I must confess that I have a soft spot when it comes to helping Family Businesses. When I see the effort and time family members put into their businesses and how much their businesses could operate better if they had to be better structured, I feel compelled to give a lending hand. In such times of crisis, the common difficulties that I often see plaguing family businesses are exacerbated and thus this crisis could also be an opportunity to get family businesses onto a more professional path, as they have much less daily operating demands to deal with and more time to better structure and strategise their businesses and think on how to have their businesses survive this crisis.
One common theme I normally face in the case of family businesses with a big chance of overcoming this crisis is the extent to which family owners and leaders put a great emphasis on remaining united in governing their business. Many of these organisations have endured multiple crises before, from recessions and political uncertainty, and therefore understand that sustaining the unity and commitment of family owners is as essential and effective to the survival and continuity of the businesses as crisis leadership and proactive crisis management.
At the end of the day, I see that the Family Businesses with the best chances of overcoming any crisis are those that, when faced with conditions of extreme uncertainty, ensure that family owners, board members and executives remain aligned around long-term vision, core values, financial expectations and risk management processes. Add to that effective coordination and communication, which are so essential during a crisis, as leaders are forced to make difficult trade-offs with scarce resources, competing agendas and limited time.
One thing I love about these family businesses, which you do not find in non-family businesses, which is the real basis for the unity and commitment of family owners and members in the business, is the sense of resilience that derives from a deep commitment to family legacy and core values and an active and nimble governance structure.
All I said so far, are important foundations to face the very difficult circumstances and decisions that family business are facing in this crisis. Many family businesses are dealing with difficult situations on how they can keep up with commitments to banks, suppliers and customers; on how to preserve cash which is a vital resource; on how to determine whether to cut jobs or shut down certain business units; on how to determine when to cut back salaries and/or eliminate dividend payments to family members. In essence, family businesses are today juggling between making short-term sacrifices the crisis demands without compromising the longer-term viability of the business.
So what can family business fall back on when facing the mentioned difficult decisions and situations brought on by this crisis? Here are some pointers.
- Family Businesses have the huge advantage that unlike businesses in which shareholders are an anonymous mass of investors, the family owners certainly care about the economics of their investment, but they are also keenly focused on the many internal and external stakeholders who have enabled their success. A superior resilience which is guided and energised by a clear commitment to sustaining the family’s entrepreneurial legacy over generations is surely something that will be needed in such difficult times.
- Family businesses that are facing this crisis by having “fired up” their governance organs by typically having more board and management meetings in order to increase the frequency of their contact and the scope of coordination is a sure way of increasing the chances of the family business surviving the crisis. By doing so it means that the full leadership of such family businesses acknowledge their responsibility to pay close attention to what’s happening in the business and call out issues and risks when they see them. While it certainly is helpful to have the full attention of various leadership teams, it is also critical to track the degree to which these entities are effectively coordinating their crisis response. This coordination aspect is one of the main roles where an external advisor with good leadership skills could give guidance on how to have each leadership team (board, top management) adapt to these challenging conditions and coordinate well between them so that the family business has one common narrative.
- Trust is an essential currency that family businesses can turn to in such difficult times. Family owners need to trust each other and their board members and top managers that they have the skills to govern effectively. They need to trust that the leaders, they have chosen themselves, have the best interest of all stakeholders in mind when making tough decisions about the allocation of scarce capital and organisational changes. They also need to trust that top executives and employees are effectively managing their crisis response and that all efforts are being made to coordinate effectively.
In essence what family businesses need to keep in check in such difficult times can be summarised as follows:-
(i) The health of their employees
(ii) Active planning for the worst scenario, ensure that the cash reserves are adequate
(iii) Support the most vulnerable internal and external stakeholders
(iv) Be agile in their decision-making
(v) Look out for opportunities as crises also bring opportunities.
What always hurt family businesses and is doing so even more in these difficult times is the notion that I come across way too frequently i.e. that proper business structuring to achieve a good and professional governance of the businesses is a cumbersome, expensive and distracting process.
Many family owners believe that they only need to focus on the operating level of business where “the money is made.” In the midst of this crisis, this short sighted notion or belief is now all coming back to haunt family business owners that based their family business on this belief, as suddenly the business operations have slowed down or come to a complete halt and they now have to focus on cash flow, valuations, supply chain issues and how to reach their clients online and they feel at the deep end. It is precisely at times like these, when the structures and processes which family businesses have put in place to govern themselves, will be so important to have the business overcome this crisis, as it is such family businesses that stand the best chance of enduring this crisis and eventually to make the most of better days ahead.
Feel free to drop me an email on firstname.lastname@example.org so that I forward you a presentation on Common Challenges faced by Family Businesses that are so relevant is such a crisis period.
Silvan will be running a webinar in conjunction with the Malta Institute of Accountants on the 2 June between 13:30 and 16:45 entitled “Navigating the COVIS-19 Troubled Waters“. Register here: https://www.miamalta.org/event-3824177