Welcome to PKF Funds and Family Office https://pkffundsfamily.com/ PKF Funds & Family Office COVID-19 Accelerator series

Our COVID-19 Accelerator series is designed to highlight the impact COVID-19 is having on families, their offices and their businesses with a focus on areas where COVID-19 will accelerate change

Our COVID-19 Accelerator series is designed to highlight the impact COVID-19 is having on families, their offices and their businesses with a focus on areas where COVID-19 will accelerate change. Download article

In this our first article, we look at how coronavirus might accelerate transition in wealthy families COVID-19 and Family Transition How will the COVID-19 crisis increase generational transition in wealthy families?

Coronavirus has caused disruption and uncertainty across the globe, potentially changing the way we live and work for a long time, if not forever.

COVID-19 and the subsequent responses by governments around the world has dramatically affected our freedoms, lifestyles and working practices. Many businesses have almost come to a standstill. But what does this mean for families in business, and how is the need to respond to the crisis shaping their generational transitions?

The situation requires it

The major business continuity challenges posed by COVID-19 are forcing many families out of their comfort zones. They are having to deal with operating businesses that have no customers. Business and personal environments are in a state of flux. Governance structures and protocols are, at best, under strain and at worst no longer fit for purpose in this COVID-19 world.

However, this is presenting opportunities for the next generation of family members to start stepping up and taking ownership of teams, divisions, councils, businesses and investments. Suddenly, those without a voice or a place at the table might find themselves getting involved at the centre of things.

Moreover, the crisis has forced families to face up to issues and deal with things that might have been left brewing in normal times. A crisis can bring clarity of thought and action, which might help align disparate family members around a common cause.

Taking on more roles – a chance to prove yourself

As family enterprises take stock of their changing environment, family members are being asked to get involved more now than ever - whether its dealing with an operating business or real estate portfolio. Next generation family members are being presented with opportunities to make more independent decisions as the crisis demands instant responses from key stakeholders in family businesses and their private offices. The old ways of communicating, where the patriarch or matriarch would sign off everything, are no longer viable as they are unable to cope with the demands placed on them.

I can be involved wherever I am located

Geography has historically been considered a barrier to successful transition in the fam8f15088c91b446dad45802f8d211121ily as, in a lot of cases, the next generation will have schooled and subsequently settled away from the main family hub, whether in a different region, country or continent. This distance can make it harder when considering transition: do I give up the social ecosystem my family and I have created and move back to the family origins?

Coronavirus has shown that there is no need to be physically present all of the time and geography is no longer the barrier we thought it was. The crisis is proving how hybrid working methods, often involving technological solutions, can work and deliver results for all family members.

Technology adoption – and its impact on transition

Any article about COVID-19 and its impact would be remiss without the mention of technology. We’ve discovered how easy it is to move most of our business and personal lives online. However, more importantly in relation to transition, the crisis has shown that younger generations are more able to adopt and utilise technology - they are more in tune with what is possible and how best to manage the new virtual world. This gives them greater say and control in the digital space and presents another opportunity to show their value and skills. It also creates new leadership roles that will be difficult for families to rescind once life starts to inch towards something that may resemble normality.

The new world

Families recognise that a crisis can be a good time to evaluate new opportunities. Due to the increased digitization of our lives, many new opportunities will be in the sectors that next generation family members are familiar with, understand well and have existing ecosystems and networks. This ability to source, access and qualify new opportunities for the family’s capital will enhance the status of younger generations and potentially accelerate the transition in the family as the younger generations take on more prominent roles.

Factors Affecting Succession

Succession is influenced by four areas. Thinking about these now will help you on your path to a smoother transition and a robust succession plan.

What next?

If you, your family or your client family are experiencing any of these drivers and starting to think about how this could affect your family transition, please review our succession white paper which outlines factors to consider when thinking about your family succession or contact us to discuss how best to proceed with your own transition.

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Crisis Management - Best practices and priorities for enterprising families

In response to the COVID-19 pandemic, 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.

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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COVID-19 Accelerator Series

Our COVID-19 Accelerator series highlights the impact the coronavirus pandemic is having on wealthy families, their offices and businesses. We focus on areas where COVID-19 will accelerate change.

Our COVID-19 Accelerator series highlights the impact the coronavirus pandemic is having on wealthy families, their offices and businesses. We focus on areas where COVID-19 will accelerate change. 

In our second article, we look at the way COVID-19 is accelerating technology adoption and utilisation for wealthy families and the data and cyber-security risks you should be aware of during the crisis and going forward. Download article 

This has been a time of upheaval – and learning 

In the three months since COVID-19 was declared a pandemic, our world has been twisted upside down and inside out. While our physical contact with other people has been restricted, the digital world has exploded. 

