Understanding why family constitutions fail — a case study of Family B

“Even if I’m not in the business, I still own shares and should be entitled to allowances and perks.”

“Why was his wife allowed to join the business? Can I also employ my spouse?”

“How can your son work in the family business and run another business at the same time?”

“Shouldn’t the business buy supplies from me? After all, I am family.”

“What happens if my brother thinks his son (my nephew) should be promoted, but I disagree?”

“What happens if a family member is not just incompetent but lazy? Should we continue to suffer in silence?”

These were some of the questions raised by confused and conflicted siblings of Family B that prompted them to consider crafting their family constitution. Unfortunately, their family constitution failed them. They reached out to our firm.

“Prof, we engaged a consultant to help us draft the rules and signed our family constitution more than seven years ago. To mark an important milestone, we even flew overseas as part of our celebration. Sadly, our founder was reluctant to enforce the rules, and our consultant never provided any guidelines on how to activate the agreements.”

The signing of the family constitution marked a significant milestone for Family B, symbolizing their commitment to fostering unity and longevity within their business and familial endeavors. Against the backdrop of lavish celebrations, the document was hailed as a testament to their collective vision for the future. However, the grandeur of the occasion belied the challenges that lay ahead.

Despite the pomp and circumstance surrounding the signing, the enthusiasm quickly waned as the realities of implementation set in. The founder’s reluctance to enforce the rules cast a shadow over the entire process, undermining the document’s credibility from the outset. Without clear guidelines or support from the consultant, the family found themselves adrift in uncharted waters, unsure of how to translate their agreements into actionable steps.

In the absence of leadership and guidance, the family constitution remained little more than a symbolic gesture, devoid of tangible impact on their daily operations. As the years passed, frustration simmered beneath the surface, eroding trust and sowing seeds of discontent within the family ranks. What was intended to be a beacon of unity and stability became a source of disillusionment and disappointment.

For Family B, the journey towards effective governance and cohesion remains a distant goal, overshadowed by the inertia of inaction and the specter of unfulfilled promises. As they reflect on the seven years since the signing ceremony, they are left to ponder whether their family constitution will ever fulfill its intended purpose or remain a mere relic of unmet aspirations.

Key factors contributing to the failure of many family constitutions:

By implementing these solutions, families can avoid the pitfalls of flawed family constitutions and pave the way for effective governance practices that promote longterm success and sustainability.

• Inexperienced consultants

• Resistant founders/leaders

• Entitlement among next-gen members

• Over-reliance on transactional

operations

• Challenges in enforcement

• Pre-agreed rules that are difficult

to enforce

So, what can families do to avoid falling into the same trap? We offer several tips:

1. Engage experienced consultants: Seek consultants with a proven track record in crafting and implementing family constitutions.

2. Leadership commitment: Ensure that the founder/leader is fully committed to the process and willing to enforce agreed-upon rules in the constitution.

3. Next-gen empowerment: Empower next-generation members to take ownership of the constitution and its implementation.

4. Regular reviews and updates: Schedule regular reviews to assess the effectiveness of existing policies and make necessary updates.

5. Open communication: Foster a culture of open communication and transparency within the family.

By implementing these solutions, families can avoid the pitfalls of flawed family constitutions and pave the way for effective governance practices that promote long-term success and sustainability.