I remember my shock and deep grief when I visited the site of the Twin Towers after 9/11. Until then, I could pretend that things were going to return to normal. But, standing beside the rubble, the enormity of what was gone forever pierced me. Those who’ve lost their homes from forest fires have a similar experience; it seems unreal until they visit their former homesite. Emerging from household quarantine is in some ways similar, but without a direct experience of what’s been lost, the grieving process may be short-circuited. For a family enterprise, whether large or small, the global upheaval is deeply personal, as the loss may overturn a long legacy of success and hard work. But, coming to terms with it, and emerging well, is a deeply challenging endeavor. Many families are finding it difficult to recover.
Families can experience an air of unreality when they cocoon inside their households. Disorienting anxiety or soothing optimism takes root. Savoring the unexpected intimacy and security of being together at home, it’s difficult to envision and prepare for the challenges of emerging. If we feel anxious or scared, we can find news that reinforces the feeling. If we feel energized and optimistic, this can be reinforced with heroic stories of families succeeding. If data supports the most optimistic or pessimistic future views, how can there be reasonable planning for what’s to come?
Seeing the whole world essentially shut down, workers sheltered in their homes and the drop in the economy touches everyone personally. It’s a global crisis as large as we’ve seen in our lifetimes. For the first time ever, several crises intersect—a pandemic, an economic collapse, social unrest and, looming in the background, climate change. As an economic prophet and a monk each note:
Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next. We can choose to walk through it, dragging the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas, our dead rivers and smoky skies behind us. Or we can walk through lightly, with little baggage, ready to reimagine another world. And ready to fight for it.1
We are in the midst of a highly teachable moment. There’s no doubt that this period will be referred to for the rest of our lifetimes. We have a chance to go deep, and to go broad. Globally, we’re in this together. Depth is being forced on us by great suffering, which as I like to say, always leads to great love.2
It’s become a cliché to note that a crisis is also an opportunity. But, the current crisis is creating such upheaval in our whole way of life that this cliché is also a reality. The vast societal transformation puts pressure on every family and every business. A business or financial family must come together in new ways to emerge from the crisis. These families must manage the emotional demands, inform each other and redefine how they work together.
Every business, large and small, is threatened just to stay afloat. Without being able to leave home, attend social events, go to work or attend school, we can’t imagine how life will regain anything approaching normalcy. Family enterprises are learning how much they depend on social interaction; uncertainty and inability to control or even influence interaction creates anxiety. When anxious, people can take impulsive, short-sighted action or retreat into denial.
How can business families shift from grieving over a way of life that they can’t return to and transcend living with extreme expectations that the path forward will magically become clear or that we’re helpless to do anything about it? Learning from experiences of recovery from other traumatic events, and what families are doing, can prepare and educate business and financial families.
Let’s review some practical tools on how family enterprises—small and large family businesses and financial entities like family offices—can emerge from upheaval.
Loss, Grief and Helplessness
The global health crisis has forced people to radically modify many comfortable and familiar activities they took for granted—crowded buses, streets, malls, bars, theaters and concert halls, even smiling faces and hugging friends. Loss of such magnitude causes grief, even if it isn’t fully conscious. Frustration, stress, anger and depression accompany grief and loss. It feels deeply unfair. These are emotional responses. Families supply emotional support for the shared loss. By being open with each other, the family can then look honestly and clearly at what lies ahead and pull together for action.
The current crisis means immediate business and investment losses. The resulting anxiety can lead family members to blame their family leaders or become paralyzed. Every day of shutdown and loss of business endangers the business, threatening a livelihood some family members have depended on their whole lives. Family members can reach out to each other, talk about the losses and make plans for how to manage as individuals.
One common way people cope with crises is through magical thinking—imagining that what they would like to happen is likely to occur. Examples abound: Things will bounce back to normal in a few weeks, cures for the virus will be discovered and businesses will rebound once we reopen. This is comfort food, tempting us to feel good now with no thought of consequences. It’s not based in reality and falsely lulls us into inaction.
Unfortunately, in times of crisis, feelings of anxiety and threat can cause people to draw inward and only look after themselves, as evidenced by the long lines at grocery stores and gun shops. The ethos of every man for himself—Ayn Rand’s noble business warrior—is deep within us. This individualistic cultural model regards a business owner as a lone wolf, singularly responsible for his business. With this mindset, some owners make tough decisions on their own, rather than seeking help from others. While this might feel noble and self-empowering, it’s another version of magical thinking. We can’t resolve this one on our own by sheer will and determination. This behavior cuts us off from the support of the family and even erodes the trust that’s been built up over many years.
