The family charter or constitution is an essential governance tool.
How your family’s charter is written is as important as what’s in it.
I discovered this when the shoe was on the other foot – as my wife and I went shopping for a family enterprise advisor.
As much as I knew what our family needed, it could not be me: the role needs to be someone independent and external.
So we embarked on a process to choose someone suitable.
We interviewed a large MFO (multifamily office), a boutique MFO, a mid-tier accounting firm, and a specialist (like me).
After our discussion with the mid-tier accounting firm, I coined the term “McCharter”.
That was what they were offering: a process whereby family members would complete some surveys and forms and then – bing! – they would produce our family’s charter!
Wow! How convenient would that be?!
But alas, a document produced – no, manufactured – in that way is more akin to a Big Mac is exactly what a family does not want. Charters like this can do more harm than good.
Some people ask: what good is a family charter? It’s not legally binding.
But here is the key: the power of family charters is because they are not legally binding.
Whenever there is a legally binding construct, e.g. taxes, structures, what do we do? Pay expensive lawyers to do whatever needed to work around them!
If your family charter is a set of legally binding rules on the family, then family members may view them like the tax system: a regime imposed from a higher power where the mission is to pay as little tax as possible.
Is that how you want your family to run?
That approach is a lot like “ruling from the grave”, which rarely ends well.
A good family charter
- does not sit in the drawer with all the other contracts and agreements.
- is not handed to the family by the patriarch or matriarch like Moses coming down the mountain with the Ten Commandments.
- is not created by an accounting firm as the product of a questionnaire.
The process of creating a family charter is as important as the outcome.
The discussions the family has about what’s important: values, purpose.
The debates over proposed rules – asking why over and over to understand and then agree upon said rules.
These discussions need all stakeholders present.
They all need a voice, and to know that their voice is being heard.
And this can’t be done in a hurry.
A process like that will result in a charter with which everyone has buy-in.
It is not binding legally.
It’s far stronger than that: it’s binding by consensus.
It’s binding because the family agrees to be bound by it.
It’s binding because the family itself wrote the rules.
You can’t get that with a McCharter.
Conversation Starters:
What are the rules in your family?
Who set those rules?
How can the rules be changed?
Are they documented? How?
Further Reading:
A road map to designing an effective family meeting
You guard the soft side of the family business with a statute
Dentons identifies critical risk areas in annual family office survey report
Evolving governance: the role of structure in third-generation family businesses
