The British royal family, like many family businesses, has had its share of difficulties lately. Prince Harry, previously viewed as one of the great modernising influences, has become more distant from the traditional business after marrying Meghan Markle.
Meanwhile, his father Prince Charles has been waiting many years to take over; his uncle, Prince Andrew, has been caught up in an international scandal; and to cap it all, the Queen recently lost her husband, Prince Philip, after 74 years of marriage.
The royal family may not be among the family businesses most obviously affected by the pandemic, but there are similarities when it comes to navigating difficult times. All family businesses, including the royal family, have to contend with the advantages and disadvantages of close family ties within the firm. Families can close ranks when times are hard, but it can be a struggle to oust executives with blood ties who are causing problems—or virtually impossible in the case of the Windsors.
On the other hand, family businesses are in theory better equipped to survive than most. They tend to be able to prioritise long-term goals because the owners usually intend to transfer the business to the next generation. This can be a problem if the heir is not as strong as whoever is on the “throne”, but at least short-termist investors are either non-existent or can usually be overruled.
In my co-authored research, we reflect on the challenges to family firms triggered by the pandemic and its social and economic reverberations, drawing on our own knowledge of this field and inspired by informal conversations with some family businesses of a range of sizes during the pandemic. They trade in everything from olive oil to microwave-imaging devices to financial services to fine wines, and most are headquartered in Italy.
This has enabled us to argue for five challenges unique to family businesses across the world. These have been made worse by the pandemic, but can all be turned into opportunities. It is worth emphasising that the survival of these businesses is vital to us all—they contribute between half and 90% of the GDP of most countries, and employ the majority of people.
Family businesses tend to think of succession as a long process that needs to be methodically planned and executed, but it has been taking place rapidly and unexpectedly during the pandemic. At least 25% of those in charge have suddenly got sick or will leave their business earlier than expected due to the crisis.
As the family owner of a structural steel design business told me: “An increased sense of mortality after seeing the many victims of this pandemic is leading me to see succession as closer than ever and to suddenly think of it as something that is happening really quickly and in an unforeseen way.”
Clearly, owners and managers need to be ready to manage such successions. In some cases, the current environment may force them to consider alternatives to a succession within the family, such as an external candidate, or selling or even closing the business. Even long-expected successions of the kind that will inevitably come to the British monarchy need to be handled carefully when the moment arrives.
2. Preserving the family feeling
We know from research that having family members working in the business engenders long-lasting personal relationships with employees, customers and suppliers. But these relationships have been disrupted by social distancing and people working from home during the pandemic.
These businesses must therefore redesign their working processes, reflecting deeply on how to preserve their distinctive social edge in a more digital environment that may be here to stay.
3. Traditions and history
It is often assumed that family businesses are forward-looking, focused on growing over generations. But the negative outlook and increasing uncertainty brought by the pandemic has led many to instead feel nostalgic for the “golden age of the past”.
Many are trying to leverage their family history and tradition, for example by emphasising longstanding values and past accomplishments to customers. They are also focusing on staying alive rather than pursuing growth.
Family businesses need to use their traditional values to orient themselves during times of uncertainty, while looking back on their history to learn how family members coped with past crises. Owners must focus on how best to do this for future competitive advantage.
4. Difficult trade-offs
Family businesses are typically motivated by more than financial wealth—in particular, the effects on family members often come into consideration. If the business is in trouble, the management is often reluctant to sack family members—a Harry and Meghan type situation might fester far longer than a falling-out between unrelated executives. Equally, the management can struggle to bring in outsiders to run the business for fear of undermining the succession plan.
Such decisions can be a huge challenge, often forcing a choice between family harmony and the future of the business. This involves trade-offs, and there will be more of these in the aftermath of the pandemic.
5. Preserving wealth
The owners of family businesses are often viewed as likely to make investments with little or no expectation of a quick return. Hence external advisers usually focus on management or governance and not financial viability.
Yet the pandemic is changing this. Families in business are focusing more on preserving their estate and wealth to survive the crisis, as I found recently when I spoke to a family business leader in financial services, for example. As a result, family offices, which are organisations usually set up by the owners of the firm to manage its assets, are becoming more important and will continue this transformation.
Rather than focusing on short-term concerns, family businesses need to address these five challenges to survive and thrive for the long term. In many cases, this will involve letting go of archaic views about running the business, and rethinking how it operates. How exactly that applies to Prince Charles—if and when it is finally his time to take over—is a discussion for another day.
Republished with permission from The Conversation.