• Professor Dr. Tom A. Rüsen

In the face of the pandemic.

Witten IlluFrom the research workshop. How have successful entrepreneurial families reacted to crisis situations in the past and what makes family businesses resistant to crisis even today? A blueprint from family research.

A development unique in post-war Germany, triggered by a virus pandemic, threatens the future of family businesses and thus the very core of our economy. Research provides indications of how family businesses should operate in such difficult times. They are based on studies on the longevity of family businesses, on crisis management in this type of company and on current observations in practice.

Family businesses are characterized by the fact that, due to the usually close connection between ownership and management of the company, they are very quickly able to define and implement measures to deal with the crisis situation. Defensive measures aim to limit the damage. Offensive measures use the circumstances that have arisen as a result of the crises in a targeted manner to further develop the organisation or the business model.

Within the framework of defensive measures, the successful management of a crisis situation results, among other things, from the creation of maximum flexibility in the process organisation, stringent crisis communication involving central members of the entrepreneurial family and an unconditional focus on the cash situation of the company.

Successful multi-generational family businesses have already survived several crises that threatened their existence. In the final analysis, the success of the company was dependent on the ability of the people involved to make the form of service provision more flexible and to adapt their organization and work structures at short notice. It can currently be observed that precisely these virtues are being used:

// To prevent infection, "cell division of the organisation" takes place. In this process, organizational units are divided into A, B and C teams that have no contact with each other. In the productive area, these teams operate in separate shifts - in some cases, reserve teams are even kept available for use in a team's quarantine situation. In the administrative area, individual teams are defined, which alternately go to the home office for 14 days in a kind of preventive quarantine.

// Die The establishment of crisis management teams enables a quick reaction to changes in the situation. This involves systematic communication with individual management circles (subsidiaries, locations), timely information about decisions made and organizational changes, as well as a defined information chain for feedback when infections in an employee's environment become known.

// Eine Comprehensive digitization of communication via video conferencing systems and smartphones creates security risks, but helps to maintain the exchange with customers, suppliers or other business units despite a maximum stopover of travel and meetings.

// A flexibilisation of core working hours (for example from 06.00 to 22.00 hours) will enable employees who no longer have childcare to meet their benefit contribution. Time account models with up to 200 over- or minus hours help to react to the respective workload situation on site. Due to the historically grown, close relationship with the owner family, employee representatives are often integrated into the conception and planning from the very beginning.

// The personal approach of central stakeholders of the company and especially of the employees by the representatives of the owner family helps to reduce irritation and fear. It creates trust and cohesion as we move together into an uncertain future.

// Drastic cost-cutting measures through purchasing blocks, reductions in further training and consulting projects, pooling of organisation-wide services or product creation by using short-time work protect valuable liquidity.

// Maximum liquidity protection is achieved through rigid cash management, which is declared a top priority, close coordination with financing partners and "Covid-19 measure tracking".

However, a large number of the currently observable activities of family-owned companies also include measures that allow opportunities to be exploited. The systematic further development of the company's range of products and services to eliminate bottlenecks is often the first step.

In retrospect, this was often the starting point for adjusting the strategic orientation of the entire company. Long-lived family businesses have regularly been able to go through a crisis-induced transformation of the company and thereby reinvent themselves. This way, urgently needed products or services can be created during a crisis, which use the existing core know-how of the company and transfer it to the current need situation.

Concrete examples show the repetition of this typical pattern of success:

// Established family-owned companies are converting their production to filter products or protective clothing, among other things.

// Es, a targeted development of new cooperations takes place in which employee, logistics or sales platforms are shared and made available to each other. An alliance forged in necessity often creates a basis for fruitful growth and development opportunities in the future.

// Der The current "digitalization shock" for the company's employees and network partners is leading to new and more efficient forms of service provision outside a previously existing "classic" work organization.

// Aufgrund the long-term orientation of the owner family, free time resources are used by employees for targeted investment in further training measures.

// The long-term strategic consequences of the changing market and competitive conditions for the period after the crisis are systematically elaborated and concrete options for action are developed.

However, whether families can cope with threats to their existence depends on another point: A stable circle of shareholders is crucial. By restricting the withdrawal of profits in good times, this group has made a significant contribution to building up equity ratios and a stable liquidity situation for the company.

Drastic measures to secure the company's existence, such as a 100% retention of profits, the conversion of shareholder loans into equity capital or the contribution of fresh equity capital from the family's assets, are only conceivable if the owners stand united behind the company and jointly strive to overcome the crisis.

This requires a common family-strategic framework of action for crisis management. This not only ensures uniform maxims for action, but also coordinates and organises communication within the entrepreneurial family, so that fears can be addressed and information asymmetries minimised.

In the absence of (crisis) management within the entrepreneurial family, intra-family conflicts are programmed, especially between operatively active and non-active shareholders. ®

Author:  Professor Dr. Tom A. Rüsen

WIFU - Witten Institute for Family Business (www.wifu.de)

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