Managing Partner of Delfin Annamaria Koerling talked to our new Advisory Group member Dominik von Eynern, an experienced family business member about his personal experiences and insights into how to steer a family business through times of crisis.

Dominik’s mission is to equip families in business with the tools to assess and monitor behavioural risk within their operating model. He believes that by understanding and managing these risks, family businesses can thrive.

Q1. A recent Harvard Business Review Survey has confirmed that 90% of family businesses are being disrupted by Covid-19. Many family business owners are feeling isolated as they make decisions that will shape their future. What advice can you give them?

Crisis is a time where anxiety levels rise. We know from studies in cognitive neuroscience, that a state of fear and anxiety inhibits rational decision-making capacity. Social isolation contributes to this unresourceful state. Actively seeking social connections and sharing the psychological burden is one strategy to reduce anxiety levels and increase mind space which is so badly needed in crisis situations. Actively seeking social connections is only one strategy of a wider opportunity set offered by mindfulness strategies which are best practised as a habit rather than a fire extinguisher as they have been proven to increase self-efficacy which in turn helps us to stay in control of situations.

Q2: An economic or business crisis can amplify stresses and strains that already existed in the family or the family business. What advice would you give to family business owners about how to manage through a crisis?

Take the family on the journey with you. Exogeneous shocks impact the entire business-family system, not only the balance sheet and income statement. Family dynamics change and inevitably and this can morph into endogenous shocks, which are even harder to sort out and they may even turn into transgenerational conflicts which are often impossible to solve. Again, it is advisable to pre-emptively manage family dynamics and fix the roof whilst the sun is shining. A family can be a great source of energy to master all problems in a volatile, uncertain, complex and ambiguous (VUCA) world. If the family system is structurally unstable in combination with an external shock like COVID, it can be detrimental to socio-emotional and financial wealth of the family.

Q3: Crisis often forces you to make unimaginable trade-offs. How do you reconcile the financial and non-financial commitments in a family business?

It all starts with non-financial commitments, which should be at the centre of the family-business culture. A family culture with money at the centre sails in a very high ‘behavioural risk’ category. People who don’t believe in an investment are more likely to take the money and run, without any emotional connection whatsoever. Pursing self-interests is normal in an individualist culture, however without cooperation the human race wouldn’t have survived. Families would not exist, businesses would not be successful without cooperation and wealth would not have been accumulated.

Research shows, when people have a common purpose, they are more likely to reduce their egos for this matter. Thus, when the family system is dynamic, agile and members of the family have a high propensity to cooperate, they will prove more resilient during crisis because they have no incentive to take the money and run. Instead, they are willing to contribute to the greater good of the family and make the whole more than the sum of its parts.

Q4: What advantages do family businesses have in a time of crisis?

Family businesses tend to have a lower financial leverage and a deep seated endowment to the family and to the business. This commitment is usually shared by the workforce, who often feel part of the family. Family businesses tend to invest more in human capital which pays off during hard time. Employees feel part of the family andpart of the narrative the family and business has written so far and is continuing to write. This makes them more likely to forgo parts of their salary in order to stabile the business. The family effect is particularly positive, when the level of trust is high, decision-making processes are very nimble and agency costs are low.

On the downside, family businesses can face a lack of diversification and limited access to capital markets for corporate finance purposes.

Q5:  What are your top tips to lead a family business out of a crisis?

  • Increase self-efficacy and mind-space  
  • Take the entire family on the journey with rigorously transparent communication. Seek social inclusion for yourself and others
  • Introduce family-business governance which is owned by the entire family, not just signed in good will