A Heartfelt Appeal to Family Businesses

As I said in the past, I have a big soft spot for Family Businesses. However, with the crisis brought about by the pandemic, there are various serious issues that have surfaced that where likely swept under the carpet in more buoyant times. I normally refer to these as skeletons in the cupboard. Such skeletons are now harming family businesses more than ever and need to be sorted.

Almost every family business that I deal with is being disrupted by the COVID-19 pandemic. Some are fighting to stay alive or deal with a major decline in revenue. Most are feeling isolated as they make decisions that will shape their future. Family businesses differ from other companies in that their form of ownership gives them the ability to take critical actions that could help them through these difficult times, as they have the right to change almost every aspect of how the company works: what it owns, how decisions are made, how success is measured, what information is shared and how leadership is passed from one generation to the next. Through exercising their rights, family owners have the ability to position the company for long-term success or doom it to failure. Under normal circumstances these are powerful rights, which owners need to exercise thoughtfully.

But in a business crisis, like the one we are in, the power of owners is magnified. Unlike other companies, family owners normally value objectives that usually go well beyond financial returns (e.g., family legacy, reputation). This crisis is forcing family businesses to make trade-offs among objectives that would have previously been unimaginable—all while dealing with the complex dynamics of a family. The stress, anxiety and fear that come out in a crisis can amplify already challenging dynamics, paralysing decision making throughout the enterprise or causing conflict to spiral out of control.

However, the crisis can be a call to action, to sort out long standing issues that have been hampering the business for years if not decades, to have family owners put aside their differences and take actions that allow the business to survive.

My constant message to family business during this crisis in one – the ultimate impact of the crisis on your family business will be substantially shaped by how you, as owners, respond. Through the choices you make, or fail to make, the owners of a family business will affect how the crisis is managed by company leaders and what kind of company, if any, emerges on the other side. Nothing else.

So please allow me to highlight 5 common action areas I normally see as needing URGENT attention and action to ensure that a family business has proper guidance and tools to respond to the crisis:

1. Define what type of family business you want to preserve.

  • Which assets in the family enterprise must be maintained and where is there flexibility to sell or starve some parts to save the whole?
  • Under what circumstances would you consider opening up ownership to other investors (family or outsiders) to bring in new forms of capital?

At the heart of your family business are choices you have made about what you own, who can be an owner, and how owners exercise control. Together they determine what it means to have a family business. You need to clarify whether any of these choices need to be revisited.

2. Review your governance structures and processes.

  • Does any corporate governance exist? Do you know what it means?
  • Do you have any forum whereby the family ownership, the board and management can meet and discuss? Is it a case whereby you’re missing an important party during the crisis, like for example you have no board to report too?  How will you fill the gap? Who is able to report and review the present overall financial performance of the business and the top KPIs?
  • How will you make the major decisions you will be facing? Are there certain decisions that the owners should be more or less involved in? Are you clear about who has authority to make key decisions?
  • Do you need to revisit any policies you have set (e.g., dividend, family employment)? Or do you need to set new policies to deal with these unique circumstances?

Managing through a crisis requires the ability to make major decisions faster than ever. Actions that might have seemed drastic several months ago can quickly become insufficient to meet the challenges faced by the company. Embedded in your family business is a way of working that may need to change, now more than ever.

3. Revisit your STRATEGY for the company.

  • Did your company ever setup a Strategy? Can you face the current turbulence without one?
  • Is there a case of having to review the Business Strategy or Business model to better face the current challenges?
  • What values will inform your actions during the crisis?
  • How will you make trade-offs among your stakeholders? For example, how do you prioritise the needs of employees (wages, benefits), customers (staying open, extending credit), and suppliers (paying bills)? Are there certain objectives for which you are willing to lose money (e.g., retaining employees,)?
  • Are you open to changing the company’s capital structure? Will you raise your borrowing limits if the company needs additional debt? Are you willing to recapitalise the company?
  • Will you reduce or stop dividends?

As a family owner, you have the right and responsibility, to define what success means for the business. In such a crisis that normally involves making trade-offs among different objectives, be them financial and non-financial.

4. Use communication to sustain trusted relationships.

  • How will you stay connected with the involved family owners as well as the rest of the family?
  • How will you remain informed about what’s happening at the company, as well as share your questions and concerns to your managers and executives?
  • What should be shared with employees about the state of the business and your commitment to it?
  • How will you manage communication with the public and press, especially if tough decisions need to be made?

One of the most valuable assets of a family business is the trusted relationships that are built over time with family members, employees, customers, suppliers and the general community. Trust requires transparency. You need to be clear with what information is to be divulged to whom so that everyone can act accordingly.

5. Consider the implications for the transition to the next generation i.e. Succession Planning

  • Do current family leaders need to remain longer than planned to steward the family business in these turbulent times? Or do they need to make way for fresh ideas and untapped energy?
  • How can you use this opportunity to teach future generations about your core values and principles? This could be a needed wake-up call on whether younger family members have the skills and experience to lead this business into the future.

Family businesses that want to last for generations need to keep one eye on the present and the other on the future. In general, a crisis is a time to narrow the gaze. But it might also be the window in which to make changes that have been a long time coming. Company leaders will be looking to the owners to see to what extent transition plans need to be put in motion or put on the shelf.

There are no right or wrong ways to answer these questions. What’s important is that the owners, collectively, review each of these five areas and address the most important actions to take in each one to help the company and its leaders navigate the current crisis and prepare for the long term. Alignment is vital – companies with a unified ownership group can act decisively, while a house divided will not stand.

So I cannot emphasise enough the importance that as family owners you organise yourselves on the above matters and make sure the leading persons in your business are well aligned. Many times I meet family businesses that are not getting the basics right. Basics like – How often will the family leadership meet? In what venue (in-person, conference call)? Who is in charge of setting the agenda and facilitating the meeting? Who else should be in the meeting when you meet (e.g., company CEO or CFO, any external board directors, business/family consultant)? In a crisis, the facts on the ground change rapidly. Owners need to find the right way that allows them to stay on top of the situation at all times.

I strongly believe that Family businesses possess financial and non-financial characteristics that allow them to out-compete other kinds of companies in normal and crisis environments. They are normally great employers and have committed owners. Being disciplined and organised and getting the basics right will allow the family business to harness the power of family ownership so that the business can weather the current storm.

At EMCS, we specialise at how to work with family businesses. We understand the issues that face family businesses, whereby many times family issues and business issues become blurred and intertwined. We also know how to implement structures, corporate governance and discipline to take the business to new heights whilst communicating with all stakeholders. This is what we call our coaching service. Feel free to contact me on silvan.mifsud@emcs.com.mt to have a chat on this.

4 thoughts on “A Heartfelt Appeal to Family Businesses

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