Zoom’s subscriber numbers have increased dramatically, we have become masters of the virtual meeting and the consumption of digital content has gone through the roof. 

Lockdown has forced everyone to review their business continuity planning, protocols, processes and governance so that they can maintain and support their human, intellectual and financial capital. 

As business capacity has been stretched and IT infrastructure tested, existing processes have been pushed to breaking point and are now being renewed and refined. 

While families, their businesses and offices become increasingly reliant on their digital capability, it is essential to consider some of the key learnings of this extraordinary time. 

How will your business need to change?

The future operating model of your business and your office is likely to be a hybrid that embraces remote working. Automation tools such as robotics process automation (RPA) and workflow collaboration applications can reduce the time spent on manual tasks. That lowers the risk of human error and keeps data more accurate, up to date and secure. 

RPA can be applied to areas such as gathering documents and data for processing, document management, tax returns and integrated reporting. 

Data security is a key consideration. Campden’s Global Family Office report for 2019 found that 20% of family offices suffered a cyber-attack last year. 

That threat has risen during lockdown. A Check Point Software & Dimensional Research survey found that 71% of IT and security professionals have seen an increase in security threats since the pandemic began. Just over half (55%) cited phishing attempts as the main threat, followed by malicious websites offering advice about COVID-19 (32%) and increases in malware (28%) and ransomware (19%).  

Make your communication clear and consistent

In a time of crisis, getting your communication right is critical. Even on a Zoom call, it’s not easy to pick up on body language and other non-verbal communication. To keep your family enterprise aligned, it’s essential that your communications are consistent, authentic and personal. 

As well as your daily and weekly crisis updates and management meetings, be sure you find time for family social connections and regular updates for the people in your family enterprise. It’s a good way of reminding yourselves why you choose to stay together.  

Upgrade your risk management

There has never been a greater need for a robust cyber-security strategy. Your personal security is at risk from webcam extortion, identity theft and new threats related to working and studying at home. Your office security could be vulnerable to authentication weaknesses, email account takeovers and the risk that vendors could be compromised. 

Recent social engineering and ransomware developments represent an extra level of risk to any business, employee or office. 

Your cyber-security strategy should take into account the risks that can be created by employees, suppliers and vendors, accidentally or on purpose. 

Make sure you have a current, signed contract with every vendor, supplier or company your family office works with. This should describe what they are doing to protect the family from human and technological threats, including background checks on staff at least every three years.

Similarly, your office should carry out background checks just as often on your employees and other staff with access to family houses, offices and resources. 

Data security guidelines

  • Know what information you have, where it is located, how it is protected and who has access. Use a personal information assets register.
  • Use encrypted devices. If they are lost or stolen, your data is protected.
  • Stop emailing unprotected documents. Use passwords on files.
  • Set up secure storage locations for sharing files with auditors.
  • Be aware of the following threats:
  • Phishing and whaling are on the increase – be careful what you share. Develop a complete picture of your personal profiles.
  • Ransomware, which encrypts your files and demands a fee for unlocking them.
  • Traditional fraud, which plays on heightened fears during the pandemic.
  • Be careful what you share online.
  • Keep your devices updated. Be aware of security patches, which are being released at an increasing pace.
  • Test your home network for vulnerabilities (see below). 

Cyber-security guidelines

Be aware of the threats listed above, and of agencies with good advice to help you such as Action Fraud, Cyber Aware and the National Cyber Security Centre.

You should also take the following steps:

  • Obtain external accreditation for your family office digital environment and your information management policies.
  • Review, update and test your back-up capability and disaster recovery protocols regularly.
  • Train your teams in cyber-security, especially in information asset management.
  • Constant monitoring. Knowing how many phishing attempts are made ensures high awareness of the threat.
  • Update and test your cyber-security incident response plan.
  • Manage your user privileges and ensure everybody gets only the access they need.
  • Undertake home vulnerability scanning to identify issues with your devices, network and internet connections.

Prepare for the next crisis now

With the actions you have taken in response to COVID-19 fresh in your mind, this is the ideal moment to review those actions and apply the lessons learned to a new, updated data and cyber-security plan.

Central to this plan will be the measures you will take in a crisis. These will include actions when phones or laptops are lost, and when you suspect you have received a phishing email or phone call.

Your plan should also cover your response to a ransomware event, hacked emails and network breaches. You should use your new plan to rehearse your response to a cyber-attack.

A family enterprise should have a plan for each type of event, either monitored in-house or by an IT support firm, insurance company or trusted business partner.

What’s next? 

If you, your family or your client family would like to know more about how to respond to any of the issues raised in this article, contact us for further information or advice.

Paul Pratt

ppratt@pkffundsfamily.com
+ 44 (0)20 7516 2233 

 

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