Just as each family business is unique, so each family constitution will need to reflect the unique characteristics of both the business and the family to which it relates. Nevertheless certain matters are commonly covered in family constitutions.
• Strategic business objectives reflecting agreed family values and aspirations for the business.
• The process for hiring, assessing and remunerating family members employed in the business.
• The rules for nominating, training, assessing and appointing management successors.
• Processes for nominating and assessing individuals for appointment to the family company's board of directors and/or the family council (or equivalent) if one exists.
• The composition and rules of conduct for a family council or equivalent body.
• Communication and disclosure policies between company and family.
• The process for resolving conflicts about the business between members of the family.
• The rights and obligations of shareholders in the family company.
• Recommended or compulsory retirement age for family directors and managers.
• Processes for buying out family shareholders in the business.
• Policies concerning external, non-family ownership and management of the business.
• Procedures for amendments to the constitution.
A family constitution should be able to accommodate growth and change in the family business. For example, the business might reach a point where external management and independent, external representation on the board are considered desirable. How will this best be achieved? Or growth in the business can create financial demands that can only be satisfied through access to external capital, either in the form of equity or debt. The family has to make several trade-offs here involving its appetite for risk (debt) and the extent to which it wants to maximise family ownership and control (external equity).
Source: Perpetuating the Family Business. John L. Ward. Palgrave Macmillan. 2004.
