Somewhere in Germany, a family that has owned a steel business for around 130 years holds its annual owners' meeting. The company has had a good year. Around the table sit cousins from a consortium...
Somewhere in Germany, a family that has owned a steel business for around 130 years holds its annual owners' meeting. The company has had a good year. Around the table sit cousins from a consortium whose members live as far apart as South Africa, Israel, and the United States. And here is what does not happen: nobody argues about how much of the profit the family should take out and how much the company should keep.
Nobody argues because the answer was written down years ago, as a formula. The Schmidt + Clemens family constitution, reproduced in full in the book we are drawing on today, ties the profit split directly to the company's financial strength. When the firm's equity ratio, roughly the share of the business financed by its own money rather than debt, sits between 30 and 50 percent, the family takes one third of after-tax profit and reinvests two thirds. If the equity ratio falls below 30 percent, meaning the company has grown fragile, the family's share drops to a quarter and three quarters stays in. If the ratio climbs above 50 percent, meaning the company is robust, the family may take half. Strong company, bigger payout. Weak company, everyone tightens together. The formula decides, automatically, and it was agreed in calm weather by everyone it would ever disappoint.
That document appears in Governance in Family Enterprises: Maximising Economic and Emotional Success (2014) by Alexander Koeberle-Schmid, Denise Kenyon-Rouvinez, and Ernesto Poza, three advisers to family firms across Europe, the Americas, and Asia. The book's great gift is that it does not merely tell you families should agree on money rules. It prints an actual signed constitution, numbers and all, so you can see what agreement looks like when it is finished. This essay is about the single most valuable page of it: the one that answers, in advance and in writing, the question that quietly destroys more family businesses than any competitor ever will. How do we share the money?
Most families never write a distribution rule, and if you ask why, the answer is usually some version of trust. We are family. We are reasonable people. We will figure it out when the money comes.
But watch what actually happens when the money comes. The brother who runs the business looks at the profit and sees fuel: the new vehicle, the bigger stock order, the expansion the business needs to survive. The sister in the diaspora, who wired money in the lean years, looks at the same profit and sees the first return on a decade of sacrifice. The cousin with school fees due looks at it and sees rescue. Every one of them is being reasonable. Every one of them has a different definition of fair, sincerely held, and each definition happens to favor its holder. That is not a character flaw. It is what the human mind does with ambiguity, and no amount of family love removes it.
So the conversation gets postponed, because raising it feels like greed. And postponed. And then one year the disagreement arrives with interest, tangled up with every other unspoken grievance, and the family discovers that "we will figure it out when we get there" was never a plan. It was a fight, scheduled for the worst possible moment.
The formula approach dissolves the problem at its root. Nobody at Schmidt + Clemens has to ask for money, which is humiliating, or deny money, which is corrosive. The rule pays out or holds back, and the rule was everyone's decision. The book calls this whole family of techniques fair process, and gives it a definition worth memorizing: decisions that "do not lead to emotional conflicts, because they follow clear and formally accepted rules."
Look again at the design of the Schmidt + Clemens table, because its cleverness is easy to miss. The family did not just pick a percentage. They tied the percentage to the health of the company, so the rule breathes. In fat years with a strong balance sheet, the family celebrates. In thin years, the payout shrinks automatically, and no individual, not the managing director, not the loudest uncle, has to be the villain who says "not this year." The balance sheet says it for them.
This is the part any family can copy at any scale, and here is where we translate, because Schmidt + Clemens is a multinational with a family office, and most readers of this Journal are not. Say four siblings own a shop in Kampala, or a matatu, or three rental rooms, or a small import business run on WhatsApp and mobile money. The same architecture fits on one page. Agree what counts as profit, after restocking and a repair reserve. Agree the split: perhaps a third to owners, a third reinvested, a third to the family's shared pot for fees and emergencies. Then, and this is the Schmidt + Clemens move, agree the trigger that changes the split: if the cash reserve falls below two months of costs, owner payouts pause until it recovers. Write it, read it aloud, and have every owner sign it. You have just built, in one evening, the load-bearing wall of a family constitution.
One honest caution as you pick numbers. The book cites a German study by INTES and PwC finding that 58 percent of family firms with a constitution enjoyed profit margins of six percent or more, against 45 percent of firms without one. That is a correlation, not a promise; the book itself does not claim the document causes the profits, and neither do we. Families disciplined enough to write rules tend to be disciplined in other ways too. Write the rule for the peace, and let any profit be a bonus.
If the German example feels too tidy, too old, too European, the book supplies a story much closer to the situation many of our readers are in: a family with real money, real complexity, and not one written rule. Dania Besher is a third-generation member of the family behind Mac Investments, a business started in Cairo in the 1950s by her grandfather and his brother, later spread into Yemen and South Sudan. By her generation there were 37 cousins. Everything was undocumented. "There were a lot of issues we were facing every day that we didn't know how to deal with, without being emotionally involved or biased towards our own family branch," she says in the book. And then, the sentence every postponing family should hear: "I felt it was urgent to start putting something in place before the family fell apart."
