Help! How do we prepare a Family Business Constitution?

Last week, Bert, a second-generation leader in the family manufacturing firm, said that his family had a poor experience doing their constitution with a foreign consultant. Their constitution was unworkable, and it did not solve the problems it was meant to address.

Members of the younger generation now want to create a new one. But given their unfortunate experience, they would like to do it themselves.

I defined what a family business constitution is, and compared it with the Philippine Constitution.

A work in progress, a family constitution addresses the major issues facing the family business. Major sections revolve around ownership, management, the overlaps or relationships between the two, and other matters such as a family board, or a family foundation or fund.

Ownership and management

Regarding ownership, the constitution can delineate guidelines on topics such as division and transfer of shares, prenuptial agreements, privileges and corresponding responsibilities of owners (whether or not they eventually sit on the board), etc.

Regarding management, the constitution can address topics such as management roles and functions, organizational structure, family and non-family employee compensation and assessment, training programs for family and non-family employees, etc.   Succession is included here.

Regarding a board, the constitution can detail guidelines such as choosing the best directors among the various family branches to represent them in the board, inviting appropriate and capable outside directors or advisers, including their respective responsibilities, etc.

Regarding a foundation or fund, the constitution can address matters such as the functions, the sustainability, the source, the checks and balances, among others.

Fix personal problems first

“A lot of us in the family do not get along that well,” says Bert. “Our parents believed that a constitution can help.”

Sorry, no.

Communication is a prerequisite for crafting a constitution, and if relatives do not get along well, how can they get together to create a viable constitution?

Families tend to close their eyes to quarrels and disagreements, in the misguided but fervent hope that the constitution can fix these.

Putting a structure and creating guidelines can of course make the family business more professional, and can minimize professional conflicts.

But the constitution cannot force family members to suddenly communicate better or relate more smoothly.

A management consultant with empathy and training can help, but you probably need a psychologist for this.

Bert, if your family has underlying personal conflicts (and many families have), then try as much as possible to deal with these first.

If the issues are minor, then a sensible and neutral family member can act as mediator.

Refer to my column “How to communicate effectively” (Jan. 3, 2014).

If your family cannot communicate at all (open conflict or silent treatment), contact a properly licensed family psychologist. Take care in this regard.   Unscrupulous pseudo-counselors or therapists may end up doing more harm.

Under Republic Act 10029, psychology is now a licensed profession, and a psychologist should be properly accredited or licensed by the Professional Regulation Commission (PRC).

What if the psychologist is not licensed, but has been clients’ trusted confidante? I sympathize, but I tell clients that they run a risk, and besides, technically, practicing without accreditation is against the law.

For an official list of accredited psychologists, visit the websites of the PRC or the Psychological Association of the Philippines.

Key members should buy in

Do not waste time or effort attempting a constitution if you cannot even see eye to eye, or cannot stand to be with each other in the same room.

In practice, I ensure that personal matters are dealt with first, before I guide families in creating a constitution.

Many clients need several sessions of learning to listen to each other, communicating openly but respectfully, treating each other decently, letting go of or forgiving past hurts.

Bert, I know your family was badly burned by your foreign consultant. But family members generally do not want to play the bad guy. That’s where good consultants can help.

For example, I ensure that key family members buy into the importance of creating a constitution. Not all are equally invested, but if someone is often absent, I question their commitment, something the family may be loathe to do.

Next week: Choosing the right consultant

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].