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THE STRUCTURE


of an experienced adviser) and has the hard discussions about: ƒ what kinds of rules there will be (and whether everyone will follow them), ƒ how those rules will be made (and changed), and ƒ what to do when there is disagreement. As John Ward has consistently argued, it is the


process of going through these difficult discussions and reaching agreement that gives


the family the true value of a family constitution. (See his books, The Family Constitution: Agreements to Secure and Perpetuate Your Family Business and Unconventional Wisdom: Counterintuitive Insights for Family Business Success.) With regard to Asian families, Christian Stewart,


a colleague based in Hong Kong, was quoted in the New York Times (28 March 2011, “Business Dynasties Need to Plan for the Delicate Task of Succession”) as recommending that Asian families begin with the governance project of writing a family constitution: “A family constitution formalizes the rules about who is in the family council, how the council makes decisions, and how it votes. The key is to have a fair process for the family members to make decisions together,” Mr. Stewart said. If the actual constitution focuses on the two areas


I propose, then specific decisions about family policy will carry similar weight, just as resolutions passed by a country’s parliament or bills passed by a country’s congress or parliament do.


Elements of a governance family constitution The very first decision is who will be at the table to work on the family constitution. That group, who will represent the larger family, will act in the role of a family council (even if a different name is used). Making this decision is not usually a very time-consuming process, although the process for selecting future members (e.g. whether the representation should be by branches and/or generations) might be. In some cultures, it is assumed that spouses (or sisters) might not be included, but I have found those assumptions to be changing. When the family council is in place, members can


begin working on the constitution. My advice is that the first section of the constitution should begin where country constitutions begin – with a preamble stating the purpose. It is very important for family members to discuss together why they want to form a set of rules that they will agree to follow. After the purpose of the constitution come the


family’s rules. For example, the purpose could be to keep the family business together for multiple generations, so the rules might address who can be employed in the business, how dividends are decided, and whether any stock transfers are allowed. It is important for the family to make its own


decisions in these areas. For example, it is fairly well accepted in family business circles that a family


should have some requirements for a family member to be employed in the family business. The discussion is usually limited to the family member’s educational degrees and experience outside the family business. One family I have worked with decided not to have any requirements and is deciding based on the individual. This was a resolution (or “policy”) that was derived from the constitution’s rule-making process, and I have no reason to think it will not suit that family well. Families are not as interested in abstract discussions


about how rules are made as they are in discussions about the difficult, real issues that have been simmering. What has been happening in practice is that the two different levels are combined and the abstract rule-making process is used to make some practical decisions. For example, the practical issue might be how to share a family vacation home. The way the rule is agreed upon is following the “abstract” process of how the rules are made. What are the practical issues needing to be


addressed by a family? The list of issues does depend on the family itself. I always begin with individual interviews, which often reveal unexpressed tensions. Those touchy issues become the practical agenda items at the family council meetings. The process works. It gives family members hands-on


experience and training in how to go about resolving their apparent differences and will neutralize the stirrings of family conflict. So, the process of making their own family constitution will itself enable families to defeat the ‘three- generation’ proverb. To keep it a living document, each constitution ends


with the rules for changing it in the future – a rigid document has little chance of lasting. More importantly, having the acknowledged permission to change it makes it more likely that each generation’s family members will feel committed to it and will feel free to adapt it to make it their own. When family members share an interest in living


together “like a small country,” they will benefit from investing time and joint effort into developing the rules of government they want to have. A family office can thrive when the family stays together. A family constitution will create a peaceful procedure to resolve the inevitable conflicts that arise in generational transitions.


Barbara R. Hauser is an international family governance expert. This article is published with the permission of the CFA Institute.


Barbara R. Hauser


It gives family members hands-on experience and training in how to go about resolving their apparent differences and will neutralize the stirrings of family conflict.


FAMILY OFFICE: THE FUTURE 51


THE STRUCTURE


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