Family constitution lesson from Tuskys

But despite all these stakeholders, family interests remain paramount to family members.

And when a family business grows to the size that Tuskys did, it’s time to sit down and create a family constitution whose purpose it is to draw the line on where family stops and business begins.

It ringfences family values and sets the moral compass that should guide the family through multiple generations of business ownership.

What could those family values be? The cut and paste version found on posters at many corporate head office receptions? You know them, integrity, respect, team work blah, blah, blah?

Or can it be family first (we always show up at family functions), confidentiality (we keep our personal stories under the family skirts, we do not blab all over the media), we do ethical business always (we don’t do business meetings behind the tent) and we give back to society in a structured way (we focus on public impact rather than your favourite pastor’s need to upgrade his house).

We then move to the family council. Who can sit on it and is it a life tenure? Meeting location and frequency should also be defined. The distinction must be drawn between governance at the family council and governance on the boards of family companies. One is an undisputed factor of blood and the other should be a factor of competence.

Then there is the sticky question of employment and defining who can be employed by the family business as well as whether a minimum academic qualification is required.

Bearing in mind that young Juma never quite finished school but boy can he talk up a sales game! The constitution would therefore need to recognise how to accommodate family members with non-academic skills that could benefit the business in the event there are minimum academic qualifications required.

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Remuneration is also a key element for consideration.

Creating proper job and pay grade structures in the organisation then allows family employees to get a salary commensurate with their roles.

If no such structures exist then the family constitution should provide for a methodology of determining which family members can get on the payroll and what their pay should be pegged to.

Then there is the delicate topic of entrepreneurship. Some family members may want to set up businesses of their own. The capital question is always a sticky one.

A key element for consideration is how such initiatives would get funded. Is there an opportunity to set aside dividends to fund a family entrepreneurship fund? Would any seed capital so given to a family member, require to be recorded as a shareholder loan from the family business, a capital injection which would make the new company a subsidiary or quite simply be considered a grant?

And let’s not forget the even more delicate issue of who qualifies for a capital consideration, given that there are family members such as spouses of the founder’s children and grandchildren who are not from the bloodline of the founder.

One more thing, the family constitution should establish the terms of becoming a supplier to the family business. Should it be at arm's length or can preferential supplier terms apply, which means wading into the weeds of ethical business practices and behind the tent manenos.

The family constitution should also give grave consideration to the elephant in the room, which is who gets to be a shareholder in the business and when are dividends to be paid.

This of course takes away any mystery around “imagining the death of the founder” and helps pave the way for structured estate planning. Most importantly in all of this, as we saw in the Tuskys situation, everything can go pear shaped if a dispute resolution mechanism is not embedded.

Conflicts are bound to ensue in any family dynamic and they need to be recognised rather than swept under the rug. A clearly defined arbitration framework is necessary more so post the founder’s demise which is when disputes often arise.

Get a professional to help your family design a constitution, as there is a method to the madness of knocking heads together to arrive at this critical family binding agent.

As a founder of a business, this could be the most enduring part of your legacy, which is to ensure that your business is preserved, grown and managed sustainability for future generations.

The writer is a corporate governance specialist and a former banker