How Tough Times Get Families to Re-Set Wealth Priorities

I wrote this article for WealthBriefing (published on 18 June 2020) because I believe the pandemic will (or should) make successful families look again at their strategy. Forward-thinking families will reflect on what they have learned, what needs to change, and what really matters to them for the future. Society’s attitude to large businesses and wealthy families may also shift. The original article can be found here https://www.wealthbriefing.com/html/section.php?keywords=arabella+murphy (subscription may be required).

Somewhat ironically, precisely because none of us can know what the future holds, now is the perfect time for families, and family businesses, to plan for the future.  This includes taking stock of the last few months, identifying and educating successors for all leading members of the board or the family, and communicating to everyone who they can turn to and trust if key individuals are absent.  There has also never been a better time to have the ‘what’s it all for?’ conversation, and use the results to embrace the strange new normal.

As many countries begin to emerge from lockdown, wealthy families and family businesses can take a moment to reflect on whether they have been in ‘disaster recovery’ mode, or whether the COVID-19 crisis has caused them to look differently at the future. It seems obvious that there will be no quick return to ‘normal’, and that perhaps things have changed forever. Scientific opinion differs on whether there could be further peaks (and lockdowns) to come, but beyond that, how will wealthy families, and their businesses, change?

One clear point which quickly became apparent when lockdown started is that the old truism ‘cash is king’ applies to both businesses and families. Those with healthy cash balances, and a strong balance sheet, have weathered the storm more easily than those with illiquid or heavily geared assets. Few would have predicted that Richard Branson could not bail out Virgin airlines himself, because (as he said) his well-publicised fortune is fully committed to other investments. How will others’ experience over these last few months influence their decisions about future investment or spending?

Another well-worn phrase is likely to have a lasting impact – there’s no such thing as a free lunch. In business, we’ve seen heavy criticism of wealthy individuals (or high-value businesses) taking taxpayers’ money to furlough staff, leading some to back down, and others to tough it out. In the US, the focus has been on the disparity between the treatment of employees and executives.  One notable critic is Abigail Disney, who tweeted her disbelief with Anglo-Saxon bluntness, upon hearing that Disney had furloughed 100,000 staff (without pay), while leaving Bob Iger and other executives eligible for their multi-million-dollar bonuses in full, and paying a $1.5 billion dividend to shareholders. 

She’s not alone in reading the room this way, suggesting a future where a new social contract emerges: businesses which have taken government support, or put workers on unpaid furlough (claiming benefits), will struggle to justify huge executive pay, or generous dividends, for many years to come.  The UK government has announced that companies using its Coronavirus Large Business Interruption Loan Scheme, who take over £50 million ($62.8 milion) in funding, must restrict senior remuneration and dividends – although this change doesn’t cover furlough costs, or loans already taken by businesses of any size, public opinion is unlikely to make the distinction.  

Perhaps, even beyond that, there will be an expectation of a new spirit in society generally, that the quid pro quo for high earnings or great wealth is fair play, strong ethics, or social good beyond a simple CSR policy.  There is plenty of room to debate that idea, but sensible business families will decide policy for themselves, rather than waiting to hear the public verdict.

An interesting part of any discussion within families might be to reflect on their current philanthropy plan.  Is it still doing everything they want?  Some families may look more towards efforts to relieve suffering, whether that’s supporting medical research and treatment, or causes which help those most in need.  Others may conclude that their support is best dedicated to charities which might receive less in the rush of money towards relief efforts. Prudent families will also form their own view on whether paying taxes in full is in itself a form of social good, and may anticipate that public attitudes to tax saving arrangements could harden further.

In business, and within families, it’s a good time to review culture as well.  In a new normal that seems likely to last for several years and perhaps beyond, to include social distancing and remote working, how do we maintain strong bonds, good communication, and a shared sense of purpose?  Those are the things which, once the immediate crisis has passed, will breed loyalty and help businesses (and families) keep working, even as they rethink processes, supply chains and customer demand. 

Employees report that what’s missing from remote working are the ‘water cooler’ moments, or the brief informal conversations on the way to a meeting, which build rapport and foster team spirit.  How do juniors learn, if they aren’t watching and hearing how experienced staff act?  And how do you build trust if you can’t shake hands? There are many analogies within families, of course, as it’s equally hard to have sidebars on family Zoom calls. Non-personal interaction lacks nuance and body language, so is notorious for causing misunderstandings.

Families and their businesses shouldn’t pass up the opportunity to think about how to keep their relationships and ethos when people can’t get closer to others than two metres or a video conference.

As the immediate, fire-fighting stage of the pandemic eases, families can benefit by having interesting, reflective conversations which will help them to build a stronger future, and respond in a planned manner to future crises.

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Arabella Murphy

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