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Family Governance: Starting a Family Charter and a Family Council

A practical guide to family governance for Indonesian families: drafting a family charter, forming a family council, and setting rules for making decisions.

Every Lebaran, Ibu Lestari's (a pseudonym) extended family gathers at the home of her late parents. Besides the reunion itself, these gatherings always leave some conversations unfinished: whether the shophouse they inherited should be rented out or sold, who should look after the plantation back in the village, and how the grandchildren, now coming of age, can become involved in the family business. Nobody argues openly, but every year the same decisions are put off, and quiet unease among the siblings slowly builds up. (A fictional, anonymised illustration.)

Many Indonesian families will recognise this pattern. Not because they do not care for one another, but because there has never been an agreed way of deciding shared matters. This is where family governance (tata kelola keluarga) comes in.

What family governance is

Family governance is a set of values, agreements, forums and procedures that help a family make decisions about the things it owns or runs together, such as a family business, property, a shared fund or charitable activities.

It is important to distinguish it from corporate governance. A company already has its own organs under the law, such as the General Meeting of Shareholders (RUPS), the board of directors and the board of commissioners. Family governance sits "above" or "alongside" these: it sets out how the family, as owner, aligns its position, prepares the next generation and looks after its relationships.

Family governance need not be complicated or formal. A family with a single inherited house and a family with a large business group can both make a start; only the scale differs.

The family charter

A family charter (piagam keluarga) is a written document that sets out the family's core values and agreements. It usually covers:

  • Family values and vision. What the family wants to preserve across generations, for example integrity, education or social responsibility.
  • Who counts as "family". Whether in-laws take part in the forum, and from what age the younger generation becomes involved.
  • The family's relationship with the business. Requirements for family members who want to work in the company, remuneration policy, and the line between ownership and management.
  • Policy on shared assets. Use of family property, distribution of income, and principles for when someone wishes to leave.
  • Forums and how decisions are made. Who decides what, and by what mechanism.
  • Resolving differences of opinion. The agreed steps before a dispute is taken outside the family.
  • Periodic review. When and how the charter is updated.

One point to understand: in Indonesia there is no specific law governing family charters. In general, a family charter is a moral agreement, not a document that is legally binding in its own right. For this reason, matters that need legal force should also be set out in the appropriate instrument, such as the company's articles of association, a shareholders' agreement, a will or another notarial deed. A lawfully made agreement applies as law to the parties who made it, in line with the principle in Article 1338 of the Civil Code (KUHPerdata), so any agreement that is genuinely meant to be binding needs to be drafted as an agreement that meets the legal requirements.

The real strength of a family charter lies in the process of drafting it. When every family member takes part in discussing and approving its contents, a sense of ownership of the agreement grows naturally.

The family council

If the charter is the "constitution", the family council (dewan keluarga) is the forum that puts it into practice. A family council usually consists of representatives from each branch or generation of the family, and its tasks include:

  • Holding regular family meetings and preparing their agenda.
  • Acting as a bridge between the family and the management or board of commissioners of the family company.
  • Overseeing education and development programmes for the younger generation.
  • Keeping records of family decisions.
  • Being the first place to raise objections or differences of opinion.

For smaller families, the family council can be as simple as a meeting of all members twice a year with written minutes. For larger families, the council needs a chair, a secretary, terms of office and rules of procedure.

Decision-making rules

Many family conflicts do not begin with a difference of opinion, but with uncertainty about how decisions are made. Some principles that help:

  1. Group decisions by type. Routine decisions can be made by the appointed managers; strategic decisions, such as selling a major asset, require the approval of a wider forum.
  2. Set voting thresholds. For example, a simple majority for operational matters and a higher majority for important ones. Where a company is involved, these thresholds must be consistent with the articles of association and the provisions of the Limited Liability Company Law (UU PT) on the RUPS.
  3. Put deliberation first, and provide a way forward. Deliberation to reach consensus (musyawarah untuk mufakat) is a value close to Indonesian families. Even so, the family needs to agree on what happens if consensus is not reached, for example a vote or the help of a facilitator.
  4. Manage conflicts of interest. A family member with a direct interest in a decision should not take part in making it.
  5. Record every decision. Well-kept minutes prevent "what did we agree back then" debates years later.

How Indonesian families can get started

There is no need to wait until everything is perfect. Realistic first steps:

  • Start with a conversation, not a document. Hold a family meeting with one simple agenda item: what do we want to preserve together?
  • Involve the parents while they can still lead. The presence of the founding generation gives a legitimacy that is hard to replace once they are gone.
  • Respect religious and cultural values. A charter that is in harmony with the family's beliefs, including the inheritance rules it follows, is more readily accepted.
  • Use a neutral facilitator if needed. An outside party with no stake in the outcome can help keep difficult conversations productive.
  • Write a simple first version. Two or three pages are enough to begin with, then refine it over time.
  • Link it to the legal documents. Make sure the charter does not conflict with any existing will, articles of association or agreements.

Key points

  • Family governance is how a family makes shared decisions about assets, business and relationships across generations.
  • A family charter sets out values and agreements; in Indonesia it is generally moral in nature, so matters that need to be binding must be set out in the appropriate legal instrument.
  • The family council puts the charter into practice, acts as a bridge with the business and receives differences of opinion.
  • Clear decision rules, from types of decision to voting thresholds, prevent many conflicts.
  • Start with a simple conversation while the founding generation can still lead.

If your family would like to begin putting its agreements and succession direction in order, Parampara's Inheritance Strategy and Succession Roadmap service can help shape them to suit your family's needs and circumstances.

This article is general information and not legal, tax or financial advice. Every family's governance needs are different; please consult a qualified professional.

Legal basis & references

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