Families, especially families engaging in multigenerational businesses, are much like companies. There needs to be a clear set of rules that everyone abides by in order for it to run smoothly as it grows and gets passed down from generation to generation.
Understanding family governance and implementing a Family Council and Family Constitution is crucial to keep the enterprise on the same page and together as a unit. By working out a framework for decision making early, it will save the family from disputes and fractures later on.
It’s Never About Money guest Mike Boyd – the host of the Business of Family podcast and CEO and co-owner of the Vroom group – stresses the importance of making the hard decisions about how a family business operates before any issues come to a head.
“Family Constitutions start with the simple stuff like ‘who are we?’ and ‘what is our vision for the future?’ But where Family Constitutions really get interesting is that they have a list of policies before the family needs them, defining how they’re going to make shared decisions in the future.” – Mike Boyd
One of the biggest points of contention for family businesses, if a family doesn’t create a constitution ahead of time, is defining who is considered a family member. Is it bloodline descendants? Are spouses family members? Are children of spouses and step-children included?
There is no right or wrong decision to these questions, but it is imperative that clear policies are written and addressed BEFORE these contentious issues come up in the future. This is where the phrase “prepaying the pain” comes in.
It takes an open-minded group of individuals willing to tackle the difficult decisions early for the whole enterprise to thrive for generations to come. By setting up the policies and legislations that become the framework for decision making, family disputes will be depersonalised and the enterprise can remain intact.
The implementation of the Family Constitution correctly is also incredibly important. The Family Council needs to get together regularly to build relationships and make decisions. A family enterprise that is built on a bedrock of strong relationships and a clear family constitution has given itself the best chance to survive and thrive.
Mike sums this up perfectly when he says, “Families of means do not break down because of wealth, they break down in spite of it.”
Find out more about Mike Boyd and the concept of stewardship in Episode 29 of the It’s Never About Money podcast:
Connect with Mike on LinkedIn: https://www.linkedin.com/in/mikeboyd08/
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