BUSINESS FAMILY CONSTITUTION: AN OVERVIEW

What makes some family businesses a raving success while others a painful failure? The key to success lies in recognizing the fact that the interests of the businesses can diverge from the family. Hence, family businesses need a “family strategic plan” – the equivalent of a “business strategic plan” in corporate businesses – to accommodate the added family variable to the business-ownership mix, which often results in additional challenges . A key step to holistically address these challenges is to develop a “Family Business Constitution” – a document that illustrates a strategic plan for the business family. Family constitutions provide a starting point for business families to overcome various challenges faced by family firms and to pursue wealth preservation and long-term business growth via good governance. This note explores the concept of the business family constitution “what” a family constitution is and its significance in the dynamic environment surrounding family firms; and its components. Next it addresses “why” businesses need to develop a constitution, and how forming and implementing a family constitution can enhance the governance of the family firm and consequently increase its chances of survival and growth in the coming generations. It proceeds to deal with the question of “when” to ideally start the constitution writing process. It explains “where” to initiate its development process so as to achieve optimal results. Lastly, it discusses “how” to go about the processes involved in its formulation and construction. In doing so, we use various examples from business families to discuss the 4W (What, When, Why, Where) and 1H (How) of family constitution.