BOARD OF DIRECTORS, EMERGENCY COMMITTEE AND FUTURE COMMITTEEIN 21ST CENTURY FAMILY BUSINESSES

Recommendations and immediate measures considering the crisis generated by the COVID-19 pandemic: one of the greatest governance challenges that the family business will have to face.

By: Raul Serebrenik & Perla Sultan
serebrenik@fecig.com

In Latin America we had a slight time advantage over the situation companies in China or Europe are facing. It was very important to make the most of it as it allowed us to project the scenarios for the coming months, even if it was for a brief time. Scenarios where we have to think about companies closing for a long time, especially companies that may not be open according to governments dispositions. Contrary to companies that must remain open because they are strategically “essential” and important.

Well-structured and properly functioning Directors Boards are now playing a key role in overcoming the circumstances or, even for some family business, making the most of the situation, however ugly this may sound or appear. “We must design governance structures to address the different complexity levels of the family, the business and the family assets and, above all, to address the complexity of their strategic challenges”. Today, more than ever, we reinforce the doctrine we have proclaimed during the last three decades. We have accumulated lessons from several moments of crisis or high uncertainty in the last two or even the last three financial crises where we have had the privilege of some family businesses from the American continent.

I should mention that this crisis, although it started as a health issue, could become the next financial crisis for some countries.

The Board of Directors that have had the experience of handling crisis can contribute to the world-wide situation with an incomparable value. Allowing the company to have a greater reaction capability or even a survival capability.

We confess with nervousness that we thought we would have more downtime to rest and reflect. However, the reaction of many of the family businesses we support has been incredible. They have found and use technological tools that allow them to continue with the tasks of top impact teams such as their boards of directors or their advisory or crisis management committees. In critical moments such as these, and with their permission, I would like to share some recommendations that have emerged from recent meetings. Not mentioning any names, countries, or industries.

Several interesting concepts have emerged from different meetings, especially those concerning control systems and risk maps.

One of these concepts focuses on understanding what are the “hidden vulnerabilities” of each area of the family business, the business family in parallel to this crisis, and what immediate recommendations should the company adapt to establish a plan that will allow us to ride the wave as strongly as possible:

1) We dare to say that the first and main recommendation has to do with the physical security of the family team and its collaborators, clients, partners and suppliers, among others. How can we operate while maintaining the health authorities’ recommendations and preserve the physical and mental health of all Stakeholders? Those companies that have had to remain closed should prepare themselves in this matter for the reopening that is already happening in some of our countries.

2) The second is an appropriate communication strategy management. It is vital to keep family members and collaborators informed first, but it is also important to communicate to the outside world (customers, suppliers, government, financial sector, etc.) what is happening with our companies. It is very important to reallocate advertising and marketing budgets, considering changes in both the business model and strategy.

3) The third one is to plan these scenarios with numbers in mind. The first plan is “optimistic”: keeping things under perspective and considering the time this health crisis is supposed to last. The second scenario should be more “pessimistic”. In both scenarios, it is very important to carry out cash flow and liquidity analyses for the remainder of the year. It is important to ensure the liquidity that you have or that you can achieve relatively quickly by making portfolio collections or requesting advances. If you have credit lines, this may be the time to use them quickly. We should establish a “shock plan” as soon as possible, focusing our energies on the fundamentals. We have already witnessed some family business that is seeking help in the capital markets, and there are opportunities with multilateral banking.

4) It is important to understand that we must keep producing. We have to ask ourselves: what do we need to do again? what opportunities can this situation bring? and above all, what do we need to stop? Sometimes, we have already agreed to not reopen the company following the previous business model. We may need to design an original model and then refocus the company on another market that is more stable and more profitable.

5) Sometimes it is necessary to deepen the reorganization exercises and achieve greater efficiencies in unique areas. This situation can be an opportunity to work hand in hand with the human resources area and reconfigure work teams more efficiently and, above all, establish “an ideal leadership team” to deal with the crisis. It is also necessary to explore what skills are in the market that we should improve while we continue to encourage our employees. Today, more than ever, we need a safe and supportive psychological environment to achieve good teamwork with a clear focus. This can be the difference between surviving or succumbing to this situation.

6) Debt restructuring in terms of time and interest rates. We need to explore government aid for different economic sectors. This recommendation may be very important for small-sized and medium-sized companies that must restructure their working capital and understand the liquidity cycle.

7) If you are a manufacturing company, pay special attention to the supply chain and the level of production. If it is an open commercial company, we should project more conservative scenarios for the future, given that consumption has contracted.

8) Explore opportunities or needs in the market that we can sell. There are already several examples of car companies that have converted their production lines to manufacture respirators that all hospitals in the world are urgently demanding.

8) Take advantage of the situation to involve yourself and your company prudently. Collect the most important lessons so that family members (those with the right age and maturity), and especially the next generations, learn to cope with a crisis and how to work in these historical moments.

10) Stay safe and continue to use technology to move forward, especially for people with a medical condition or seniors. Monitor constantly the scenarios in point 3, for later meetings and decision-making and be aware of any additional changes.

10) Update and review family agreements and legal and asset structures that you must adapt to the new circumstances.

For some family business, on the contrary, this situation has created a higher income, or they have important liquidity. We recommend being very alert to your supply chains and to the opportunities that will appear in these circumstances. An important number of players were not prepared for such a hard event (“The Black Swan”) as the one that is being presented right now. Inevitably, we will see layoffs and important reductions in the sales forecasts. When the situation is over, we could rip some benefits from this situation. Remember: Don’t worry. What you are not doing, the competition is doing it for you.

Today more than ever we see and emphasize the fundamental role of having a solid structure. And of getting the most out of experienced people who are part of well-designed, structured governance and that have worked on these issues that are the foundation of continuity, both on the family side, on the corporate and even on the equity side.

We are facing a unique historical moment that, only those who have been adequately addressing their “hidden vulnerabilities” and know their strengths, will emerge with greater projections.

One characteristic that we have highlighted of long-lasting family businesses is their capacity for resilience. We believe that this will be the factor that will make a difference. We must constantly work on this capacity with family members and our collaborators.

There will come a time and a calmer time (we hope soon) when we can (if God wants) draw conclusions and learn from these historical moments. Some of these conclusions will surely be ones that we have already transmitted in the past to many business families about how institutions should survive and prepare themselves to deal with moments of crisis. And above all understand what strategies have worked for long-lasting family businesses that are committed to the continuity of their family legacy for generations.

We pay tribute to family and friends for who this pandemic has taken their lives and/or businesses in different parts of the continent. We will remember them with love and appreciation for their company and lessons.

This article allows us to conclude like any other reporter and witness from the trenches: evoking the grace and protection of God and wishing that this will happen with no further impact to you and your families, and your family businesses.

We hope that these first reflections will be a contribution to your situation. And we reiterate the fact that we continue with our commitment more than ever to support the greatest number of family businesses.

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