Networks of Trust
A crisis draws on the private and often invisible advantages of family enterprise. Unlike a public company, the owners and wealth holders have a special relationship that includes deep trust developed over a lifetime, personal connection, respect and shared values and non-financial goals. They also share a long-term perspective, viewing their wealth as a legacy for future generations. These qualities allow them to act quickly with unity and willingness to make sacrifices.
Family owners care about each other. Their trust and familiarity mean they can be candid with each other about the emotional pain and stress. They can agree to make sacrifices for the future and quickly reach agreement on difficult actions. They take risks and actions aligned with their personal values, which may go against immediate financial benefit.
Shared values enable the family enterprise to take quick, flexible and decisive action. I received a note a few days after businesses shut down from one of my favorite local family restaurants. They shared how difficult it was for them to operate with almost no income and how they were surviving with providing takeout dinners. They discussed the dilemma with their employees and agreed to furlough half their employees. They decided together who would remain, using personal needs as a guideline: Those with children and families were retained.
Then they reached out to their customers, suppliers and friends to support a fund for those laid off. Their family nature made it credible for them to ask for help from customers, as they demonstrated their own commitment to values about their employees and the community. Such adjustments are common to all businesses, but family businesses are especially quick and visible to act. Reaching out reinforces and builds trust for the sacrifices to come. By their example, their sacrifice was appreciated and aided by their community, creating a network of shared action to respond to a crisis that affected everyone. After their note, I bought a takeout dinner and thanked them.
The Family Review
Whether they operate a business or family office, family enterprises are entering new territory. Systems and even values are being tested. The few family leaders (and their advisors) can’t just move forward on their own. To sustain trust and connection within the family, the family enterprise leadership must keep the whole family—its shareholders and beneficiaries—informed. They must also listen to the concerns and desires of future leaders and owners—their rising generation.
Family leaders have to communicate more actively in times of crisis and upheaval. For example, selling a legacy investment or business, taking on debt, remaining responsible to family employees and suppliers, sacrificing distributions or closing unprofitable businesses or divisions are more than business decisions. These issues are emotional for the family. If the leaders take action without informing and sharing the rationale for their actions, the heightened emotional climate can lead to backlash and breakdown of trust.
Most family enterprises are owned by some sort of trust. The trustees make fiduciary decisions, and the beneficiaries for the most part trust them. But, this breaks down in a crisis. While trustees know why they’re making tough choices, they have a responsibility to engage the beneficiaries and even listen to their values and concerns, taking into account what they want. In a crisis, family leaders and trustees must heighten transparency and engagement. Too often, in their haste and anxiety, they do the opposite.
Drastic actions involve pain and sacrifice. BanyanGlobal Family Business Advisors has opened an online survey of actions that family enterprises are taking to respond to the crisis, with more than 200 responses.3 Their actions are deeply impactful and depend on good will and trust between owners and employees, and trustees and beneficiaries. Family owners are more able than a group of unrelated owners to decide to take these steps and accept them quickly and thoughtfully.
Here are the most common actions that were reported:
- 61% delay significant capital investment
- 38% reduce salary or benefits
- 33% reduce/agree to reduce dividends
- 31% borrow additional money
- 30% furlough employees
- 24% divert human/financial resources
- 28% lay off employees
- 15% acquire distressed properties
- 8% owners put in additional capital
In this tumultuous environment, every family enterprise might usefully conduct a “family review” to openly assess where it is in the new world and consider major changes. This is more than a business or financial briefing for the whole family; it’s a family affirming and renewing event as well. The family members are anxious and are being asked to share pain, make sacrifices and embark in new directions. They need to emotionally affirm that they’re in this together and what this will mean. Not everyone may want to remain on board and adapt to these changes.
For a long-term family enterprise, such gatherings involve many individuals with varied roles. The review must consider some basic questions:
- How have its systems been working?
- What elements of its information and governance have been strained?
- What does it have to let go of to get through this crisis?
- What sacrifices does it need to make?
- What does it need to change?
- Did family agreements hold up or do they need updating?
Family traditions, trust and values may have become strained. For example, family allocations may be diminished, and the family may need to update policies and practices about distributions, spending and lifestyles. What should change about our philanthropy and community giving given the great needs we’re seeing and our own prior commitments? Are we living with our values about community and sustainability? How have they changed, or how do we continue to live with them? Should we sell or continue to use our jet or yacht?
