In Order To Form a More Perfect Union July 2021
Imagine a family gathering at Thanksgiving with thirty people including parents, children, children’s spouses, and the grandchildren talking, playing, laughing, and having fun. Dad surveys all the happy faces and whispers to his wife, “how can we be sure the family business will endure for multiple generation and our wealth will maintain this wonderful unity we have now rather than fracturing our family after we are gone?”
One of the children overhears his question and shares that a friend’s family created a written family constitution because they had the same concerns. Dad asks, “what is a family constitution and where can we find an example?”
We just celebrated Independence Day, so it is appropriate to draw the parallel between our nation and the families that compose this great nation, this “One Nation Under God, indivisible, with liberty and justice for all.”[i]
Many of the principles used to govern a nation’s undamaged transition through multiple generations can be applied to families. Using America’s documents and a little artistic license a family constitution might say:
We hold these truths to be self-evident, that all [family members] in the [insert your family’s name] are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness. Our Founders were not suggesting all people are equal, only that they have an equal right to pursue the life they want, to enjoy the liberties to attain that life, and by doing so to hopefully find happiness. People are not equal. They have different abilities, talents, personalities, desires, objectives, drive, and motivation. They will produce different and unequal results, which is as it should be. In a nation and family, the people should not share equally in what the nation or family produces. To do so would be unfair because it would not recognize and value each person’s contribution to the wellbeing of the nation or family. They certainly should have equal opportunity and liberty to succeed or fail, but that must be their decision, their right.
We pledge allegiance to the [insert your family’s name], and to [each other], one [family] under God, indivisible, with liberty and justice for all. If a family is to survive through multiple generations, it must be indivisible (“not able to be divided or separated, impossible of undergoing division; an indivisible union of states[ii]). America fought a Civil War to keep the southern states from dividing the Union. Families must take a similar approach if they are to survive for one hundred years. Family members marry, have children, move to other cities, grow old and die, and the cycle repeats constantly just as it does in a nation, but people born in our country are all Americans unless they change their citizenship. A family may have members in every corner of the globe, but they are still one family.
You will say families are anything but indivisible since you probably know a family or have heard of family conflicts that have divided the family and destroyed relationships, and in many instances caused financial devastation. That is the point, to be indivisible requires a tremendous amount of intention, hard work, and discipline. It will not occur by accident. Families too have civil wars and unfortunately people will sustain wounds; however, the objective must be to fight to hold the union together while avoiding casualties. This is one purpose of a family constitution?
We the people of the [insert your family’s name], in order to form a more perfect union, establish justice, ensure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our [heirs], do ordain and establish this Constitution for the [insert your family’s name].
Does a legacy family need a family constitution? This quote is from a website explaining why a country needs a constitution. I have replaced the words “country and nation” with family related words so the reason it is necessary will become clear. “The constitution is formed to [help family members] get what they deserve and save them from any miss-treatment. It binds up the whole [all family members] into one big family and helps to make the [family] a better place where the [individuals] and the [family leaders] exercise with freedom and harmony, The purpose of the constitution is simple and complex at the same time, this means that the constitution is not just an article of thought it is the embodiment of the will of fire that holds up a [family] on its [foundation]. To narrow down the purpose of the constitution in one line I will probably say that the constitution serves as the backbone of the [family] and this is the key to [family] peace and harmony.”[iii]
Space does not allow me to provide detail, but I will review the general outline a family constitution normally follows and topics in each section. I am borrowing from the law firm, Strazzeri Mancini LLP[iv], who we use for this type of work with the families we represent. The family constitution is not a legal document, but they are one of a few firms, as is Family Wealth Leadership, that helps families and business owners solve these issues.
Preamble/Family Vision/Mission: This section addresses the vision the family has for the entire family, what its mission is and how it plans to achieve that mission. In brief statements it covers ownership and governance of the family enterprise office, defines who is a family member, states the commitment to the family and the family business, and how the family will align the family with the family business. Each of these will be expanded in subsequent sections.
Family Creed: This section defines, itemizes, prioritizes, and gains consensus of the family’s values and guiding principles. Think of it like the rudder of a cruise liner. The ship is loaded with the family, and everyone is moving in the same direction. The entire family is committed to where the ship is headed.
Family Council: Who is a family member? How will adoptions, children’s spouses, and divorces be handled? Who will be a director, who will fill roles of CEO, CFO, COO? Will they be family members or outside the family? What are the duties of the family council and who will be a council member? As families grow, a council seat may have to represent a branch of the family as not everyone can be on the council. How will council members be selected? What are the criteria? When will council meetings be held, how many times per year, and who will pay the cost of travel and board for those coming from out of state?
