When should you adopt a family constitution?

“The best time to plant a tree was 20 years ago. The second best time is now.” – Chinese proverb

The family business owner should view the tree as an investment for the future. That investment is the family constitution. If you missed investing on a family constitution 20 years ago, the second best time to start investing in one is now.

In my last article, I highlighted the importance of having a family constitution. In today’s column, I am enjoining family business leaders to start the process.

The family constitution: A wonderful gift to your children

So when is the best time? The short answer is as soon as possible. In my experience, a family constitution is most likely to be adopted or revised at the time of generational change within the business. It can often also be considered when the business is about to be passed on from the founder to his or her children.

Common scenario

All too sudden, the patriarch (or matriarch) is diagnosed with a debilitating condition and siblings representing two or more branches of the family find themselves in charge of the business, unsure of where to go next. The situation is compounded if the abrupt change happens from the second to the third generation where the number of owners, the complexities of decision-making and the changing lifestyles of the cousins including the diversity of their ambitions for the business rears its ugly head.

Generational change can be unplanned, typically as the result of the unexpected death or disablement of the existing business owner. This possibility strongly suggests that the constitution should be drafted and agreed well ahead of the expected transition.

A family constitution helps the family deal with the generational changes constructively. It requires the family to think about important decisions before they have to be made and find agreement on important family business goals.

The crucial and possibly two of the most important component of the family constitution is the articulation of the importance of shared values and the vision of the family business. Family business authority Professor Ward likens successful family partnerships to the bunch of sticks in Aesop’s fable. “If you take a bunch of sticks together, you can’t break them. But, if you take the sticks one at a time, they snap.” Shared values and a compelling vision bind the business owners and sharpen the business focus.

Formulating a family constitution will take time to develop and may require a series of family meetings. Even if there isn’t agreement on all issues, it will form a good basis for family to work from when issues arise. Before drafting the constitution itself, the family needs to agree on some general guiding principles.

Important examples as guideposts

Family members must decide whether the vision of the founder is still relevant. In some cases, I would challenge family members to think about the future, to look into market trends, competition and to brace them for the Asean integration. I would share success stories of family businesses overcoming conflict and ownership issues.

For some family owners, a decision must be taken into account to retain and manage the business so that it can provide jobs and financial support for future generations of the family. There are many other issues that will require a serious and deliberate effort such as succession planning, letting go, governance, training of the next generation business leaders and even defining the role of in-law participation.

Other examples generally focused on the availability of financing. Can the business’ future capital requirements be satisfied under continuing family ownership? Will the continuing ownership of the business likely to create tensions and divisions within?

Having answered these questions, the family can begin to articulate more specific principles and policies regarding the business, including the creation of a working framework that focuses on the appropriate structure and ownership including the family’s role in the day-to-day management of the family business.

The information solicited from the family managers will now become the basis in formulating business objectives geared towards the growth and sustainability of the family business.

Not too late to start

Reflecting on the Chinese proverb, the message that you should get out of this is that it’s never too late to accomplish the things you want to accomplish.

In everyday life we all have things we want to do. And if family business leaders want to perpetuate their legacy, then your most important investment is having a family constitution. I encourage the readers to make this your personal goal.

You may have been contemplating about this for a long time and have thought about doing this sooner, which may have been a better time since your children were still young, but you can still accomplish it today — and now. The quote reminds and inspires family businesses owners to get out there and start the process of constitution building.

We all have trees we want to plant. We shouldn’t give up hope, since we can still plant our tree today.

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