Going nuclear: Why it happens more in times of crisis and how to avoid it during or after the Covid-19 crisis
12th May 2020
There is no getting away from it, we live in uncertain times. With uncertainty comes fear and fear can be a very destructive force indeed. When people are scared and the stakes are high, they are more likely to fight.
The relationship between crisis and litigation
Certainly, in the context of an economic crisis, the statistics support this with the 2019 Litigation Trends Survey finding that 64% of respondents agreed with the statement that economic downturns tend to increase litigation volume. A 2016 article in Above the Law, states clearly that, “When the economy is bad, there are more [court] cases filed. [A study has] found this relationship to be robust and consistent over time.” Of course, the current pandemic is much more than an economic crisis. The very fabric of society is being shaken to its core, with life as we know it on hold and hundreds of thousands across the globe losing their lives.
This article explores of some of the behaviours we have seen in family businesses in times of crisis. The nature of our work means that, more often than not, we are working with the family business system at a time when it is experiencing either a significant expansion or contraction and of course during ownership and management transition. These periods bring numerous areas of conflict. During expansion we witness families debating appetite for borrowing, the risks of becoming beholden to lenders, the future direction of the business and disagreements about the use of shareholder funds, dividends and reinvestment, amongst others. We also witness constructive support, the sharing of ideas, excitement and hope for a successful financial future for the family and the business. During contraction we often witness blame and recrimination and threats about escalating matters. We see a lot of conflict between owners and management of the business. During contraction we also witness periods of positive introspection, particularly around the future shape and feel of the business and a positive and focussed revisiting of purpose.
How does the current economic uncertainty impact family businesses?
Whilst some families experience an improvement in relationships during times of crisis, as is explored in my colleague Nicholas Smith’s recent article the Paradox of Peace, we at the FBC have observed that in times of crisis, other families act in an increasingly hostile way towards one another.
To be clear, what we have not seen, at least so far, are clients actually going to Court. However, we would argue that, the path towards litigation starts small. Behaviours change, positions become ever more entrenched, the quality of communication gradually declines. Before families know it, it becomes impossible to envisage returning to an era of collaboration, communication and compromise.
In times of economic contraction, as family owners begin to understand the extent and immediacy of the impact that the crisis they are facing will have on matters such as dividend yield, we see family members start to ask questions like, ‘what are my rights?’, ‘what am I entitled to’, ‘can “they” do this’? We also see, what were previously issues tabled to be discussed constructively by family members at future family meetings, being escalated to the level of a threat levelled at the board or other family members.
Why does this happen?
Fear, of the unknown, or of financial hardship can result in family owners wishing to protect their own personal position. The scope for considering the perspective of the business, or in some cases, the wider family, narrows. In other words, individual family owners take neither a ‘business first’, nor a ‘family first’ approach. Instead, they take a ‘me first’ approach. The irony of course, is that such attitudes if left unchecked, may result in an erosion of family relationships and business wealth, which far outweigh any immediate financial or emotional shocks experienced by an individual family member.
We believe that these shifts have the potential to derail whatever family harmony does exist and at worst, set the family on a path towards litigation, at a time when, to survive emotionally and financially, families need to pull together more than ever.
Given the enormity of the current crisis, we at the FBC are asking whether the behaviours outlined in this article and in the Paradox of Peace are being further exaggerated, exacerbated and accelerated. Only time will tell.
What can you do?
If you have experienced the above in the past few weeks, what can you do to veer your business owning family back on course? Here are some ideas from the FBC team:
- Listen: really try to hear what other family members are saying. Sounds simple but actually a spectacularly hard thing to do when emotions are heightened.
- Self awareness: notice how you feel in any given situation. Take a moment, breathe deeply. Allow yourself some time to fully feel your feelings and be curious about what is driving your emotions. Pause before you react. The pause may be momentary, or you may need a day or more to cool off and fully explore how you are feeling.
- Talk to someone: if it is available to you, talk to an objective and trusted third party. This is someone you can rely upon to constructively challenge you. Avoid listening to those who simply confirm that you are “in the right”.
- Put yourself in the shoes of others: what may be driving the behaviour of other family members? Answer this in the most constructive and forgiving manner that you can. Imagine that other family members are doing the best they can and acting from a place of wanting to do the right thing, even if, in your view, they haven’t made the best possible decisions.
- Ask yourself whether decisions taken have been made with the long-term interests of the survival of the business in mind. Chances are that they have.
- Reflect on what you have learned: if as a family you have already been through the process of dealing with conflict, or establishing a family business governance system, reflect on what you learned from the process and some of the tools that you were given. Analyse the current situation in the context of the three circle model. Where are other family members coming from? What is driving their behaviours and decision making? Who are the hidden influencers? What other perspectives may justifiably co-exist alongside your own?
- Reflect on what you need (as opposed to what you want) right now: if you are in the fortunate position of being able to weather the current storm, can you accept how things are? If you, or other members of your family will be seriously disadvantaged by, for example, a major reduction in dividend income, can you appeal the wider family and / or the business, to set up a fund to set up those who are disproportionately disadvantaged?
Perhaps you find yourself in a position of leadership or influence at this time, for example, you are the Chair of the Family Council. Perhaps you have no formal title, but people come to you for advice, because of your seniority or experience. In these circumstances how can you use your position to positively impact the family? You may wish to consider the following in addition to the above:
- Consider how you can clearly and constructively represent the big picture concerns of the family to the board (or vice versa, depending on your role). Use the current challenging circumstances as a good test to see how well you can make the family governance channels work.
- Neutral language: in your verbal and written communications, use the most neutral language you can and try and keep away from using emotive language, or expressing your own personal views.
- Live the differing perspectives: try and see life from the varying perspectives (board, wider owning business family etc). Gently share these varying perspectives with those who you have influence over.
- Dissuade family members from focussing on legalities and entitlements.
- Challenge constructively: do not shy away from challenge (for example in your communications with the Chair of the Board) as challenge forms part of a healthy family business system. However, prioritise which are the most important matters to raise. Focus on these and ensure that challenge is delivered in a constructive manner.
Getting back on track
In our experience, consideration of some or all of the above have enabled families to pause, reflect and to choose the path of communication, collaboration and compromise over heightened hostility. A choice that, whilst it can be difficult and require some soul searching at the time, will stand those involved in good stead to weather the storm that may lie ahead.
Emma Rudge is a consultant at The Family Business Consultancy. To find out more about their work, visit thefbc.co.uk