Values, cash flow and technology during a crisis: interview with Rupert Phelps
18th May 2020
We've been chatting to Rupert Phelps, who leads the Department of Family Office Services at Smith & Williamson, about how family businesses have been responding to the current crisis, and some of their current challenges and opportunities.
Bearing in mind that some sectors are hit more heavily than others at this present time, what inspiring, courageous or creative action are you seeing family business clients take during these unprecedented times?
The standout example of this is senior management and other key stakeholders, such as family members in less senior positions but with other income sources, taking salary cuts. When this is possible, it has a double benefit for people and business: it shows a stewardship approach to leading (and sacrificing a portion of income that may not have a meaningful impact on their lives, but which would be ruinous to others) and it lightens the cost burden on the company.
It’s so encouraging and inspiring to see that family businesses are finding ways of getting through a major crisis in a united way.
I would not say, though, that it is surprising. Family businesses, from the smallest to largest, tend to be closer to the communities where they operate and have a sense of stakeholder responsibility. One is physical and direct, the other is a value. When these are fused and activated into purpose, the result is beneficial stewardship in action. By this I mean a sense of trusteeship (beyond and above the legal sense), safekeeping something of value and readying it for future generations.
Family businesses have proved themselves, time and time again, across the reach of history and challenges, to be more responsible, long-term looking and thoughtful to the impact of their activities than other ownership models. Very few large listed businesses, indeed businesses of any kind, did not begin as family businesses and, therefore, the potential benefit of their values can outlive any definition of family connection for long into the future.
This is yet another positive contribution and responsibility that business owning families make and is often underappreciated.
For family businesses who may not have elaborate family governance structures in place, what would you recommend they do now, in a time of crisis?
Governance is always fundamental and needs to be nurtured, refreshed and adapted.
The process of seeking effective governance and integrating that, for both family and business on the personal and corporate sides, is usually where the greatest challenges arise. But, equally, where the most transformational benefits may lie.
Having said that, a more pressing issue for many family businesses right now is cash flow management. For many this is an immediate issue and one that can represent an existential threat, including to businesses that, by all normal measurements, are in good health. For family-owned SMEs, cash flow management could be the most influential factor determining survival or failure. We have a number of resources on our dedicated COVID-19 Hub on this crucial issue, including an upcoming webinar on cash flow management.
The next generation are used to working with technology - what role do you see them having or believe they could play in their family firms during a crisis that is forcing us to work with technology more than we are used to, or perhaps even comfortable with?
Working from home is something working people of all ages are now doing. Every day, every week. That is far different from doing it every Friday or for the odd period.
We are all learning how to do that productively and, hopefully, being pleasantly surprised. This will have a transformative effect when things ‘get back to normal’, since we will not revert to what was actually ‘normal’. Technology-enabled efficiencies will be broad and substantial and next generation family members will be in an especially strong position to participate in this way.
There is also a question of balance in looking at all members of the family who may be able to contribute in any way. This includes the oldest, as well as the youngest generation.
Families may want to consider creating a Council of Elders, and so tapping into a collective source of intellectual capital and experience that may assist in guiding the family and its business through these challenges. A calming ‘hand on the tiller’ can help ensure that energy and activity are channelled in the optimum direction.
Many families have discovered that a blend of inputs, from all generations, will harvest the most beneficial utilisation of the individual human capital of their members. Clearly, each person needs to be engaged and contributing, but those who have less to say and may be shy to say it, might still have a valuable perspective if unearthed by careful chairing of family meetings.
It should also not be assumed that the youngest generations are always very tech savvy and the ‘elders’ generation (older than the governing generation of those probably in their 50s or 60s) technology luddites. There are plenty of exceptions to this, especially with the elders. What matters is that each family member has the opportunity to be included and involved, and that constructive challenging of ideas and strategy is encouraged.
Where families learn how to practice managing disagreement and conflict in calmer periods, their future-proofing will be enhanced for times such as these.
