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Family Governance: Councils, Constitutions, Shareholders & Elders

The Business of Family
Family Governance: Councils, Constitutions, Shareholders & Elders
By Mike Boyd • Issue #18 • View online
It is often said that successful families, especially those that jointly own a business or financial wealth together, are like “small countries” and just like countries, they need to have their own “constitution” and “rule of law” if the family members are all to live in harmony together and if the family is to continue to be successful.
The family members – or their appointed representatives - make “laws” in the form of more detailed family policies and agreements, following the processes defined in their constitution. In simple terms these family policies define the “rules of the road” for the family with respect to its relationship to the family business.
Another explanation is that the successful preservation of family wealth across generations ultimately comes down to having the best possible process for joint family decision making.
The essential purpose of a family constitution is that it sets out a fair process for making joint decisions together as a family. Therefore a family constitution is a decision making tool. A tool intended to help the family to stay together and to stay wealthy for more than three generations.
A third way to introduce the concept of a family constitution is to point out that all families, especially those that work together or own assets jointly together, have their own natural way of making decisions together and of communicating together; it is just that these informal, family system based rules and processes are not sufficient to deal with the increasing complexity of owning & managing a business or other wealth together successfully, especially once the family reaches the stage where not everyone who is a shareholder is involved in the management of the business.
Therefore the rules of the “informal family constitution” that every family starts with need to be brought into consciousness, examined and modified and a new set of rules articulated, agreed upon, and written down.
A family constitution would typically articulate the mission, vision and values of the family and important principles for working together or for governing and managing the family business. It could also include a description of the composition and role of the “family council” – a family representative body - and how the family council makes decisions.
It could include a description of the other governance structures that go to make up the family business - or the wider family enterprise if you include reference to the family foundation and the family financial investments or possibly to a “family office”.
Importantly in Asia (if not everywhere) it is advisable that in addition to referring to a “family council” there should also be reference to “family elders” or a “committee of family elders”.
In summary, there is no fixed definition and there is no one way to develop a family constitution. Indeed a family constitution can best be thought of as a “living document” and one that should evolve naturally over time. For some, their “family constitution” might simply start off as comprising of a collection of key written family policies
Credit to Christian Stewart of Family Legacy Asia for this succinct summary.

Credit: RTS Global Advisors
Credit: RTS Global Advisors
Recommended Book:
Family Enterprises: The Essentials (Leach, Peter)
This Week's Podcast Episode:
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Interesting links:
We the Family: The Benefits of Creating a Family Constitution - Brown Brothers Harriman
The Family Feud Behind a $32 Million T. Rex Named Stan - WSJ
Zero rates are a test of skill for family office investment managers | Financial Times
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Mike Boyd is the co-owner and CEO of the Vroom Group, Founder of Prosura insurance, Investor at Mudbrick Capital, Host of The Business of Family Podcast and an active member of YPO.
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Mike Boyd

I'm inspired by multi-generational businesses and the families who steward them. Join me as I learn how some of the world's most interesting families share values, knowledge, resources, and wealth with the next generation.

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