Behind the scenes of the family business
Navigating the complexity of a family business is no easy task. As we all adapt to the 'new normal' and prioritise the things that matter most to us, robust succession planning will give you peace of mind.
Family businesses have the advantage of being built on shared values, history, relationships and community, but running one successfully is no easy task, particularly when a crisis adds to existing pressures and tough decisions need to be made against the background of the inherent complexities of family matters.
The coronavirus pandemic, for example, has forced many family businesses to look inwards, review their objectives, reassess their priorities and tackle significant issues, such as succession and transition.
"Over recent months, families have been dealing with crises in their businesses and thinking critically about things like succession," says Carly Doshi, Head of Philanthropy, Family Governance and Family Office Advisory, Americas at HSBC Global Private Banking. "In a pandemic, people naturally think about their own mortality, and for family businesses, this includes thinking about what happens to the business in the future."
Family businesses are organisations with unique challenges, from external market forces and management overhauls to passing wealth to younger generations and ensuring tomorrow's leaders will be responsible stewards.
And that's before considering the biggest unknown of all: the human factor. Where family is involved in a business, decision-making and day-to-day management can become emotionally charged.
"For all the planning in the world – any family can obtain competent legal advice – the hardest thing to account for is the human component," says Doshi. "That's where family governance comes in."
Communication is a vital plank in building resilience, a feature of all successful family businesses.
Structuring and building
Family governance helps family businesses navigate both the predictable and the unpredictable crises of the future. We work with global families to get the best out of family businesses, while ensuring that the family business owners are well-equipped to deal with whatever the future brings. This begins with a conversation with family members with an aim to outline what the business stands for, articulate its values and set out the family's shared goals and principles.
The above then forms the basis of a governance framework which will serve as a family's north star, providing stability, organisational structure and clear channels of communication. This framework comprises both legal and non-legal elements.
"The legal structures include things such as trusts, corporate entities, shareholder agreements and shared ownership bodies," Doshi says. "On the non-legal side it includes groups such as family councils or committees. We help a family create a comprehensive plan that includes both, and we work with external legal and tax advisers as needed to implement."
Listening as well as hearing
Communication is a vital plank in building resilience – a feature of all successful family businesses, and one that has rarely been more important. But it can take work, and large family businesses benefit from formalised frameworks, in which meetings are held and decisions made.
"Resilience can be learned and practised, so that when a crisis occurs, families are prepared," Doshi notes. "Family communication is like a muscle that builds over time and should be exercised regularly. If a family has never communicated properly before and suddenly a crisis requires a decision, it's very difficult to spring into action."
Emotions are rarely far from the surface in families, and running a business presents ample potential for conflict. In succession planning, for instance, it often arises when the values and interests of different generations begin to diverge.
"As one family sought to transition their business to a younger generation, understanding expectations of both generations was critical," she says. "The senior generation was concerned, and came to us with questions such as 'will the younger generation take control and just sell it all off, or will they pivot to a new business line within the same company?' These are valid questions, and we helped them create a forum for productive discussion in which both generations' concerns were addressed."
Similar scenarios tend to develop in large multinational family businesses, as family members settle in new places and different cultures come into play. The solution in almost every instance is the same, according to Doshi: create clear organisation, including a framework for the family to govern itself, and a forum for communication and listening.
"Typically there is a lot of focus on what the senior generation will pass down, but there are also things that senior generations can learn from the younger ones," she points out. "You need to create a safe space for those conversations to happen."
A clear vision, and a plan
The same applies to managing the overlaps between family wealth and business wealth. Family governance helps businesses clearly define roles for family and non-family members, and maps out what the family's systems for ownership and management will look like in the future.
Without the right advice, the qualities that families bring to a business – strong work ethic, knowledge of local markets, and technical expertise – risk being diminished, particularly during times of turmoil and rapid change. But with the right frameworks in place, family businesses can harness their strengths and thrive.
"Our mantra is that successful families demonstrate resilience, and that has never been truer than in this moment," says Doshi. "The full range of issues that family businesses may face is vast, but with the right expertise and resources, they have potential to succeed for generations to come."
HSBC Global Private Banking draws on more than 150 years of experience in advising family businesses across generations and jurisdictions. Our knowledge and insight gained through many years of experience in advising families in business and wealth transfer can help maintain continuity in times of change. Our dedicated Family Governance team can help you craft a plan for successful transition and management of your family business, beginning with an understanding of your goals and values, to maximise resilience for generations to come. For more information on how we can support you, please contact us or your Relationship Manager.