So they built their constitution from nothing, and the process is a template. Five working sessions, one every second month, each lasting two or three days, from June 2011 to June 2012. The first three sessions were cousins only: fourteen of them, each at least 25 years old or a college graduate, plus her father. The fourth session brought in the six seniors to react to the draft. A trusted lawyer reviewed it. At the fifth session, they signed: 28 pages. By January 2012 they had hired a human resources professional specifically to enforce the new family employment rules, so that joining the family business now required more than a surname.
The hardest discussions are instructive. The very first fight was over the definition of family itself, because the grandfather had a second wife, and that branch, nearly as large as their own and living in Yemen, had never been part of the business. Who is inside the circle? Then came the rules for joining the company, where none had ever existed. These were settled not by the loudest voice but by democratic votes among the group. And something unexpected happened along the way. In a culture where, as Besher puts it, "too often in the Arab world, the next generation is not asked for an opinion," the cousins watched their own words get written into the document, "realized that their opinion mattered," and the discussions grew more heated precisely because people finally believed they had a voice. She counts that as success, not failure: "The whole process strengthened our family bonds."
Her advice to other families is the most quoted line in the chapter, and we pass it on whole: "start early with the governance process, 20 years before we did."
Two warnings from the book, both of which it states more bluntly than consultants usually dare.
First, the document is not a peace treaty. "If a family has a deep-rooted conflict," the authors write, "the family will need to work on the conflict before they sit down and work on the constitution. Failing to do so will only increase disagreement." Drafting rules with an unhealed wound in the room just gives the wound a new arena. If two branches of your family are already at war over land or a debt or an inheritance, settle that first, with elders or a mediator, and write the constitution after. The book adds a second failure mode that lands close to home for many of our readers: constitutions have "little value when family members don't voice their opinion during the process," which the authors note happens most "in families or cultures where respect for the elders is paramount," where everyone simply agrees with the patriarch and privately dissents forever. A document produced that way is a photograph of one man's wishes, not an agreement, and it will not hold when he is gone.
The Schmidt + Clemens family understood that even good agreements will strain, so they wrote rules for the strain itself. Their conflict section is a small masterpiece of realism, laid out as a simple process: raise a conflict directly with the person concerned, promptly, never behind their back. Keep it inside the family, keep uninvolved relatives out of it, and if the two of you cannot resolve it, bring in an internal arbitrator such as the family manager, or an external mediator. The instruction the family wrote for itself deserves framing: "Call in a moderator or mediator, but no lawyers." And afterwards, both parties declare the matter closed, tell the others it is resolved, and, in the constitution's own plain words, do not go over old ground and do not bear a grudge. They even wrote exit rules while everyone still wanted to stay: an owner may resign at five-year intervals with 24 months' notice, at a discount to true value, paid out over five annual installments, steeper if the exit is forced than if it is chosen. Doors built in peacetime swing quietly; doors cut during a quarrel come off their hinges.
Second, the paperwork expires. "A family constitution does not last forever. Experience indicates that a constitution should be revised after seven years," the authors write, and sooner if the structure of family or business changes: siblings giving way to a consortium of cousins, the family stepping back from management, a big expansion or merger. The formula your four siblings sign this year will need reopening when eleven grandchildren hold the shares. Put the revision date inside the document itself, so reopening it is obedience to the rule rather than an attack on it.
Here is the work, and one evening starts it. Call the owners of whatever your family shares: the shop, the land, the rental rooms, the pot everyone feeds. Put three questions on the table. What counts as profit? What is the standing split between money out to owners, money reinvested, and money reserved for the family? And what trigger changes the split automatically when the enterprise weakens? Argue it fully. Vote where you disagree, the way fourteen cousins in Cairo did. Then write the answers on one page, date it, have every owner sign it, and read it aloud once a year at the family meeting. Add one line for disagreements, borrowed from a German steel family: a mediator if we are stuck, and no lawyers. Add one more line with a date seven years out, when you promise to revise it.
The Budget Planner module in LegacyPot is a natural home for the living side of this rule: set the split as standing allocations, and the family watches the formula execute in the open, year after year, instead of renegotiating it in the dark.
The book stops at the enterprises with boards and family offices. We go one step further, because our readers' businesses are younger and smaller and more fragile, which makes the written rule more urgent, not less. A large firm can survive a decade of dividend fights. A one-shop family often cannot survive two. Dania Besher wished her family had started twenty years earlier. Start now, and twenty years from today, some cousin not yet born will never know what the fight over money feels like, because a page signed before their birth already settled it.