Write The Rules Before You Play: Why A Family Constitution Is A Strategic Imperative For Business Families

In India, family-owned enterprises contribute over 70% of GDP and employ millions. Yet, their continuity remains fragile: only 30% survive into the second generation, and less than 10% into the third. The challenge is rarely commercial; it is relational. Governance gaps, succession ambiguity, and emotional entanglements often derail otherwise thriving businesses. The solution lies not in reactive litigation or last-minute restructuring, but in proactive, values-driven governance. That begins with a Family Constitution.

A Family Constitution is a collaboratively drafted document that outlines how a business family will make decisions, resolve disputes, manage succession, and preserve shared values. It is not a legally binding contract, but a strategic framework. It complements formal instruments such as shareholder agreements, trusts, and wills, offering clarity, consensus, and continuity across generations.

Governance experts increasingly view the Family Constitution as a form of “soft law”, a moral compass that guides behaviour and expectations, particularly during transitions or conflicts.

The emergence of family constitutions in India gained momentum post-liberalisation, as business families faced global competition, professionalisation pressures, and succession complexities. Landmark disputes, such as those within the Ambani, Murugappa, and Ranbaxy families, highlighted the cost of unclear governance. Today, constitutions are seen not just as preventive tools, but as strategic enablers of legacy.

Drafting governance rules only after a dispute arises is akin to insuring a house after it catches fire. Families that institutionalise governance early benefit from:

• Clear role definitions and decision-making protocols

• Reduced risk of succession disputes

• Preserved trust and transparency across generations

• Continuity in business vision and operational strategy

The drafting process itself often strengthens relationships, surfaces latent concerns, and fosters intergenerational dialogue.

In the absence of a Family Constitution, families often face:

• Power struggles due to succession ambiguity

• Emotional decision-making that overrides commercial logic

• Escalation of disputes into litigation

• Disengagement of younger generations due to lack of clarity

These risks can erode enterprise value and fracture family unity.

Several Indian conglomerates have adopted family constitutions or settlement frameworks to preserve cohesion and enable strategic clarity:

• Bajaj Group: The Bajaj family’s constitution outlines succession, ownership, and philanthropic commitments, enabling seamless transitions.

• Murugappa Group: Following a public dispute, the family reaffirmed its constitution to clarify roles and preserve unity.

• Godrej Group: In 2024, the Godrej family executed a formal split via a Family Settlement Agreement, dividing the group into two branches, Godrej Industries Group and Godrej Enterprises Group, without triggering capital gains tax.

• TVS Group: The four branches of the TVS family restructured their holdings and governance through a family arrangement, enabling independent operations while preserving legacy.

• GMR Group: Their constitution integrates business strategy with family values, ensuring alignment across verticals.

These examples demonstrate that governance is not a luxury; it is a necessity.

Internationally, the Walton family (Walmart) and the Ferrero family (Italy) exemplify long-term stewardship through constitutions. The Waltons use a family council and shared investment principles to manage one of the world’s largest fortunes. Ferrero’s constitution emphasises succession, philanthropy, and cultural continuity, ensuring cohesion even as the business globalises.

Although a Family Constitution is not enforceable in court, it informs and strengthens legal instruments such as:

• Shareholder Agreements: Clarify voting rights, exit protocols, and ownership structures

• Trusts and Wills: Align asset distribution with family values

• Family Councils: Institutionalise dialogue and decision-making

In certain cases, family arrangements structured under Section 47 of the Income Tax Act may qualify for capital gains exemptions, provided they meet specific conditions⁴. When drafted in tandem with legal instruments, a constitution provides coherence between intent and enforceability.

A well-drafted Family Constitution typically rests on three pillars:

1. Decision Protocols – Who decides what, and how

2. Succession Pathways – Leadership transitions across generations

3. Conflict Resolution Mechanisms – What happens when consensus fails

This structure offers families a roadmap for continuity and resilience.

A 2022 PwC India survey found that only 15% of Indian family businesses had a documented governance framework. Yet, among those that did, over 80% reported improved intergenerational alignment and reduced conflict.

A Family Constitution is not merely a document; it is a declaration of intent. It affirms that legacy is not just inherited, but actively stewarded. For business families, the question is not whether governance matters, but whether it will arrive in time.