A Guide to Effective Family Constitution Use
“Now that we have a family constitution, what should we do next?”
"Who is the person who should come down and handle this matter?"
“Why is it always me!?”
Over the past 2-3 years, I have been asked about “Enforcement of the Family Constitution” It keeps increasing because the heart of the family constitution is not just that "Is there a constitution yet?" But it is "Can we use the existing constitution?" Because many families, after finishing writing the constitution, looked at each other in confusion, and could not help but exclaim together that…
"So what next?"
Today I would like to invite you all to talk about life after writing a family constitution (which sounds a bit like life after death!). Let’s see what we need to do next and how we need to do it.
An important family constitution that is “used” more than just “had”
“No matter how well-written a family constitution is, if it is not implemented, it is useless.”
I don't agree with the above statement.
In fact, I believe that just the fact that family members are able to open up and talk about the important matters contained in the family constitution is already considered beneficial. It is the first benefit that comes from family members talking about really important matters (which are usually sensitive and which they usually do not dare to discuss). It is the initial benefit that comes from "process" Write a family constitution
But families who have invested in creating a constitution probably don’t just expect to have a conversation at home. They also hope that the constitution will act as a “shield” against conflicts that may arise in the future. However, that “shield” will not be possible if the family does not seriously enforce the constitution that has been written (like having a vaccine in your hand but not injecting it into your body!).
The next step for every family that has a family constitution is to actually implement it and use it effectively. I would like to call this step the Implementation Phase, which will focus on answering questions such as: What must be done next? How must it be done? And who must step up and do it? In this article, I will use the model: “COA” Which is an abbreviation for Council-Office-Audit Implementation Model that shows what elements are required to effectively enforce a family constitution. Let's get to know the COA model.
The “3 Elements” of Enforcement of the Family Constitution
If we compare family governance to national governance, the COA model would reflect this. “Sovereignty” Which is the highest power of the state. We can divide this sovereign power into three sub-powers: "Legislative" "Executive" "judiciary" The origin and use of these three powers will be specified in a document called "constitution" Or the constitution used to govern the state, which in the case of the “family constitution” is the constitution used to govern the family.
The family's three sovereign powers are exercised through three agencies that drive the implementation of the Family Charter: the Family Council, the Family Office, and the Audit Team.
1. Family Council (Family Council)
The family council is considered a party "Legislative" The family council is responsible for setting policies, issuing orders, setting regulations, and approving budgets (such as welfare, etc.) that are needed in the family. For small families, the council members are all family members. For example, a family with 5 members - father, mother, and 3 children - will have 5 council members. But for families with many members, the council members will represent the family lines - for example, each family line sends 1-2 representatives to represent them in making decisions on various matters in the family council.
The family council has the highest decision-making power in matters related to the well-being of the members and various assets that the members jointly own, such as common funds, jointly owned land, etc. However, for small families with a small number of members, matters that the family council has the power to decide on may cover matters of business and management. "share" It is also a family business because the members of the council are business executives and are often shareholders of the family business. Simply put, they are the same group of people.
Therefore, the distinction between whether this is a matter for the family council to decide, or a matter for the board to decide, or a matter for the shareholders to decide separately does not make sense. The amalgamation of the three committees seems to be more effective in terms of functioning (until there is a proper reason to separate them into the family council, the business board, and the shareholders' meeting).
2. Family office (Family Office)
The family office is considered a party "Management" of the family, responsible for implementing the policies, orders and regulations set by the Family Council and enforcing them within the budget approved by the Family Council. The initial concept for establishing the Family Office in the Western world was to use it as an agency that families with a lot of assets use specifically to manage the family's wealth, with the main duty being to take care of the family's assets and investments, and later it has evolved with the times.
At present, the Family Office's missions can be divided into four areas: (4) managing family assets and investments in accordance with the family's policies; (1) planning taxes and handling legal paperwork to facilitate members; (2) providing services to family members, such as disbursing various welfare benefits; miscellaneous tasks that are collective work, such as scheduling family meetings, facilitating communication between members, etc.; and (3) helping to take care of and organize family charity activities.
For some large families, it is possible to set up a separate family office, but for smaller families, it may be possible to bring in some of the company's employees to work under the supervision of “Head of the Family Office” (It usually involves family members.) This seems like a more sensible choice.
