On Writing Down What the Family Already Knows...

A client asked “who needs governance in a family?” I said, apparently to their surprise, “all families need it. In fact, all families have it.” Knowingly or unknowingly.

All families have unwritten rules, understandings and a (kind of) code of conduct. Husband and wife jointly decide on their household finances. Younger family members start getting ‘pocket money’ once they turn a particular age. I must start saving a part of my income for my children’s wedding and/or their education. Preferably, the whole family should have all meals together. Once married, the child and their spouse are considered a separate branch within the larger family. Primary caregiving responsibility for the grandchildren is of the respective child and their spouse.

In case of a breach of these unwritten “rules” - there is no penalty really. But a breach just doesn’t feel right. It feels off - to the “defaulter” as well as the larger family.

Writing the rules down

What if these rules were written? I believe, that is exactly what a family charter (or a family constitution) is. A charter is not a mandate to change the status quo. It is a result of consensus. Basically, it is the family saying “we think this is working well, let’s write it down”. If it records something which is not a current practice, then that is possible only if the entire family is on-board with that - a change demanded (and agreed to) by the family, not a subset thereof. It is a guiding document for the family - present generation and the future ones. Tried and tested ‘way of living’ of the family. Family members know that their ancestors got together and wrote it.

Family charters are not legally binding documents (at least not the whole document).

What is the point of writing it down?

But then what is the point of having such a documented governance charter? A charter embodies systems & practices which were thought of and implemented by their ancestors - they don’t have to re-invent the wheel at every generation. It saves time by clarifying how some decisions are to be made in the family.

Writing the rule down does not create a penalty for the defaulter, it makes the sanction clear, so the family knows what will lead to it “feeling off” before the disagreement rather than after.

The underlying principle behind a family charter is: if it works well with the current set of family members, it should work equally well with the next generation of the family. What if the rules go obsolete? Well… then the family can change it. But who decides it should be changed? There should be a procedure for the family to decide. How to resolve disputes amongst family members? Simple… the family provides for the procedure to resolve.

Where real wealth is involved

Where significant familial wealth involved, the charter usually does have binding limbs sitting under it (shareholders’ agreement, articles, trust deed, transfer restrictions), and the non-binding charter is what tells the next generation why those binding documents say what they say.

One must keep in mind not every document is intended to ensure that disputes are prevented. Most often, family seeks clarity on how to go about deciding certain matters.

So we have a document, which is literally of the family, for the family and by the family.

Governance grows and evolves with the family. So, this is a document which grows (and should grow) with the family, and evolve with the changing times.