Writing is Easy, not Living: Challenges in Implementing Family Business Constitutions

This article was first published in the Economic Times on May 22, 2024. Co-authors: Anil Sainani & Kavil Ramachandran. The article can be accessed here: https://economictimes.indiatimes.com/news/company/corporate-trends/writing-is-easy-not-living-challenges-in-implementing-family-business-constitutions/articleshow/110339950.cms

Drafting a constitution for the family business has gained popularity, with many wishfully viewing it as a cure-all for their current and future challenges. While creating a constitution is essential, families should understand it merely marks the initial phase in fostering a cohesive family business. In reality, numerous families face difficulties in actualizing the principles outlined in the document into practical, everyday reality. We discuss here the key challenges encountered in implementing a family business constitution.

Concept of Family Business Constitution (FBC): There are fundamental differences in the two systems of family and business, necessitating clarity across various levels to ensure the enduring strength of the combined entity. Serving as a guiding document, the FBC is instrumental in preserving harmony, values, wealth, and the long-term sustainability of the family business. It establishes a foundational framework governing diverse aspects of family dynamics and their interplay with business operations, encompassing pivotal areas such as decision-making processes, roles and responsibilities of family members, and mechanisms for conflict resolution spanning multiple generations. While many families opt for a written constitution for its clarity and specificity, an unwritten constitution relies on shared understandings and traditions transmitted across generations.

The Implementation Conundrum: Despite recognizing the importance of a FBC, many families struggle with its implementation. They often follow a familiar pattern: first creating the constitution, then faltering in translating its provisions into lived experience. The reasons for this failure are multifaceted and complex.

Lack of Comprehensive Understanding and Preparation: Family members often lack a comprehensive understanding of the need for a constitution, its significance, and the importance of strategic planning for family resources. Without proper education and preparation, they may view the constitution as merely a document for wealth preservation and management rather than a guiding framework for family governance and sustainability. The absence of formal education on these matters, often overlooked by consultants, results in a lack of preparedness to adapt to changing situations, ultimately impacting the implementation of the constitution. Multiple family businesses in Europe and US invest in regular educational sessions amongst family business members, spanning over 6-12 months, before creating their FBC.

Underestimation of Challenges: Families may grossly underestimate the complexities involved in implementing the constitution, leading to disillusionment and disengagement. Initially, there is often a sense of optimism and enthusiasm about drafting the document. However, as the realities of implementation set in, families realise the magnitude of the task at hand, covering careers, performance, rewards, resource allocation, power, and accountability. Without proper preparation and realistic expectations, they struggle to navigate the intricate web of family dynamics and business operations.

Length and Complexity: The length and complexity of FBCs pose challenges for family members in remembering and adhering to key provisions. The extensive nature of these documents can overwhelm stakeholders, fostering confusion and ambiguity, particularly when FBCs are rules-based rather than principles-based. Moreover, the legal and technical language complexity tends to estrange family members not proficient in such matters, impeding effective implementation. Encouraging a focus on the spirit of the constitution rather than fixating solely on its literal interpretation is crucial for fostering a shared understanding among family members.

Lack of Guidance: Families may lack the necessary expertise to effectively plan, conduct, document, and follow up in organizing effective meetings of Family Council and Family Business Board. In many cases, family members are not adequately trained or educated in governance practices and conflict resolution strategies. Without access to external resources and guidance, they struggle to navigate complex issues and make informed decisions, leading to inefficiencies and roadblocks in the implementation journey.

Scheduling Difficulties: Finding time to convene meetings and discussions amidst busy schedules proves to be a significant hurdle. Family members are often involved in various personal and professional commitments, making it challenging to prioritize constitution-related activities. After all, the impact of any delay in business decisions is felt immediately, whereas delays in non-adherence to a constitutional policy may not! Consequently, important discussions and decisions are delayed or postponed, impeding progress and momentum in the implementation process.

Communication Barriers: Lack of a tradition of open discussion where members express diverse ideas, disagreements, and concerns openly and listen to others intently are major challenges, leading to communication breakdowns, misunderstandings, and conflicts.  All these undermine effectiveness of the implementation efforts.

Fear of Conflict: Family members may avoid challenging conversations for fear of hurting feelings or creating tension within the family. Conflict avoidance becomes a barrier to addressing critical issues and making difficult decisions. As a result, underlying tensions and disagreements remain unresolved, simmering beneath the surface and impeding progress towards implementing the constitution effectively.

Neglect and Discrediting: Over time, when people do not follow the provisions of the constitution and the same goes unchallenged, the document loses its sanctity and relevance in guiding family dynamics and business operations. Neglecting to uphold the principles and values outlined in the constitution undermines its credibility and effectiveness. Without accountability and enforcement mechanisms in place, family members may disregard the constitution's provisions, leading to erosion of trust and cohesion within the family business.

The Beginning. Not the End: Implementing a Family Business Constitution demands unwavering commitment, diligent effort, and a profound understanding of its significance from all family members. Yet, the journey doesn't end with the drafting of the document; it begins there. It's about translating words into action, turning intentions into reality, and upholding the values enshrined within. The proof of its efficacy lies not in its existence but in its embodiment in every facet of family and business life. As exemplified by visionary families like GMR, who have embraced their constitutions as guiding beacons, let us heed their example and embark on a journey of transformation, where the constitution isn't just a document but the cornerstone of a legacy, ensuring enduring prosperity for generations to come.