Uncertainty is a word we hear a lot these days. What is the right path forward for family businesses amid a disruptive and changing landscape? How can businesses effectively balance immediate needs and near-term decisions with considerations around longer-term adaptation and success? Governance is crucial to helping companies navigate the many complicated post-COVID-19-related issues and help confirm that proper plans are in place to address disruptions.
Management teams bear the primary responsibility for navigating their companies through this disruption. But family boards also play a critical role. In order to perform their oversight duties, boards should understand the problems their management teams are focused on solving as they help chart a course from crisis to recovery. That can allow directors to serve as an invaluable sounding board for management—and also enable them to consider the company’s longer-term strategic plans. Family boards should be proactive, agile and bring a value-add perspective to their management teams.
Today’s management teams are focused on the day-to-day and creating operational efficiencies in this new business environment. Boards can be a helpful resource in reviewing and overseeing long-term strategy and potential outcomes from the disruption caused by COVID-19—a role that’s particularly vital during uncertain economic times.
Considering the board’s responsibility for risk and strategy oversight, boards may want more frequent communications with management on the impact of COVID-19 on operations and the execution of strategic initiatives. In particular, they should have additional discussions about the need to pivot in light of current circumstances, changes to capital investment strategies, supply chain issues, workforce planning and potential cost reduction efforts.
Here are some things family business boards can consider to help management weather uncertain times and think longer-term to position the company for success:
Emerging trends and innovation: Stay abreast of emerging trends and innovations that could impact the company. While management continues to tackle day-to-day operations, the board should remain knowledgeable and up-to-date on issues and opportunities core to the business to help management anticipate new technologies and trends that could affect the company in the future.
Risk management: Enable management to establish a framework to manage risk—an effective process to help identify risks and assess their potential impact. This should involve discussions with management to agree on an acceptable risk appetite.
Crisis management: Understand the breadth of crises the company is particularly vulnerable to and confirm that management’s crisis response plans are sufficiently robust to enable the company to act quickly if and when another crisis arises. Crisis response should be in line with, and consider, the company’s and family’s values. Additionally, the board should consider all relevant stakeholders—not just the obvious ones—and communicate with them proactively and often.
Succession: Establish emergency board and management succession plans. We have already seen individuals in high-profile positions contract COVID-19. These incidents are unlikely to be isolated and are a stark reminder that family boards should be prepared to implement emergency temporary replacement plans should executive leaders become ill. Boards should also clarify their plans regarding emergency board leadership and temporary replacements, with particular emphasis on the role of the board chair.
Strategy: Monitor the viability of the company’s existing strategy, including key assumptions, major risks and required resources, and direct management to adjust as needed to respond to a constantly evolving environment.
Performance: Confirm that performance metrics include forward-looking measures, and establish benchmarking against today’s competitors as well as potential ones in the future.
The ability to adopt transformative measures in lean times and to accelerate growth in good times can present a competitive advantage. Family business boards should consider the following to accelerate growth when presented with a potential downturn:
Board composition and structure: Consider your board composition and structure, particularly for generational transitions, to handle governance moving forward. You will want to make sure there is alignment between ownership, the board and management on what future governance should look like. Consider adding outside directors to the board that have diverse backgrounds and can inject fresh thinking and perspectives. Particularly in today’s digital environment, experience in innovation and technology are becoming sought-out skills for the board.
Executive leadership skills and experience: Evaluate diversity among your senior management team. Now is a great time to consider hiring business leaders from different industries and backgrounds to help the company think outside the box. A good place to start is to identify senior executives who have led other organizations through significant changes and overseen periods of substantial growth.
Entrepreneurialism and culture: Consider the entrepreneurial mindset of the family member who founded the business. In many ways, this mindset can be credited for the business’s success. As generations pass, it’s critical that mindset continues to evolve and modernize. Boards should take it upon themselves to advance the corporate culture and entrepreneurial spirit of the company. Strategic planning retreats and exercises with management can tap into the entrepreneurial thinking that gave the family business its start.
During times of disruption, boards should be involved on a more frequent basis. Quarterly board meetings may not be enough. The board should interact more frequently to react to the fast-changing environment. Here are some considerations regarding the logistics and impact of leveraging your family business board:
Help mitigate risk and conduct safe board and committee meetings: Considering the advice regarding reduced travel and avoiding large groups of people, companies should be prepared to conduct board and committee meetings by telephone or video conference.
Pay directors for additional time: Family boards should consider director compensation for this additional time commitment and make sure they have a conversation with their directors so expectations are clear and consistent.
Consider virtual annual shareholder meetings: A number of companies have either already shifted, or are considering shifting, to a fully virtual annual shareholder meeting. Most families have not been in favor of virtual meetings in the past, but it may be the prudent solution this season.
Historically, businesses that do well during times of economic uncertainty have taken a strategic and prescient approach to securing the future viability of the business. The family business board plays a vital role in this process—by taking advantage of its flexibility to be nimble and to move with speed in the marketplace. The success of the business, now and in the future, may depend on it.
Private Leader, PwC US