Family Business Constitution
It’s very difficult for any business to function successfully without a clearly-defined set of ground rules. In a family-owned business, these rules, which are commonly referred to as a Family Business Constitution, provide guidance and define the manner in which your business functions. A Family Business Constitution is an invaluable formal agreement that creates a binding contract by which all family members must abide.
Make a Family Business Constitution Before You Need One
If you do not have a written Family Business Constitution, now is the time to create one. Many families wait until there is a dispute or a challenge that cannot be resolved. When family issues threaten the successful operation of the business, it may be too late to save the business from collapse. In regard to a Family Business Constitution, the key is to create one before it’s needed… not after.
“A family constitution and the U.S. constitution serve the same function. Both contain the ground rules for interaction, set the goals and define the conditions for how things will be done. Each has a methodology for resolution of differences. In family business, it defines the conditions of the interface between the family and the business.”
The Little Red Book of Family Business: Page 41
Factors to Include in Your Family Business Constitution:
- The mission of the business
- The short-term and long-term goals of the business
- Oral traditions that have not been put in writing
- A written agreement on how to differentiate between the tasks of the family and the tasks of the business
- A written commitment to operate the business in the most professional manner possible
- An explanation of how the business will be sold (if there is an eventual decision to do so)
- A commitment to handle disputes in a particular manner
- Job descriptions for each employee
A Family Constitution Must Be Formalized
A Family Business Constitution is a formal agreement that should be written professionally and with the future success of the family business in mind. Therefore, it is essential that all family members involved in the business have access to the constitution. Ideally, each family member should be given a copy of the Family Business Constitution. The Family Business Constitution should be signed by each family member involved in the business to verify that he/she has received a copy and understands everything it includes.
A Family Business Constitution serves an important purpose. It’s essentially a document that clearly states that every member of the family has agreed that the constitution is designed to help the family business succeed. Having a written Family Business Constitution ensures that family members are obligated to follow the guidelines set forth in the document.
Creating a Family Business Constitution is Not Always a Simple Task
Some family businesses have little difficulty creating an effective Family Business Constitution, whereas others endure great struggle. Enlisting help from an outside advisor such as Family Business Matters can be beneficial for creating a draft of a constitution. A consultant, with extensive experience in assisting family businesses in creating a Family Business Constitution, can also serve as an effective mediator when disagreements arise while developing business ground rules, goals and other conditions that will be included in the document.
Does Your Family Business Need Help?
Family Business Matters has extensive experience assisting family businesses in the development of a Family Business Constitution. With many decades of experience, we understand the wide variety of challenges that families face as they work together to build, grow and sustain a thriving family business generation after generation. Through conferences, continuing education programs, family business retreats, speaking engagements and private family business consulting services, Family Business Matters has assisted more than 450 family-owned businesses around the world chart their way through family business issues of all shapes and sizes.
For more information on how Family Business Matters can help your family business survive and thrive, please contact us today at (970) 948-5077.