The Software of Wealth: Family Constitution & Governance
The Software of Wealth: Family Constitution & Governance
Trusts transfer money; Governance transfers values. How to write the “Family Constitution” that prevents the Third Generation Curse from destroying the dynasty.
Executive Summary
- The 90% Failure Rate: Studies show that 90% of wealthy families lose their fortune by the third generation. The cause is rarely poor investment returns (only 3%). The cause is breakdown of trust and communication (60%) and unprepared heirs (25%).
- The Family Constitution: This is a formal document (though legally non-binding) that defines the family’s Mission, Vision, and Values. It sets the “Rules of the Road”: How we make decisions, how we handle conflict, and what is expected of a family member.
- Structure of Governance:
1. Family Assembly: All members meet annually for education and bonding.
2. Family Council: Elected representatives who make high-level decisions.
3. Family Foundation: The vehicle for shared philanthropy and social impact.
The “No Nepotism” Clause
Best Practice: A robust constitution includes an Employment Policy. It states: “To work in the family business, you must have a Master’s degree, speak two languages, and have worked 5 years at an outside Fortune 500 company with a promotion.” This prevents the business from becoming a daycare for lazy heirs.
Mechanic: The Governance Pyramid
Values
The “Why”
Constitution
The “How”
Council
Decision Body
Education
Next Gen Prep
Simulation: The “Cousin Consortium” (Chaos vs. Order)
Outcome at Generation 3 (15 Cousins)
| Feature | Typical Rich Family | Dynastic Family |
|---|---|---|
| Communication | “Don’t talk about money” (Taboo) | Transparent Financial Education |
| Entitlement | “The money is mine” | “I am a steward of the money” |
| Conflict Resolution | Lawyers & Litigation | Family Council & Voting |
“Assets make you rich, but governance keeps you rich. Without a shared dream, a family is just a group of people arguing over an inheritance.”
Essential Resources
INTERNAL
BMT Playbooks