A reader writes: My brother, my sister and I are fifty-somethings second-generation who are running our retail business together. Three of our children have already started working with us. I am proud that we created our own family business constitution last year, with the help of a consultant.
When can we amend our constitution? The consultant was nice, and most provisions are wise. But there are some points that my brother and I now feel are a mistake, concerning the family bank, but my sister says that those points make sense and that we should not amend the constitution so soon.
We agreed that amendments can only be done after two years. My sister wants us to wait until this time period ends, but I think if we do not change these points soon, our relationships, and maybe our business, will suffer. What do you advise?
My Reply
Congratulations to you and your family! A well-done constitution can streamline your system of governance to ensure smooth succession.
I wish I can give you a definite time within which to amend your constitution, but real life does not work that way. Your family chose two years when you were creating the constitution. How did you arrive at this deadline? Was your business in flux? Were several processes up in the air? Are sibling relationships poor? Was the constitution done hastily—just for the sake of having a document?
In my experience, for families who craft the constitution slowly but in good faith, the minimum period to amend is three years.
I previously compared a family constitution with our Philippine Constitution (Feb. 6, 2015). But now let us look at how the US founding fathers did the American Constitution, which is already more than two centuries old and deemed the most stable constitution in history.
In his book “Family Wealth,” US counselor-at-law James Hughes Jr. says: “The framers recognized that the system needed to be flexible enough to address future issues they could not foresee. They also recognized the danger of a system that could easily be changed. The framers, therefore, decided to make it very difficult, but not impossible, to change the fundamental rules that voters originally adopted.”
Most other countries, including ours, have constitutions that are only half a century old, but have already undergone several amendments. Witness the frequency of calls for charter change. Whatever our political leanings, we have to recognize that while these changes may be important at a certain period, they might not stand the test of time.
“In many countries the constitutional experience has been less successful,” says Hughes. “The primary reason for this lack of success is the ease with which these countries’ constitutions can be amended. How can people believe in the transcendence of a system of governance if it can be changed by a simple majority of representatives every time a new issue arises? Gradually the changes will be so numerous that they will overwhelm the original founding principles. Instead of shared fundamental values, the constitution will reflect individual answers to specific issues. This represents decay of the constitution and the system of governance it was created to represent. Ultimately this constitution will fail and will have to be replaced.”
Balance
I assume that your family took great care in doing the constitution of which, deservedly so, you take pride. I assume you thought out all provisions with care, including the amendment period, when no emergency has yet arisen and when things were still going smoothly.
You did not specify what issue you and your siblings have over the family bank, but I assume that all of you would have taken finances extremely seriously. I hope you are not amending the constitution now because you and your brother feel that the provisions you agreed to before are now too stringent and rigid. I hope you are not hoping to amend the provisions just so you can directly benefit from them, but to the detriment of the family business as a whole.
Ask your consultant to help your family (again), or else this can lead to a conflict among siblings, and as you say, negative effects on your business.
Unless the provisions you agreed to before are patently wrong (this shouldn’t have happened with a seasoned adviser), try to stick to the original period of two years. Try your best to follow your constitution.
“Amendment should occur only if there is a compelling need to change a fundamental value,” says Hughes. “Amendments must not be seen as an appropriate way to deal with issues of today that may disappear tomorrow.”
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 msanagustin@ateneo.edu). E-mail the author at blessbook.chua@gmail.com.