generation. There are major hurdles around succession, taxation, regulation, accountability, and emotionally charged tensions . As family business you know first-hand how important it is to have a strategy and a vision. A family constitution won’t give you these things, but it can be a powerful ally in support of them over the long haul.

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