Family Business leaders - facing an extra dimension of challenge

It would have seemed unimaginable a year ago that we would be heading into our eighth month of movement and trading restrictions as a result of a global pandemic. Few business owners or leaders had this on their risk registers and the primary focus of attention, in the UK, pre March 2020 was what type of Brexit deal would be achieved and how it would impact the economy.

We find ourselves in uncharted waters in all areas of society including business and government. The stark contrast between those thriving and those surviving is seen in business but also family life and the impact seems set to reverberate for many years to come.

Much of my time is spent talking to family business owners and leaders representing a wide variety of businesses both by scale, geography and sector but I am seeing some common trends emerging where the interaction of family and business causes particular tension.

Typically, family businesses view themselves as having a patient approach to business and pride themselves on being able and willing to withstand short term economic shocks. There will generally be a focus on maintaining a strong balance sheet, minimising debt and being prepared to sacrifice some degree of profit to “do the right thing”. So, what’s different this time?

First I think the challenge of staying true to your values is keeping family business owners and CEO’s awake at night. How do you juggle a long term and loyal approach to your staff , customers and supply chain with the reality of most businesses at the very least needing to rethink their strategy and, in many cases totally rethink their business model?

This leads to the second challenge which is to what extent to access government aid either by way of access to working capital or the Corona virus jobs scheme. The lack of certainty over how long the pandemic will last and the likelihood of economic recovery are clearly playing an important part here but almost without fail I have seen family businesses look to weather the storm from their own resources as far as humanly and commercially possible. It will be very interesting to see, in the next part of this economic cycle whether this creates a lag in business performance for family businesses as and when the world heads out of this crisis or indeed whether it will necessitate a more leveraged model even for this slightly cautious sector.

The next challenge that I have seen is businesses who, having looked at the headroom on their bank facilities, and worked out how to hold their own, have had to factor in their ability to pay dividends. Clearly this will be a challenge across all businesses but for family businesses where you may have a broad range of family members who are feeling reliant on those dividends temperatures are running high. This has laid bare to me what I already suspected based on years of experience; as a sector there is still a lot of work needed to ensure a proper and clear distinction between how family are rewarded as owners and how they are rewarded for their employment, contribution or endeavour. 

This lack of distinction around reward and, in some instances, lack of focused roles will in my view have a serious impact on ability to recover. Fundamentally their needs to be a reset of expectations, behaviours and strategy. This will be true not just for the family business owners and CEO but for the executive teams leading the business. 

As a practical example one of the areas I hear about a lot as an immediate problem is how to deal with this years incentives and dividends? “Is it appropriate to borrow in order to fund a dividend and will the bank let us?” “our bonuses are discretionary but we really always pay out – should we?” “should we take a dividend if we can’t meet bonuses”?  “should we take a dividend if our team have taken reduced pay?” These discussions need tackling head on and there needs to be a clear and transparent plan for the medium term. 

So, this all sounds really challenging what should I do? Here are my top tips;

1)    Take time as a leadership team to focus on the future not just manage the current situation; stabilise, strategise, mobilise.

2)    If you want your team to play to the best of their ability and be match fit what, as an owner, do you need to do? Many teams are exhausted and juggling many extra responsibilities. How do you help the team refresh?

3)    When you are strategising be very clear on accountability and focus. This isn’t just asking your team to make incremental gains this is being absolutely match fit and clear on your role.

4)    Make it compelling for your team to really want to be on the journey? Give them a really clear vision and strong leadership.

5)    If you were a family business enjoying a relatively steady state or a period of stewardship and you are now faced with a period of turnaround or intense change do you have people with the skills to deliver? Be prepared to make changes where needed.

Crucially, from a family perspective be clear on your ownership strategy and the impact of that in terms of capital required and return on investment. Look hard at the skills and resources available to you and be prepared to ask for help; family members not typically engaged in the business or Non-executive directors may have an abundance of skill that isn’t always tapped into but could just give you the extra bandwidth you need.