NEW YORK – When confronted with a crisis, it’s all about preparing for the future says, Jack Ma, Alibaba founder.
Family-owned and closely held businesses endure or die out depending upon how effectively they plan for the future. Similarly, even small and medium-sized family businesses must respond to a crisis. No company or family can escape some crisis at one time or another.
What is a crisis?
It’s any unplanned event, occurrence or sequence of events that family businesses have not had to deal with before. A crisis might be external to the business,-an economic downturn, a calamity, and earthquakes-or internal such as the death or disability of the founder, workplace violence, product failure or management failure.
Whatever the cause, the key to survival is planning way ahead and the ability to “take the long view”. The irony is that the very definition of a crisis is that it is an event that can’t be fully planned for. However, there are things you can do.
Prevention is best. Preparation is better.
Evaluate the ways in which your family or company are most vulnerable to a catastrophe. Identify possible risks and what can cause them. Any company should have an internal ‘alarm system’. Pay attention to the warnings. A patriarch suffering a stroke and given six months to live, like in the case of Henry, would have given the family sufficient time to transition and prepare the process for a leadership change.
The Cosmos family’s failed succession plan after the untimely demise of its patriarch, Henry Wong, is a valuable lesson for family business leaders to prepare for the worst case scenario.
Cosmos patriarch should have prepared a succession plan early on.
Without a clear succession plan, many businesses fail after the original owner passes away. The key is to plan well ahead. Succession is a long-term complex process, not a one-time event.
Business leaders must think what his or her long-term goals and objectives are, both in business and personal terms. They must ask themselves many questions before they even begin to consider the actual process of transition, such as whether they will play any active role in the company’s future operations, how the transition or even sale will affect the employees, customers, suppliers, and other stakeholders in the company.
The criteria must be made very clear, including the qualifications of the successor, to whom ownership of the business will go to, exactly when that will occur, and under what conditions.
Planning for the sudden death of the leader/owner of the company
As the saying goes, “Failure to plan is planning to fail.” Founders of companies that don’t plan can cause financial as well as emotional chaos in the company they have nurtured and spent their lives on. I have listed the following immediate steps when confronted with the warning signals. For SMEs with 100 percent or majority family ownership, you can also simplify the process:
Create a family council or an executive leadership team who will meet with advisors and stockholders. Decide who will be the leader albeit interim for the team.
Develop a written document describing who does what and what is to be done. For companies with many shareholders, it is better to prepare a corporate management statement that includes the following:
Guiding philosophy: What overriding principles of your business are important for your successors to continue?
Interim structures: How should the company be managed, the family organized around it and ownership handled in the interim and in the future?
Direction and outside support: Who should be involved in determining key issues related to company direction, and how should that input be organized?
Benchmark: What metrics, or key success factors, need to be monitored—and what should those benchmarks be?
Location of documents: Where do you keep the important personal and business documents that will be needed in handling that transition?
Appoint a family spokesperson or lead communicator with your customers, suppliers, banks, and other stakeholders to give assurance that it’s business as usual. Articulate the truth and tell it fast with openness and consistency, realistically upbeat and reassuring.
Involve the stockholders, board, executive management team and family to put into operation the plans that were made before the leader’s death.
It is better to incorporate in the plans the succession programs and the estate plan.
Keep your plans current and review them regularly.