From Paper to Practice: The Consequences of Ignoring Family Governance

By Prof. Enrique Soriano

As we enter a new year, this article serves as an important reminder for families who have invested time and resources into formulating a family constitution, only to neglect its implementation. Family businesses are often built on legacies, relationships, and dreams, providing a foundation for multi-generational success. Yet, one recurring pitfall threatens to undo all that effort: drafting a family constitution, only to let it gather dust on the proverbial “top shelf.” I call this the Constitution on the Top Shelf (COTS) phenomenon.

Just last weekend, I traveled to the Middle East, escaping Toronto’s bitter -15°C weather for a cool 24°C. My purpose wasn’t leisure but to address a family grappling with this very issue. “Family B,” a second-generation family business, had sought my intervention to mediate a conflict involving the father and his three children. A month earlier, the family had approached me, citing rising tensions despite having a well-drafted family constitution in place.

The father, a staunch advocate of governance, had originally pushed for the constitution to address issues like succession, roles, and accountability—spurred on by frustrations with his wayward son. However, when the son sought forgiveness, the father’s resolve softened, and exceptions were made in the name of love. This leniency quickly unraveled the governance structure. The son reverted to his old habits, the siblings grew resentful, and the business began to suffer from inconsistent leadership.

Unfortunately, Family B’s case is not unique. Across the ASEAN region, 60% of family constitutions fail, not due to poor drafting, but because they are never implemented.

Why Do Family Constitutions Fail?

Unrealistic Expectations Many families view a constitution as a quick fix for long-standing issues, underestimating the commitment required to enforce it effectively.

Lack of Leadership Buy-In Senior family members must actively champion the constitution. Without their full engagement, it’s unlikely to gain traction.

Day-to-Day Pressures Operational demands often take precedence over governance, pushing strategic priorities to the backburner.

Conflict Avoidance Families often avoid uncomfortable discussions around succession, roles, and ownership, making it difficult for a constitution to serve its purpose.

Skepticism from Past Failures Previous failed attempts at governance may lead to a lack of trust in the constitution’s potential.

No Enforcement Mechanism Without a supporting shareholders’ agreement or other enforcement tools, the constitution remains a document without accountability.

The Dire Consequences of Reluctance

Reluctance to enforce governance can have far-reaching effects. Relationships break down, resentment grows, and the business itself suffers as ambiguity leads to poor decision-making. Family harmony, often cited as a primary reason for drafting a constitution, can disintegrate when agreements are ignored.

The Path Forward

For families grappling with this issue, the following steps can help:

1. Commit to Leadership by Example Senior family members must demonstrate their commitment to governance. When they adhere to the rules, others are more likely to follow.
2. Create Enforcement Mechanisms Integrate a shareholders’ agreement or other legal tools to give the constitution the “teeth” it needs.
3. Engage a Neutral Facilitator A trusted advisor can help mediate conflicts and ensure accountability in implementing the constitution.
4. Prioritize Governance as a Strategic Goal Make governance a regular agenda item in family meetings to ensure ongoing alignment.
5. Revisit the Constitution Regularly A family constitution is a living document. Regularly review and update it to reflect changes in the family and business dynamics.

Governance is not just about rules; it’s about creating a roadmap for stability and long-term success. For Family B, as well as many others, enforcement is the missing link. Without it, even the best-drafted constitutions are bound to fail. Let 2025 be the year families move beyond drafting and take the bold step of living by their agreements.