Some family members may no longer want to work together or make the needed sacrifices. A family has to decide together that it wants to remain united in adversity and allow some family members to exit. Sustaining the business may require huge sacrifices. These sacrifices can only be made by those who share a commitment to the future.
In family meetings, the members reaffirm their values and strengths and ask for commitment to new conditions. They make it clear that short-term sacrifice is needed to secure long-term survival. They can reaffirm historic legacy values that are being tested in the crisis. For one family’s story, see “Catalyst for Change,” p. 43.
Virtual Family Connection
After a generation or two of success, family members and households often live in many places. One of the surprising consequences of the shutdown is that some dispersed families use the time to communicate more. During lockdown, family members are more available, and their family council, board and discussions are easier to set up and even welcome. They’re able to work actively on governance, and they get a lot done.
To remain in touch and work together, they’ve probably held some virtual meetings. Private family platforms like Trusted Family4 allow family members to store and work on shared documents, conduct business meetings and share personal news with privacy and safety. With virtual meetings, as a whole family or with key operating groups like a Board of Directors or Family Council, the family is able to initiate sometimes drastic decisions.
These meetings have different purposes:
- Sharing information during the crisis
- Talking about reactions and making decisions
- Personal connection, hanging out together
These objectives are important to remaining a connected family and running enterprises. While something is lost when family members meet virtually, they also benefit from easily assembling people without the difficulty of travel.
Trusted Family notes three activities that build deep connection over distance for virtual families:
- Create consistently recurring events: People need to look forward to activities and come to use and depend on them.
- Focus on rich content: The virtual connection must be interactive and engaging to maintain interest and have emotional impact.
- Launch an online communications hub: Public social media is less than private and safe, so the family must default to its own hub to keep abreast of activities, business/financial and personal.
Finding Opportunity
Some families discover opportunities and new directions as they emerge from the crisis. Russo’s, a 100-year-old food supplier, lost half its business when schools and restaurants closed. It had talked about offering gift boxes that it could bring out to customers’ cars. Russo’s quickly began that experiment, and it’s been a huge success.5
Firmenich, a 130-year-old, Geneva-based family business that’s the world’s largest manufacturer of fragrances, offers an inspiring example of how family values can lead to innovation.“As a responsible company, it is critical for us to take action and demonstrate our solidarity with the local communities where we operate in these unprecedented times,” commented Patrick Firmenich, Chairman of the Board. As one family business researcher has noted:
[Firmenich continued that] [t]his hand sanitizer allows us to protect our people and the frontline emergency staff working relentlessly to combat this pandemic. Together, we will prove that solidarity is more contagious than the virus.
What enabled the quick reaction of Firmenich was, on the one hand, its recognition of the societal value reflected in its purpose and fundamentals as well as an inclusive capitalism business model, and, on the other hand, a remarkably resilient-to-shocks governance mechanisms model of concentrated family ownership, independence, financial prudence, long-term thinking, and skillful balancing the business and owners’ needs.6
Families have to reinvent themselves. The current crisis offers an opportunity for families to go in new directions, renew important values and take action to do things that might have seemed too risky before. These changes allow the rising generation of the family to step forward and sometimes accelerate the transition of leadership.
—I want to thank many colleagues for thoughts about the topics discussed in this article, especially Jim Grubman, of Family Wealth Consulting in Boston, Christian Stewart, of Family Legacy Asia in Hong Kong, Jeremy Cheng, at the Chinese University of Hong Kong and Jim Coutre, of Fidelity Family Office Services in Boston.
Endnotes
1. www.ft.com/content/10d8f5e8-74eb-11ea-95fe-fcd274e920ca?desktop=true.
2. https://cac.org/themes/a-message-from-richard-rohr-ofm/.
3. BanyanGlobal, “Family Business Response to the Pandemic” (May 2020), https://banyan.global/wp-content/uploads/2020/05/BanyanGlobal-FB-Response-to-the-Pandemic-Report_English.pdf.
5. Paul Sullivan, “For Small Business Owners, Hard Decisions Become Personal,” The New York Times (April 3, 2020), https://myti.ms/2xMQvP8.
6. Marta Widz, “Family Businesses in the Times of Crisis and Global Recession: A story of resilience and sustainability,” FFI Practitioner (April 22, 2020), https://ffipractitioner.org/family-businesses-in-the-times-of-crisis-and-global-recession-a-story-of-resilience-and-sustainability/ (emphasis in original).