Mumbai: A growing number of wealthy Indian families, often driven by younger members, are adopting a “family constitution”, a document that lays out the principles governing wealth creation, philanthropy, succession planning and the family’s broader sense of purpose. Partly legal blueprint, partly moral guidelines, these charters attempt to codify not only money matters, but also the value system of the family. Reflecting the changing social landscape, many charters are now grappling with questions that older business dynasties once avoided: What happens if a gay family member marries abroad? Should a daughter who chooses ceramics or music over family enterprise lose financial rights? How can one accommodate family members who reject traditional expectations?
Charter Adoption Youth
“A family constitution is a guiding charter that seeks to establish a framework for the family rooted in its ethos and values, rather than acting as a traditional legally binding document,” says Jhanvi Kohli, partner and head of private client practice at ANB Legal, who has recently seen a huge increase in families coming to her to draft such documents. “What is most clear today is that everyone wants an equal seat at the table,” she says. The real significance of these charters lies in how they signal a move away from the era of powerful patriarchs, whose toxic grip on family property often led to resentment and eventual rupture. Lack of clarity and growing ego have given rise to countless Mahabharats within Indian business families. Nevertheless, covert forms of control may occur. For example, many constitutions, especially among ultra-wealthy multi-generational families, call for an annual ‘retreat’ at which all family members must attend – much like what unfolds in twisted comedy shows like ‘Succession’ or ‘The Perfect Couple’. Defined as a ‘family retreat’, the Maldives holiday with grandpa and grandma is then written off as a business expense. Each branch of the family may also go on separate vacations, but the constitution allots a maximum amount each person can spend, or requires fuel reimbursement if a helicopter or jet is used for more than a set number of trips. “Philanthropy is a very important part of this charter,” says Neeta Shivdasani, managing director and principal of Heritage Waterfield Advisors. “One client said she wanted to work on protecting marine life, so our philanthropy team strategically found projects that work in that area. Many families want to contribute to medical research, especially towards cancer,” she adds. Clauses in various documents explain what can and cannot be done. For example, someone says: Donations should not be made for publicity. Or, there may be specific information about what types of donations are allowed. Another charter warns against mixing business with friendship, stating: The family recognizes that making business deals with friends and relatives can strain relationships and shall avoid such transactions, or do so only with the prior approval of the family business board. “Today, people are more willing to talk openly about money and how to distribute it within their lifetime rather than waiting for elders to pass away,” says Zehra Meklai, a wealth manager in the region. “The ideas are coming from the bottom up, not from the top down. Young people want to take charge. Young people who have returned from America are coming to us saying, please help us set up a family charter for our family office.” The rapidly evolving family office is essentially an entity that manages the wealth of affluent families – looking at investments within lifetimes and inter-generational transfers and distributions, including ring-fencing assets within private trusts, a common practice to protect assets in the event of divorce. Family offices in India have seen significant growth over the last 5-6 years, reflecting both new wealth creation and an aspiration for family branding. Covid forced many to confront mortality and plan for succession. Family offices, an old practice among the old-money in Europe and America, have since become a status symbol. “When someone says, ‘I manage my family office’ it’s a euphemism for ‘I have serious money,'” says one wealth manager. A family office often comes into effect when there is a “liquidity event,” a term used to describe the sale of a business or asset that generates a lot of cash. Investment experts suggest that a minimum combined asset base of Rs 100 crore makes it worthwhile to form a family office. And with the Family Office comes the Constitution. “I actually find it more difficult to address the non-financial aspects,” says Sanjay Goyal, a Delhi-based businessman who is in the process of working on his family charter.