In addition to council meetings, how many family meetings will be held that include every family member who wants and can attend and how will those costs be covered. Where will these meetings be and what activities will be included? It should be business and fun and bonding.
Employment Policies: Employment rules and guidelines, job descriptions, compensation and benefits guidelines, hiring process, criteria for education and termination and promotions, training and career development, acceptable outside activities that do not compete with or damage the family and its reputation, and retirement and succession guidelines.
Investment Committee: Topics are membership requirements for being on the committee, education, number on the committee, types of investments, liquidity requirements, creation of an Investment Policy Statement, hiring and firing advisors, will family funds be invested in family member’s enterprises, and will they be gifts or loans that must be repaid and at what rate and terms or possibly an equity investment?
Philanthropy: Will the family be involved in philanthropy, what causes will it support, how much will be given and when and how often, what are the requirements for family members involvement or non-involvement, who will be on the committee and who will lead it, what tax implications need to considered, who will do and how will the research be done, what legal structures will be used, will the family have a private foundation or something simpler, how will the investments be handled and an Investment Policy Statement drafted, and will there be a requirement for personal volunteerism in charities and ministries?
Ownership/Shareholders: Who is a shareholder, what rights do they have, how will they receive shares or do they have to pay for them, if so at what price and terms, what happens to shares at death, what can they do with their shares and who can they sell to, can they sell at all, who has the right to buy and how will a price be determined and from whom can they buy, what restrictions will there be on selling one’s shares, and what are the dividend policies?
Extended Family Benefits: This would include family member loan provisions, starting or buying a business, college scholarship requirements, use of shared family resources such as homes, boats, planes, etc., support for members in need (health, loss of work, elder care, etc.), support for a member’s struggling venture or business, ability to invest in family ventures beyond their existing share, and family vacations.
Education: Often an Education Committee will be formed to create education requirements for receiving family funds. This could be at the elementary, high school, and college levels. Will it be a gift or a loan and how will it be repaid, what universities are or are not acceptable, how many years will be funded, will the student be required to work and cover some of the costs, will it be a matching program, or on a percentage basis (25%, 50%, or 100% for example)? What educational and training requirements are there for employment in the family entities and will family resources be used for training?
Communication: This is a big one because poor or a lack of good communications is a catalyst for distrust, which is the reason most families self-destruct. As mentioned earlier when, where, and how often will the family meet? What are the criteria for conversations? That is, how does the family maintain civility? Will outside expertise be involved? Since most families will be geographically dispersed, how will they communicate regularly? Will it be Facebook, Zoom meetings, a family newsletter? How will they celebrate individual success, birthdays, anniversaries, graduations, or deal with failures, depression, and other emotional issues? Who and how will the family’s history, events, challenges, and successes be captured and documented?
Family Enterprise Office Structure and Location: Now we bring the attorney back into the discussion. Will it be a limited partnership, an S-Corp, a LLC, or a trust or multiple trusts and entities with varying tax consequence and rights and restrictions? Is office space required and where would that be?
Finally, a family should not attempt to do this by themselves. “Most families find that it is critical to work with a “process consultant” (we call it a family coach) who can help advise on the process of creating a family constitution. This is because creating a family constitution often involves examining and changing the ways in which a family relate and work with each other. To do this the family needs to find a way to suspend their natural decision-making processes. This usually requires the help of someone who is not part of the existing family & family enterprise system. Another way of explaining this is that to make a family constitution, the family members need to be able to communicate with each other, about important and often difficult issues. Family members need to be able to “listen with empathy” to each other and communicate directly and honestly. In a family, and especially in one that works together, family members often do not communicate exactly what is on their mind, for fear of hurting other family members’ feelings, or out of respect. Involving a neutral outside party as facilitator, makes it possible to raise difficult issues in a safe environment.”[v] This is what Family Wealth Leadership does.
The Purpose of The Constitution quote above says the purpose of a constitution, “is the embodiment of the will of fire that holds up a [family] on its [foundation]. I add this quote, “It is like a person building a house who digs deep and lays the foundation on solid rock. When the floodwaters rise and break against that house, it stands firm because it is well built. But anyone who hears and doesn’t obey is like a person who builds a house right on the ground, without a foundation. When the floods sweep down against that house, it will collapse into a heap of ruins.”[vi]
[ii] The Free Dictionary by Farlex,
[v] How to Craft Your Own Family Constitution: An Overview, Christian, G. Stewart, Family Legacy Asia (HK) Limited, Copyright 2013
[vi] The Bible, Luke 6:48-49, New Living Translation
Kip Kolson is the president of Family Wealth Leadership, a multi-family office and family coaching firm, and author of You Can Have It All; Wealth, Wisdom, and Purpose—Strategies for Creating a Lasting Legacy and Strong Family.