Managing a Family Business Disaster

Managing a Family Business Disaster

by Richard L. Narva
Principal Consultant, Genus Resources, Inc.

What happens when two brothers who are the owners, directors and the CEO’s of a business are suddenly in a plane crash?What happens to their employees and their customers, to their community, and the network of people who depend on their company?What happens to a family business that loses its leadership, its heart and soul, and its owners in the blink of an eye?

What do you do when there is no one to sign the payroll check due to be issued in 48 hours and there is no board of directors to authorize anyone new to sign? Who helps the employees who have decades long personal relationships with the deceased owner/managers to manage their grief?Who supports the surviving key managers as they strive to manage the company and their own grief simultaneously?There is no end to the questions.

Certainly these are the kinds of questions that a formal succession plan is supposed to anticipate.What would a formal planhave done for those the brothers left behind.Their plan might have included having a third party on their board of directors who could have authorized their CFO to sign the paychecks.The plan might have stated clearly whether it was their intent to sell or not to sell the business in the event of a disaster, and it could have enumerated those advisors they trusted to advise on such a transaction if it should be appropriate.Many companies have such plan.As necessary assuccession plans are, however, they are not sufficient.And they are not even what is needed most in these situations.

Everyone involved – surviving family members, managers, employees, advisors, and members of the community – must all realize that the power of relationships, which is a long term strength, can in the short run become an equally powerful roadblock to doing the effective thing for the company.In a family business, the sense of loss is magnified by the duration and power of the relationships individuals have with the family members at the helm of the company.The loss is personal, enduring, powerful and private.

Yet the company’s immediate requirement is for leadership at all levels that is unemotional, immediate, steadfast and public.Reconciling private grief with public duty in a family business is the fundamental duty of the survivors.And it can be an overwhelming task.

Moreover, even if each individual with heavy responsibilities rises to the task of performing his or her duties in the manner that is required, another powerful obstacle to continuity must be confronted, the loss of any clear sense of authority.Who is in charge of what?of whom? and when?

The surviving spouses are the new owners, but may have no knowledge of the business.The managers may have a clear sense of operational duties, but who replaces the directors to set policy, hold management accountable, or renew the vision of the company? The advisors have the expertise the company needs inmoments such as these, but may be unsure whether dignity and propriety permit them to assert themselves.And all of these constituencies are burdened by the overpowering sense of loss they feel.The company and its employees need clear authority to function and serve the customer.What does one do?

1.Recognize and respect the power of the relationships and of the grief everyone feels.Call in experts in the grieving process.Clinical psychologists know how to handle powerful emotional issues generated by familybusiness tragedies.Include them in the “Swat Team” section of a disaster recovery plan.Remember that their work needs to start immediately.

2.Make sure that a broad range of both managers and family members know the key advisors to the company. Convene an annual meeting ofadvisors with the CEO and another withthe family to ensure that there are active personal relationships between and among the advisors and between the family and the company and these key advisors.

3.Create a supervisoryboard of directors – one that actually meets and deals with important issues.Be certain to include at least one non- family senior manager on the board in case of emergency.

4. Communicate within the family. Have an annual family meeting.The crucial issue is that the family that controls the company meets and talks about family issues.Facilitators for these meetings need to be trained in family

5.Remember that information is the source of strength for everyone.In a post-traumatic situation like an airplane crash, no one in the system canhave too much information.It is an antidote for anxiety and the currency of the rebuilding program.