Choices for a Sustainable Family Business Legacy

By Bob Kohli and Asin Nurani, Senior Family Business Advisors & Managing Partners, RTS Global Partners

Published on ArabianBusiness.com on 30 Apr 2020

“Moments of crisis can bring families together or they tear them apart – the choice is ultimately theirs…”

For most, this quote evokes a response on the perils of family businesses – the forced interconnectedness, the difficult and oft-repeated conflicts, the inability to move forward nor walk away – all of which are greatly amplified in turbulent times, leading to the predicted downward spiral.

However, for us these words represent a fundamental strength and a sustainable competitive advantage of family businesses. Families, unlike traditional corporations, have an innate ability to rally together in difficult times; relying on their previous bonds, shared history and values, common goals, and yes even that forced interconnectedness to bring about a singular purpose of surviving with strength.

Families can also leverage a unique, emotional context that is highly effective in unifying management and staff behind this forward charge. However, harnessing these strengths is a choice for the family, one that requires focused attention, planning and execution. With the current COVID-19 global crisis – a 100-year black-swan event – this choice is more critical than ever, and family businesses must choose now.

“Blind Spots”

As we study the responses of family businesses to current events, we are finding that all focus has naturally turned towards protecting the physical health of family and employees, and on safeguarding the operating businesses and investments. Some families have even pivoted to new opportunities in health and technology. However, the hastiness of actions on the business and financial fronts has left unattended several “blind spots” on the family front. The risk for leaders is that if these blind spots remain ignored in this climate of uncertainty, the family system will be impacted in lasting ways, negatively altering internal dynamics long after this crisis has abated, and thus posing new threats to the legacy.

We would like to highlight 3 critical blind spots family leaders must address as part of their response to the crisis. These include a) actively confronting the psychological fear caused by the crisis, b) ensuring unyielding family unity by driving an aligned mission and proactively managing conflict, and c) leveraging the talent pool in the next generation and strengthening family succession plans.

1: Confronting fear and paralysis

The first blind spot leaders must address is the psychological fear caused by the crisis- a challenging feat since the fear is not isolated to any one group. The senior generation naturally fear that what they have built over decades will lose significant value in the span of a year and any possible recovery will be long.

The middle generation, amid their daily firefighting, are plagued by thoughts that the ship their parents built may sink on their watch, and by the worry of losing their livelihoods and a compromised future for their children. Those not in the business are terrified about whether they can continue to count on much-needed financial support from family owners.

Finally, the younger generation are looking ahead to their first big failure in life, as their nascent ventures struggle to stay afloat or other immediate life plans are in jeopardy. They are fast losing confidence, and many are paralysed by the challenges in front of them.

To tackle these different fears, the family has to first acknowledge them. A family that can talk openly about their fears is better positioned to deal with them. Yet many choose to bury their anxieties, with parents wanting to protect their children, and children not wanting to worry or disappoint their parents.

Family leaders must break this pattern by encouraging open communication among all family members, including discussing fears, and they must lead here by example. In cases where members are not comfortable speaking in larger gatherings, smaller, private groups should be encouraged.

Sharing anxieties can be coupled with a healthy discussion around coping strategies, possibly using external experts. Leaders should be actively engaged here as members need to feel like they are being heard and considered in the important decisions to come.

Leaders must also have transparent, structured and regular communication with family members, providing the latest relevant information and updates. Given the speed at which the world is changing, we find that most families are communicating fortnightly over video calls, some are even doing this weekly. Even if the outlook is grim, we find that family members are greatly comforted when they are kept informed and feel like they are not alone.

2. Ensuring “one voice”

One need not look very far to see the strength of the family construct these days, and to admire the creative ways in which members come together even when they cannot physically be with one other. We are all more engaged with our families today, helping keep each other’s spirits high, supporting struggling members, and even cheering those who are on the front-lines. These are priceless deeds, bringing members closer when we need each other the most.

However, in the context of a family enterprise managing a portfolio of businesses and investments, these efforts are not enough. Leaders of such enterprises have the added responsibility to ensure that the entire family remains united behind a common mission. In our experience, many leaders today are leading their families on two parallel fronts: on the one hand they are frantically working to safeguard the assets through the current operational disruption, and on the other they are refocusing internal resources to rebuild for the “new normal” post-crisis. Seamless execution on both fronts is critical and leaders must ensure the family has one unified voice in all matters.

This effort is often complicated by family conflict, which can easily flare up and get out of control. Blame is a common theme right now, with members accusing each other of poor decisions or behaviours from the past, which then seamlessly transition into heated discussions about the future. Decisions made under such conditions are often delayed and sub-optimal, and generally followed by disjointed, unfocused execution.

It is critical for leaders to get in front of this conflict. Aligning everyone behind a common purpose is the first step and can be coupled with a general appeal to the family to put aside past conflict. Leaders must also employ targeted interventions with parties often in conflict with each other, urging them to set aside egos, and supporting them to actively collaborate through the crisis. Care should be taken to do this in advance, without waiting for new conflicts to take root.

3. Leveraging the next generation

Last month, with the looming crisis ahead, we conducted a straw poll with some family business owners at an event on their succession plans. Most leaned towards delaying succession, reasoning that the next-gen are unprepared and cannot act decisively.

However, when further asked about trainings that could prepare one for such times, most agreed there were none. Finally, when prompted to reflect on their own life experiences that have prepared them for today’s crisis, many spoke about younger times when they were forced into an unplanned, difficult situation, needing to deal with uncertainty and act quickly.

This poll reflects an inherent bias among family leaders, who often become conservative after wealth is created and assets are in place and take on an overly protective stance when tough times are at hand. This is further validated in our recent conversations with next-gen members, where two themes are emergent – they either feel under-utilised by the older generation, left on the sidelines to “watch and learn”; or if utilised they feel a lack of trust from the older generation in their abilities to manage critical tasks. Consequently, these youngsters are losing confidence in themselves, impacting their ability to face future challenges.

To counter this blind spot, leaders must recognise that this is an opportune time for the next-gen to develop both skills and confidence critical to their future as successors and stewards of the legacy. Rather than witness important moments and decisions from the sidelines, they should be entrusted with critical responsibilities to go deeper into issues and execution, and to serve as conduits to the board providing data, insights and feedback that can inform key decisions. Recognising that several industries are rapidly accelerating digital plans, many families are quickly tapping their younger generation to lead and support these initiatives given their technological prowess.

Leaders also need to build confidence of the family in the upcoming successor and the succession plan, critical to a sustainable legacy. Thus, if possible, they should refrain from postponing succession as this undermines confidence in the successor and the system that chose him or her. Instead they should ensure succession timelines are maintained. In special cases, where the successor has demonstrated strong leadership skills, succession can even be accelerated in a managed way to show confidence in the young steward. A special task force, with both old and new leaders, can be formed for critical initiatives which would alleviate concerns of those who are unnerved by a transition during this period.

To conclude, it is critical for family business leaders to address the “blind spots” discussed here as part of their response to the current COVID-19 crisis. A focused approach in these areas would not only complement, but greatly strengthen the family’s current efforts towards their businesses and investments through a united family front, thus ensuring their singular purpose to survive with strength into the post-crisis world.

To reach the authors of this article email: info@rtsgp.com.

Bob Kohli and Asin Nurani, Senior Family Business Advisors & Managing Partners at RTS Global Partners