A family business holds not just the financial capital of the family, but the 'sweat equity' devoted by specific members.
Attachment is both financial and emotional.
Family dynamics are complex - often with unspoken tensions, rivalries and loyalties - and have the potential to bring even the best business asunder.
In particular, it is easy for issues relating to succession and sharing of responsibility to remain unspoken or only dealt with at crisis point - when decisions are influenced by financial or emotional pressures.
Such decisions are rarely optimal, for either the business or the individual family members.
To prevent this, it is important to openly discuss all the factors relating to the involvement of the family in the business and put a plan in place to deal with changes, anticipated and unexpected, in the future.
This plan is the Family Constitution.
A formal document detailing the many aspects of the family's involvement in the business today and in the future, the Family Constitution has many similarities to a shareholders agreement, but it covers much more territory in relation to the responsibilities of family members.
Drafting the Constitution The process of developing the family constitution means the airing of a wide variety of issues and working through to solutions: it may be advantageous to use an independent consultant to facilitate the process.
The process usually consists of one-on-one meetings with individual family branches and then a family retreat.
The family retreat is a meeting of all parts of the family to resolve outstanding items and agree on the key parts of the family constitution.
A family constitution should address the following issues:

• The strategic plan for the businessThere needs to be agreement within the family as to the objectives for the business.
  If there is no agreement, there is little purpose in proceeding further.
  The strategic plan should define the business model, quantifiable objectives and the milestones along the path to achieve them.
  To remain relevant the Constitution should be seen as a living document that is readdressed on a regular basis and kept current.
  

• The family's involvement in the businessThe document should clearly set out the basis for each family member's involvement in the business.
  Many families that have kept their business in the family for many generations and substantially grown the businesses have done so by actively acknowledging that the roles of family members in the business depend on ability and not lineage or voting rights.
  

• Succession management The process for identifying successors to each role held by a family member should be clearly spelled out.
  This can either mean specifically identifying the nominated successor or just detailing the process to be followed to nominate the successor.
  
• Membership of the board of directorsWho is entitled to sit on the board? Is this determined purely by voting rights or are there other considerations that need to be borne in mind? For example, does merit play a role, is there a need to involve all 'branches' of the family? All these issues need to be carefully considered and a board structure developed that meets the needs of the family but that is pragmatic and able to cope with the demands of the business.
  
• Share ownership, distributions and voting rightsThe family needs to decide the basis on which share ownership is held and passed on to succeeding generations.
  In some families share ownership is diluted across all children in each generation resulting in dozens of stakeholders in the business, many with little interest in the business or attachment to it.
  The ability for these shareholders to sell their shareholdings to other family members or third parties who have an active interest in the business is vital to maintaining interest and enthusiasm in developing the business.
  Distributions from the business, for example dividends, may not be directly related to ownership interest.
  By using varying classes of shares, distributions can be based on other criteria, like involvement in the business or as a means of 'earning out' a departing shareholder.
  The structure of the board and future control of the business is determined by the voting rights attaching to each share.
  A core element of the family strategy needs to be how control is exercised and transferred.
  This is then reflected in the voting rights attaching to the shares.
  
• Employment of non-family members The family constitution should spell out the roll of non-family members, especially in senior roles in the business.
  This will lead to a clear understanding by both family members and other employees as to their existing role and potential roles in the future.
  
• Family meetingsFamily meetings are held to discuss the ongoing involvement of the family in the business and how this may change over time.
  It's the place where the family constitution is reviewed and updated, which should happen on a regular basis.
  The Constitution should set out how and when family meetings are conducted so that issues are approached in a constructive manner, even if there are personal issues between various family members.
  
• Dispute resolutionA solid dispute resolution mechanism will ensure that in the event of a dispute the focus is on finding a solution rather than arguing about how the dispute should be dealt with.
  

Communication is key In summary, a family constitution is a vital document in any family business.
However, the benefits aren't just located in the document itself.
The communication process that must to take place to draft and implement the document, as well as the ongoing commitment and communication required to review and update it, are good for the family, and good for the business.