The Accountant – Issue 2 of 2021 (MIA Publication)

Are you a family business leader? You may wish to consider the following observations based on my daily interactions with family businesses.

1. The Need to Survive

Many family businesses are presently fighting for survival amid the drastic negative effects of the pandemic. Often, family businesses feel at a loss about what to focus on to overcome the immediate crisis. Here are some important focus areas:

Establishing an internal COVID-19 task force;

Assessing and adjusting the supply chain;

Managing financial resources, especially cashflow;

Implementing a process to systematically collect and analyse internal and external information from a wide variety of sources (e.g., public health experts, economists, government);

Keeping in touch with important stakeholders like key clients, suppliers, employees and financial providers and keeping them informed and up-to-date on the company’s crisis management;

A digital push backed by a redesign of business models.

2. Setting the Scene – What are the Power Centres of your Family Business?

What are the underlying reasons for certain family businesses to thrive, continue to exist and grow from one generation to the next, when others do not? In my opinion, the answer lies in what I call the five “power centres” that the ownership of a family business has to decide upon. It is crucial for owners to get these decisions right; failures in family businesses frequently follow breakdowns in these “power centres”, while thought-out choices lead to long-term success. Misunderstanding or misapplying them can destroy what a family has spent generations building. The five “power centres” that the family ownership need to decide upon are:

• Design: What type of ownership do you want?
• Decide: How will you structure governance?
• Value: How will you define success?
• Inform: What will you communicate and what not?
• Transfer: How will you handle the transition to the next generation?

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? Who is teaching future generations about the family business’ core values and principles? Do younger family members have the skills and experience to lead the business into the future? Do they really want to remain in the family business? Are they committed to the requirements of running a business?

3. Strategic Planning and a Strategic Mindset for Family Businesses

Research constantly shows that family businesses are dominated by the so called “Operator’s Mindset”. Traditionally, it paid for families to cultivate such a mindset as most industries and business models evolved slowly, making operational excellence central to success. Families and family companies were able to adapt to most changes in their industries at a pace that avoids the ruffling of too many family feathers. Many family businesses worked well within this mindset - focusing on persistent operational improvement, developing loyal stakeholder relationships, building key talent in select individuals, carrying lower debt and building greater financial stability.

However, when dramatic shifts happen, as the world is currently experiencing, family businesses that are not able to think beyond the “Operator’s Mindset” will likely fall behind, thinking they can wriggle themselves out of problems by hanging onto traditional products and practices. In this scenario, a mindset hinders the change needed.

Family companies that have persisted for generations despite changing conditions, strive for operational excellence, but do not rely on it exclusively. They are skilled at migrating to new value-creating activities and at abandoning activities and practices that destroy value. In essence what distinguishes these long-term adapting family businesses is the strong “Strategic Mindset” of the owners, their top boards and the family and non-family top managers. A “Strategic Mindset” recognises the importance of operational excellence, but translates it into business activities that create value according to the key values of the owners. Those with a “Strategic Mindset” find the time to ask: Where are we creating value? Where should we invest our financial and human capital? How do we develop leaders and an organisation with the right culture?

4. The need for a Professional Setup – Governance, Structure, Information & Decision Making

How can a family business keep the benefits of a family operation while accelerating the professionalisation of their business?

A straight answer would be the following:

• Attract, develop and retain great family and non-family talent;
• Ensure that the organisation can always make well-timed and big decisions, through proper corporate governance, structures and timely and accurate information;
• Strengthen family discipline and commitment towards the business;
• Respect the management hierarchy and empower employees to make decisions;
• Create systems to ensure consistently high performance and fairness;
• Guard core values like a hawk.

The above is just a taste of the MIA webinar that will take place on Monday 19 July, 2021, discussing the theme: “Family Businesses: Just Surviving or Thriving?”. The webinar delves into these in greater detail and introduces other insights. Taking a practical approach, the webinar is useful to professionals dealing with and operating in family businesses.

Silvan Mifsud is presently working as a Director for Advisory Services at EMCS, providing business consultancy to various family businesses.