Wealthy clans now swear by ‘family constitution’ codifying not just money matters, but value system | India News

MUMBAI: A growing number of wealthy Indian families, often pushed by younger members, are adopting a “family constitution”, a document that lays out principles governing wealth creation, philanthropy, succession planning and the family’s larger purpose. Part legal blueprint, part moral compass, these charters attempt to codify not just matters of money, but also the family’s value system. Reflecting a changing social landscape, many charters now grapple with questions that older business dynasties once avoided: What if a same-sex family member marries abroad? Will a daughter who chooses ceramics or music in the family venture lose financial rights? How to integrate family members who defy traditional expectations?

Charter Adoption Driving Young

“A family constitution is a guiding document that seeks to establish a framework for the family, rooted in its principles and values, rather than serving as a conventional legally binding document,” says Janhvi Kohli, partner, head of private client practice at ANB Legal, who has recently noticed a huge increase in families approaching her to draft such documents. “It’s very clear today that everyone wants an equal seat at the table,” she notes. These charters have real significance in how they signal a move away from the age of powerful patriarchs, whose toxic hold over family wealth often led to resentment and eventual disintegration. A lack of transparency combined with inflated egos has spawned countless Mahabharatas among Indian business families. Nevertheless, covert forms of control may exist. For example, many constituencies, especially among ultra-wealthy multi-generational families, call for an annual ‘retreat’ where all family members must attend – much like those featured on twisted comedy shows like ‘Inheritance’ or ‘The Perfect Couple’. Defined as a ‘family retreat’, the Maldives vacation with grandpa and grandpa is then written off as a business expense. Each branch of the family can also go on separate vacations, but the constitution sets a maximum amount to be spent by each person, or requires reimbursement of fuel if the helicopter or jet is used beyond a certain number of trips. “Philanthropy is a very important part of this charter,” said Neeta Shivdasani, Managing Director and Head of Heritage Waterfield Advisors. “A client said he wanted to work in marine life conservation, so our philanthropy team strategically found projects that work in that area. Many families want to contribute to medical research, especially towards cancer,” he added. Clauses in various documents detail what can or cannot be done. For example, one says: Charity shall not be given for publicity. Or, there may be specifics about what kind of charity is permissible. Another charter warns against mixing business with friendship, stating: The family recognizes that entering into business dealings with friends and relatives may strain relationships and will refrain from such dealings, or do so only with the prior approval of the family business board. “Today, it’s okay for people to talk openly about money and how to navigate the distribution over one’s lifetime, rather than waiting for old age,” says Zehera Meklai, wealth manager in the area. “The ideas are coming from the bottom up, not the top down. Young people want to take responsibility. We have young people back in the US asking us to help set up a family charter for a family office.” The fast-growing family office is essentially an entity that manages the wealth of wealthy families — looking at investments and intergenerational transfers and distributions over a lifetime, including ring-fencing assets between private trusts, say, to protect assets in the event of a divorce. Family offices in India have grown significantly over the past 5-6 years, reflecting both new wealth creation and the desire for family branding. Covid has forced many to face mortality and plan succession. The family office, an old practice among the wealthy in Europe and the United States, has since become a status symbol. “When someone says, ‘I run our family office,’ that’s an euphemism for ‘I have serious money,'” says one wealth manager. Family offices often come into play when a “liquidity event” occurs, a term used to describe the sale of a business or property that generates a lot of cash. Investment experts suggest that a minimum combined asset base of Rs 100 crore makes setting up a family office worthwhile. And with the office of the family comes the constitution. “I actually find the non-financial aspects more difficult to deal with,” says Delhi businessman Sanjay Goyal, who is in the process of working on his family charter.