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PKF Funds and Family Office

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News

Crisis Management - Best practices and priorities for enterprising families

02 Apr 2020

The COVID-19 pandemic has turned everyone's world upside down. Our families, our businesses, our wealth, life as we knew it has changed. Uncertainty is the new normal, and we know that most families and their enterprises do not have experience of managing through a crisis of this magnitude.

In response, we have set out our thoughts on best practice and a series of questions that can be used by families to more effectively deal with the crisis, strategically and proactively.

1. Governance

Managing risk across the family enterprise requires a highly effective and timely decision-making process. The current crisis will impact each aspect of the enterprise differently and will extend to family risks, business risks, ownership risks, family office risks and foundation risks.

Do you have the governance structure and entities in place (such as a Family Council or Board of Directors) that are accountable, experienced and well-positioned to manage the risks and issues across the family enterprise?

2. Communication

An effective communication plan is critical to the long term success of an enterprising family and more critical during a crisis.

Do you have mechanisms and protocols in place to communicate with family members, the family office, board members, advisors, suppliers, customers, employees and the media, including restrictions/guidelines where necessary?

Will your approach be effective in a crisis? Is it open, transparent, collaborative and inclusive, internally and externally - all qualities that will aid in the ability to bounce back after the crisis?

3. Succession - learning, development and leadership

Succession planning is difficult and necessary in normal times. Its importance is highlighted in a pandemic such as this, where elders are most at risk and the youngest are struggling to find meaning. Providing the right learning, development and leadership training and coaching is critical, with different generational perspectives on wealth and its consequences.

Have you evaluated and created a learning and development plan for the next generation?  Do you have the talent and resources you need to ensure continuity through a crisis and beyond?

4. Health and well-being - medical advisory

The health and wellness of your family, family office and business employees, as well as other stakeholders, is critical to the long-term success of your family enterprise. The COVID-19 pandemic has put unprecedented strains on the physical and emotional wellbeing of family members, employees, customers, board members and other stakeholders.

Do you have the appropriate focus on health and wellness, including the appropriate advisors to assist in the assessment, management and advocacy of the health and wellness issues affecting the family enterprise during a time of crisis?

5. Wealth preservation – financial assessment & cashflow management

Capital preservation, liquidity management and investment risk/reward assessment are paramount given current levels of volatility and asset illiquidity. You should project your cash flow needs and liquidity position at least weekly, until the implications of the crisis become clearer and investment risk/reward is more rational.  Consider managing business risk and monitoring longer term liquidity in a similar way.

Do you have a liquidity and investment risk/reward management structure in place to preserve wealth and assess risk, liquidity and cashflow needs of the family enterprise?

6. Risk management

Each family enterprise has a unique mix of assets including marketable and alternative investments, residences, art, collectibles, aircraft and vessels, and operating businesses. Families and family enterprises are complex organisations with multiple generations, often living in different cities with a strong need for privacy and security.

Do you have a risk management strategy and experienced risk partner(s) to help you to identify operational, legal, economic, political, security and personal risks, evaluate your risk tolerance and identify and evaluate risk mitigation solutions and related costs? Have you identified a responsible party in your organisation to manage and monitor these risks and communicate with risk partners and family members? Have you implemented cost effective risk mitigation strategies to ensure wealth preservation and the safety and security of the family and their holdings? 

7. Human capital

While not measured on the balance sheet, human capital is invariably an organisation’s most important asset. Family offices in particular rely on their team of skilled, experienced and loyal employees to handle sensitive, confidential and complex matters. During times of crisis, there is an interdependent relationship between an employer and their employees to sustain the organisation and for that organisation in turn to support their employees’ needs and challenges during the crisis.

Have you made adjustments to allow your staff to continue their roles and responsibilities in light of the current environment? Have you reviewed both existing employment laws and new measures protecting employees’ rights and providing employer and employee relief?  Have you communicated your plans for business continuity, continued employment and compensation, and available assistance with your employees?

As issues and concerns mount during times of crisis which can threaten the health and safety of employees and the viability of an organisation, an experienced human resources professional and employment lawyer is essential to help navigate the issues and ensure the organisation makes sound and informed decisions.

8. Legal and tax

Ultra-high net-worth families, family offices and their operating businesses require the right legal and tax resources to meet their needs across a complex and rapidly changing landscape. 

Have you reviewed your legal and tax structures to ensure they are tax efficient and meet your current needs and future goals and objectives? 

Are your legal and tax teams proactive and responsive, and collaborate with you and your advisors?

Do you have the legal and tax expertise to address your needs in these areas; corporate, partnership, employment practices, family, wealth transfer, estate, trust, real estate, international law and philanthropy, across multiple jurisdictions?

9. Physical assets

It is critical to ensure that your real estate and other physical assets are properly insured, financed and physically safeguarded by trusted personnel that are able to physically visit your properties and check physical and electronic security systems in place.

Do you have personnel, cameras and other security protocols in place to reassure family members that assets are safeguarded? Is your approach effective in a crisis?  Is it open transparent, collaborative and inclusive, internally and externally - all qualities that will aid in the ability to bounce back after the crisis?

10. Information technology, data & cybersecurity

You should make sure that remote access controls regarding dual authentication, payment of bills, online payments and related data storage facilities are not compromised and susceptible to cybercrime during the crisis period. Review your vendors for similar controls during this period.

Have you evaluated your cloud or physical servers for continued connectivity, ongoing remote access capabilities and possible cyber penetration given remote access needs during the crisis?  Do a similar review regarding your key vendors.

11. Services support

Families and businesses rely on a vast network of suppliers and advisors who provide essential services.  As COVID-19 has not spared any organisation, it is essential to maintain a continuous and open dialogue with your key relationships to understand their financial and operational issues and how they plan to manage these challenges.

Are your key suppliers able to continue to communicate, respond and deliver the services needed to support your organisation? Have your needs changed as a result of the crisis?  Are they financially stable so that they can continue their operations in both the short and long term?

The answers to these questions may indicate that you may need to explore additional resources to supplement existing service providers.  Open lines of communication and asking the right questions will help you get ahead of potential problems.

12. Business processes and internal controls

Families can protect their wealth and preserve their legacy by thinking strategically, continuously assessing their control systems and analysing their operations in light of changing economic conditions, family dynamics, changing tax rules and cyber security threats.

Virtually all organisations have been impacted by the COVID-19 crisis, often in unexpected ways. Staff may fall ill, be required to work remotely, communication may become disjointed and new technology may be introduced without sufficient evaluation, implementation and training.

This environment creates additional risk and operational challenges but if effectively addressed, can also create an opportunity for the organisation to improve their operations, efficiency and controls.

Do you have an experienced resource who can objectively evaluate and document your business processes and controls, ensure that staff is trained and can implement a compliance monitoring process? Do you periodically review these processes in light of economic, social, legal and technology changes?

13. Philanthropy & Crisis Philanthropy

Many families are philanthropic and have established entities, a governance structure and a decision making process for charitable donations and philanthropic giving.

Is your family interested in doing something in response to the COVID-19 pandemic, or you might already be doing something? Do you have advisors that can help you identify the most immediate needs, prioritise your interests, advise you on potential organisations and at the same time engage the next generation?

Contact us

We hope you will use these ideas to help you navigate the current crisis and develop robust programmes and protocols to mitigate the risks that your family enterprise will face today and over the long term.

Please contact Paul Pratt (ppratt@pkffundsfamily.com; 020 7516 2233) or your usual PKF contact, and we would be happy to schedule a phone call to discuss your needs. Additionally, please access the PKF Littlejohn coronavirus resource centre for additional information relating to the COVID-19 pandemic.


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