(You can read more in the article What is FAMILY OFFICE? How can it help family businesses? in the October 2567 Bank Finance Journal or at https://moneyandbanking.co.th/2024/134869/)
The Family Office has the authority to manage the work as determined or approved by the Family Council. It does not have the duty to set policies by itself. It does not have the authority to decide right or wrong when there is conflict in the family. Therefore, the work of the Family Office is in the nature of being a worker or the "arms and legs of the Family Council" to produce the results that the Family Council desires.
3. Audit team (Family Audit)
The audit team may be seen as a party "judiciary" But in reality, the investigation team has not yet reached the judicial level or become a judge when there is a suspicion that there has been a violation of family rules or failure to follow the orders or policies of the family council.[1] But Family Audit will act like a "Student Policeman" who tends to monitor the behavior of classmates and report it (which may be classified as “Independent Organization” Family Audit or this audit team is often forgotten and not given the attention to be set up because the family does not see the need and does not give it importance. However, Family Audit is an important piece of the puzzle that will help make the family constitution sacred and be used effectively.
Family Audit has a mission to follow up, inspect, and monitor the behavior of members and the work of the Family Office to see if they have performed their duties correctly and appropriately, whether they have followed the orders, policies, and regulations set by the Family Council completely and correctly, and then report those things to the Family Council for information, which is considered a mission. “It’s very risky.” to be scolded by family members for acting like a “tattletale”. Therefore, members must communicate to each other to understand the important role of Family Audit in the sanctity and effectiveness of the enforcement of the family constitution.
The work of these three agencies will be closely linked to ensure that the enforcement of the rules in the family constitution can be carried out effectively.
Recommendations for effectively “driving the constitution”
“Devil is in the detail”[2] There are some small details that can have a big impact on the effectiveness of enforcing the Family Constitution, so here are seven important ones:
Use the constitution effectively when…
- Members share responsibility for the three missions, with each person taking on a different part.
- "leader" The three agencies should not be the same person, for example, if he is the chairman of the family council, he should not be the head of the family office or the head of the audit team (at the same time).
- Members should rotate responsibility for the three sections, with a systematic and clear agenda for changing leaders.
- "leader" The three agencies should be “Insiders” By being able to have "outsider" For example, company employees or specialized consultants can come to help support the work, but they should not. "outsider" To hold these important internal positions
- mission of “Audit team” (Family Audit) is a sensitive job. "outsider" If someone comes in to support (but doesn't come in as the leader), it will greatly reduce the sensitivity. For example, the head of the audit team might be an uncle (or a family member), but the uncle's assistant might be a company employee or a hired consultant (some families I know ask the accounting firm the family already uses to come in and provide additional support in this area). The staff on the audit team need to have... "neutral" "Be independent" Otherwise, the auditing duties will not be performed effectively. However, the audit team leader must still be a family member for reasons of trust.
- Employees or consultants working in Family Office and Family Audit should not be the same group because it will cause conflict of interest (the person exercising authority and the auditor should not be the same unit).
- The Family Office and Family Audit Support Team is a collaboration between (A) family members, (B) family company employees, and (C) professionals to work as directed by the Family Council. The proportions of A, B, and C can be designed on a case-by-case basis.
The 7 recommendations and the COA model are just the beginning of accumulating knowledge and Best Practices. “Enforcement of the Family Constitution” Effectively, other challenges still lie ahead for the members, but it is a “good challenge” that the family is trying to create a system that will act as “Protective armor” Conflict between family members Finally, to answer the question: "Who is the person who should come down and handle this matter?"
Well, everyone who sits in the family council!
References:
- Nawapol Wiriyakulkit (2023). Bank Finance Journal: What is FAMILY OFFICE and how can it help family businesses?. Media Associated Publishing.
[1] In this case, the power to decide right and wrong, or the “judicial” power, is often given to the Family Council to make decisions in the general family.
[2] “Devil is in the detail” means that mistakes or problems are often hidden in small details that may be overlooked. It is a reminder to pay attention to details because sometimes things that seem simple or have no problems in the overall picture may have hidden complexities or difficulties that can have major consequences if neglected.
