How do you live well when you’re always on edge? Beyond uncertainty and volatility, there is something of an existential reckoning occurring worldwide. How do we not just survive – but thrive – in a volatile world?
As we grapple with continued change, we are still looking ahead: lessons learned from the pandemic will allow us to move forward and live even better.
“Business owners have seen how a single, left-field occurrence can blow everything off course,” says Jeremy Franks, Head of Wealth Planning and Advisory, EMEA, HSBC Global Private Banking. “The crisis has changed the way many entrepreneurs think. It has forced them to consider their own mortality and the legacy they leave behind.”
We will no doubt face future waves of existing and new threats. Averaging across industries, companies can now expect disruptions lasting a month or longer to occur every 3.7 years, according to McKinsey.1 And these shocks – ranging from financial crises and terrorism to extreme weather and, yes, pandemics – can take a major financial toll. Over the course of a decade, disruptions erase half a year’s worth of profits or more.
Building resilience allows you to withstand these shocks, recover quickly and thrive in new environments. “When severe storms hit in tropical climates, buildings may fall, but most palm trees survive. They bend but don’t break. They have resilience,” write Unilever CEO Paul Polman and sustainable business expert Andrew Winston in Harvard Business Review.2
To help you protect against – and be equipped to bounce back from – existential threats, market movements, business challenges, family conflict and other risks, here are some key questions to consider:
1. Do you have a family governance plan in place?
Family enterprises need to have a framework in place for when disaster strikes or ‘business as usual’ is shattered. This involves defining roles and developing systems for clear management. Which individuals should be involved in key decisions? Does that group include people with formal and informal roles within your business? How does the group convene, vote and effectuate its decisions?
“You need to have a plan of action and crystal-clear channels for decision making. And that plan needs to be practiced – rather like a fire drill – so that you can immediately snap into action in the event of a crisis,” says Carly Doshi, Head of Wealth Planning & Advisory, Americas, HSBC Global Private Banking. “It’s far more effective to make decisions around management, succession and ownership early on, rather than waiting until the markets are plummeting or grandpa is sick.”
Franks agrees: “The best decisions are made when you have time to think through them and can look objectively at different scenarios,” he says. “High emotion tends to impair good judgement.”
2. Have you communicated that plan?
It’s all very well having a plan in place – but if no one understands that plan or how they fit into it, it’s rendered useless.
According to the Institute for Family Business, the UK’s family business organisation, “Families in business often assume they’re communicating effectively – ‘because we’re family’ – but, in fact, the opposite is frequently true, and close contact is mistaken for communication.”3
“The importance of feeling included and informed cannot be overstated,” says Doshi. “Failing to communicate with key parties, even those who lack current authority but whose future interests are nonetheless at stake, breeds resentment and is the surest path to family discord and potential litigation.”
To facilitate channels for communication, business owners could introduce a family assembly (an informal platform where family members, no matter their role in the business, can gather to receive updates about the business) and a family council (a more structured governing body within the family that votes on important decisions).
Remember: communication needs to be two-way. Be open to feedback. Sense-check your plan with other stakeholders, who can offer ‘constructive challenges’ and fresh perspectives, and help to clarify positions and reveal gaps.
3. Have you articulated your company’s purpose?
A company’s purpose is its soul, its north star. “Much like what a foundation is to a house, a conductor is to an orchestra, and a canvas is to an artist’s masterpiece – a clear purpose is everything to an organisation,” according to Deloitte’s Purpose is Everything report. “It articulates why an organisation exists, what problems it is here to solve, and who it wants to be.”4
A company’s purpose becomes even more powerful in moments of great change. It is “the bedrock upon which a family will rely when a crisis hits,” says Doshi.
Business owners need to turn inward, consider their most closely held beliefs, and articulate a succinct set of values in a family charter or constitution. This will inform the future plans for the business, provide clarity around what it will do and achieve – and unite different generations.
Purpose isn’t just a ‘nice-to-have’. It impacts profits. According to Deloitte’s research, purpose-driven companies witness higher market share gains and grow three times faster on average than their competitors, all while achieving higher workforce and customer satisfaction.
4. Are you keeping up with the sustainability revolution?
Sustainability is no longer just regarded as a luxury brand differentiator or a PR device.
HSBC’s Made for the Future report, based on a survey of more than 2,500 businesses across 14 countries and territories, found that sustainability has become pivotal to long-term business success, driven by competition, customer demand and the need to achieve operational efficiency.
Companies are increasing their level of investment to become more environmentally sustainable, with 45 per cent of firms saying they plan to increase investment in the next 1-2 years. Among them, 65 per cent plan to increase their level of investment by more than 5 per cent.5
“As business owners look to build back better and have a positive impact, sustainability has become a strategic priority,” Franks says. And that doesn’t mean forfeiting profitability. Research shows that firms with a better environmental, social and governance (ESG) record than their peers produced higher three-year returns, were more likely to become high-quality stocks, were less likely to have large price declines and were less likely to go bankrupt.6
5. Are your assets protected?
As the pandemic has forced a global working-from-home movement, opening up the ‘walls’ of business, it has also sparked an explosion of cyberattacks. According to research from McAfee Enterprise and FireEye, 81 per cent of global organisations experienced increased cyber threats during the pandemic.7
Family enterprises are particularly vulnerable: they hold immense assets but lack the institutional infrastructure of big corporations. Cyberattacks wreak havoc. They can bring down systems, leading to serious disruptions in customer service or employees’ ability to work. At their most severe, they can devastate a family firm’s legacy.
“Business owners need to protect the organisations – and the reputations – they have built over the years,” says Franks. “They must plan for worst-case scenarios and have the right protection, protocols and insurance in place. Failure to do so can be catastrophic.”
6. Are you involving the next generation?
It’s never too early to start thinking about the future of your family business and wealth, particularly given the significant transfer of wealth expected over the coming years.
“Bring the next generation into the conversation sooner rather than later,” advises Doshi.
She recommends bringing family members as young as 16 into family decision making. “Start involving them in certain limited settings,” she says. “They might not be able to sit on the board of directors but they could, for example, help with your family’s philanthropic endeavours by suggesting which charities to support. This begins to embed them in the existing processes.”
“Successful entrepreneurs tend to be fiercely focused, determined and often they feel invincible. It is not unusual that they don’t trust anyone else to make key strategic decisions, which can cause dysfunctional relationships within the family,” adds Franks. “Bringing children into the company early on, in appropriate roles, with the right support, doesn’t just teach them valuable business and life skills, it can ultimately help to preserve family wealth, purpose and unity.”
Resilience is key to protecting your wealth and establishing a long and successful legacy. HSBC Global Private Banking understands how important it is for individuals, families and businesses to be prepared for the future, protected against future risks and empowered to grab hold of new opportunities. If you need a check-in and advice on cultivating resilience, contact us.