Help! Our constitution is not enough

“We did a family business constitution in the early 2000s,” says Bert (not his real name), 55, a vice president of his family’s manufacturing firm in Manila.  “A lot of us in the second generation were already in the business, and we did not all get along that well.  My parents are highly educated and well-read.  They believed that for our business to last, we would need guidelines and structure, which a constitution would provide.

“We got a family business consultant from a famous US university.  He had an impressive resume.  We spent a long weekend with him.  We spent a lot of time on mission-vision.  Looking back now, we should have spent more time on succession and communication among the different units.  At the end, we had a constitution.

“We thought things would work out smoothly after, but frankly, we found the constitution impossible to implement.  Many of the principles were not practical and not realistic.

“We called the consultant a couple of times afterwards to guide us in revising, but he told us that if we needed more of his time, then we needed to pay him extra.  My father was angry, because the original fee was already excessive, and told him essentially that he was fired.  We ended up revising the constitution by ourselves, then finally not following it at all.

“Right now our business has its share of problems, which supposedly should have been addressed in our constitution.  We are also in transition, and some of the younger generation think that we should try again to do a proper constitution.  But the whole experience made us wary.  Is it possible for us to do our own constitution without outside help?  How can we succeed this time?”

Philippine Constitution

Bert, your parents are right in one thing:  A constitution, when done well, can provide much-needed guidelines and structure.  But there is nothing magical about a constitution.  When not implemented well, it cannot help the family business.

Think of the Philippine Constitution.  Highly idealistic, it sets out shared national values, passed down through generations, in the preamble.  In order to realize the vision set out at the start, our national Constitution then talks about the rights of citizens, then segues into responsibilities, setting them out in as much detail so as to make the intent clear, while still leaving the specifics to be revised or amended when necessary.

How effective has the Philippine Constitution been?  Middling, at best.  Citizens are required to study its provisions in school, but we have forgotten a lot of them.  How then can we implement them?  Witness the frequent calls to convene yet another Constitutional Convention, to revise one thing or the other.

The Philippine Constitution, enshrined in our history and supposedly in our consciousness, has not exactly made citizens mindful of their role.  What makes you believe that a constitution can solve your family business’s underlying problems just by its very existence?

Family business constitution
A family business constitution is simply a set of guiding principles to help your family in its business, setting out the ramifications of ownership, management, and intertwining relationships between the two.

Your complaint about succession is surprising.  A major issue, succession is often included in the section on management, with guidelines for choosing a successor, requirements for the best successor, training possible successors, etc.

Can you craft a constitution without help?  Yes, though a good consultant can make things go more smoothly.  Given your bad experience, you can try to let the younger generation lead.  You can download samples of various family business constitutions from the Internet and see which applies most to your case.

There is no right or wrong constitution, but some are way better than others.  Some are one to three pages long, setting out only the mission and vision, plus the values of the founders.  Others run into a hundred pages, detailing conflicts of interest, prenuptial agreements, treatment of family members and professionals, etc.

But first, your family should be mentally and emotionally prepared to craft a constitution, which we will discuss next week.

Queena N. Lee-Chua is on the board of directors of Ateneo de Manila University’s Family Business Development Center.  Get her book “Successful Family Businesses” at the University Press (e-mail [email protected].)  E-mail the author at [email protected].