Avery Fontaine is head of Hawthorn Purpose for PNC Private Bank Hawthorn. Hawthorn has been a multifamily office for ultra high net worth and family office clients for over 30 years. Fontaine explains when and how families should create a constitution:
What is a family constitution?
A family constitution can be seen as a set of bylaws: How are we going to function? Some families are ready to put that together immediately; some need to marinate before they put that on paper.
Should every family have a constitution?
The family constitution is a concept that’s been around for 30 to 40 years. But the landscape is evolving very quickly. Depending on who the family is and how they’re bringing in their rising generation, a family constitution may or may not be something they want to do.
When should a family make a constitution?
Documenting a belief system or a structure, creating bylaws, can happen at several different points. The impetus usually comes with some sort of change:
- Business owners who sell or exit a business, accustomed to creating more wealth, must suddenly shift to living off one pot of money. Often, that business owner seeks purpose and meaning in the next phase of life. They may need structure around the family: Who are we as a family? What are the rules and regulations? What do we need to function well? And additionally, how do we want to show up outside ourselves?
- For some families, the need for a constitution comes up when the family’s children are getting old enough to understand the wealth and they need to create some structure. They feel they need a process and a structure that can be repeatable for future generations.
- Some families create a constitution when they begin to have new entrants into the family through marriage. It’s healthy to ask how they want to bring new people into the fold. How does the family want to codify their culture, approach and belief system?
- Sometimes a family starts with philanthropy — they want to work together on reducing homelessness in their area, for example. During that process, they may realize they don’t actually work together as well as they thought, or they have some differences they need to address.
How specific should a family constitution be?
Every family is different. Do they want everything written down so there’s no question of what they want? Do they want to leave it up to the next generation? Or do they want to leave some room for elasticity or difference?
What are some pitfalls for families to avoid in this process?
The hardest thing can be making sure everybody has a voice. This works best in a democratic or a benevolently autocratic family embracing change, but that’s not every family.
How can families make sure their constitution has the impact they want it to?
You can write everything down, but you’re not going to get adherence just by writing it down.
Make sure that the family constitution is understood as a byproduct of a good process; it is not the goal itself. The constitution and bylaws reflect the process that went into creating them. The process is the most valuable aspect — and what the family learns through that process.
Many of our families articulate, ‘We want an agreement between this group of people at the table right now about how we’re going to function now and how it will affect future generations.’ We see a lot of families ask some tough questions, such as, ‘Who are we and what are we trying to accomplish?’
We also see families writing letters of wishes in lieu of or in addition to the family bylaws. Often it’s a good practice to have a letter from the matriarch or patriarch explaining the logic.
Going through this process means you’re able to think through: What does it mean to be us, our family, right now? How do we want to show up for each other and externally, for our community, now and going forward?
To ask these questions and to listen actively to all the family members’ answers can be incredibly bonding and powerful. We emphasize preparing the family for wealth, not just preparing the wealth for the family.
