Wealthy families now embrace a “family constitution” that not only regulates money matters but also a value system

MUMBAI: A growing number of India’s wealthy families, driven by their younger members, are adopting a “family constitution” that sets out principles that govern wealth creation, philanthropy, succession planning and the family’s larger goals. Part legal blueprint, part moral compass, these charters attempt to codify not just money matters but the family’s value system. Many of the charters reflect the changing social landscape and now grapple with questions that old business dynasties once avoided: What happens if gay family members marry abroad? Should a daughter who chooses ceramics or music over the family business lose her financial rights? How does one adjust to family members who reject traditional expectations?

“A family charter is a guiding charter that is intended to establish a framework for the family that is rooted in the family’s ethos and values, rather than acting as a traditional legally binding document,” says partner Jahnavi Kohli, head of private client practice at ANB Legal, who has recently seen an increase in families approaching her to draft such documents. “What’s most evident today is that everyone wants an equal seat at the table,” she noted. The real significance of these charters is how they mark a move away from the days of powerful patriarchs, whose toxic control of family wealth often breeds resentment and ultimately leads to division. This lack of clarity coupled with ballooning egos has given rise to numerous Mahabharatas among Indian business families. However, covert forms of control may exist. For example, many constitutions, especially those of ultra-wealthy multi-generational families, require an annual “retreat” that all family members must attend—much like what unfolds on twisted comedy shows like Succession or The Perfect Couple. A vacation to the Maldives with Dadaji and Dadiji was defined as a “family resort” and then written off as a business expense. Each family member can also take separate holidays, but the constitution stipulates a maximum amount that each person can spend, or fuel reimbursement is required if the helicopter or jet is used beyond the stated number of trips. “Philanthropy is a very important part of this charter,” said Nitaa Shivdasani, managing director and head of HERitage Waterfield Advisors. “One client said he wanted to work on protecting marine life, so our charity team strategically found projects that worked in that area. Many families wanted to contribute to medical research, particularly for cancer,” she added. Clauses in different documents set out the details of what can or cannot be done. For example, some people say: Charity cannot be for publicity. Or, there may be specific rules about what types of charities are allowed. Another charter warns against confusing business with friendship, stating: The family recognizes that doing business with friends and relatives may cause tension and will therefore avoid such transactions or enter into them only with the prior approval of the Family Business Committee. “Today, people are willing to talk openly about money and how it is distributed throughout their lives rather than waiting for their elders to die,” said Zeherra Mecklai, a wealth manager in the field. “These ideas are bottom-up, not top-down. Young people want to be in control. We have young people coming back from the United States who come to us and say, please help us develop a family charter for a family office.” The fast-growing family office is essentially an entity that manages the wealth of wealthy families — with an eye toward lifetime investments, intergenerational transfers and distributions, including segregating assets within private trusts, a common practice to protect assets in situations such as divorce. Family offices in India have grown significantly in 5-6 years, reflecting new wealth creation and the desire for family brands. The coronavirus pandemic has forced many people to confront mortality and make succession plans. Family offices are an ancient practice among wealthy people in Europe and the United States, and have since become a status symbol. “When someone says ‘I run our family office,’ it’s a euphemism for ‘I have a lot of money,'” one wealth manager said. A family office typically takes effect upon the occurrence of a “liquidity event,” a term used to describe the sale of a business or property that generates a large amount of cash. Investment experts suggest that a consolidated asset base of at least Rs 100 crore is worth setting up a family office. With a family office comes a constitution. “I actually find it more difficult to resolve non-financial aspects,” said Sanjay Goyal, a Delhi-based businessman who is working on a family charter.