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Family Business Dividends in Turbulent Times
Wealth Strategy
Planning for the future in our rapidly and suddenly changing, volatile, and uncertain environment is challenging for family enterprises. Changes are widespread in their economies, industries, with technology, and in their organizations, networks, ownership groups, and families. But plan they must—in spite of the fog on the road ahead. There are customers to serve, markets to corner, opportunities to win, investments to make (including big, long-term ones), threats and risks to manage, organizations to build, communities to support, families to nurture, and next generations to develop.
As Professor John Davis teaches family enterprise leaders and owners: “The world being more unpredictable does not absolve owners and leaders from having a point of view about the future and how their families and enterprises need to adapt.”
Planning for the future was easier when the future was more predictable and less turbulent. Pre-2020, many companies were still planning several years out; now, maybe two or three years. Rigorously anticipating the future is complex and challenging enough that a new profession called “futurist” has emerged. Now leaders and owners can read what futurists predict for the world generally and for their region or industry. You can invite one to advise your family enterprise. But a family enterprise needs to do its own work to prepare for its future—for its businesses, investments, the owners, and the family. The most useful preparation is not siloed, but done in an integrated way.
Active owners and leaders of family enterprises—who, we recognize, have their hands full dealing with issues of today—need to become futurists and strong planners for their enterprises. A new governance committee can help them do this work: the Future Readiness Committee.
What does Future Readiness Entail?
There are three overarching activities involved in becoming future-ready as a family enterprise: anticipate, analyze, and prepare actions.
Boards and executive teams are expected to do these for the business and family office, and strategic family councils and owners councils for the family and owners, respectively. But the breadth of their lens and how far they peer into the future differentiate what governance and management groups normally do and what the Future Readiness Committee can do.
Here are the activities of becoming future-ready:
- Anticipate what’s likely to affect your business, investments, owners, and family in the future.
Your enterprise will be affected by forces from multiple sources:
- in your environment (e.g., technology, geopolitical changes, exchange rates, interest rates)
- internally in your company or family office (e.g., gain or loss of key talent, a new generation of employees, culture changes, AI impacting teams and work processes)
- internally in your family (e.g., the family’s level of unity or conflict, becoming more geographically dispersed, the next gen not showing interest in your family’s activities)
What forces or events could be approaching, which you need to pay attention to? How do you separate the “signal” from the “noise” in order to read the future right? Are there trends you can identify that would likely affect you? How could they change things for you, good or bad? How could multiple forces collide and together impact you? What are possible scenarios, containing various elements, that could impact you?
- Analyze the consequences of various scenarios.
For each scenario, there are consequences for the business, the family’s wealth, the family. Advanced planners examine not only first-order consequences—those that impact you directly and cause you to take some action—but also second-order and later consequences that result.
Decision-makers (business leaders, boards, investment committees, owners, family leaders) should be consulted to determine how they would respond to each scenario. This type of test-run is what we call a fire drill: as a result of what we expect could happen, what would we actually do? The fire drill exercise gives you an opportunity to prepare and run through responses—with the understanding that what will happen isn’t captured entirely by any scenario you are responding to in the fire drills. Still, the fire drill will surface things you hadn’t thought of and help you map out a concrete roadmap for each scenario.
- Prepare actions to respond to various possible scenarios.
The responses of the various leaders and governance groups of the family enterprise should be coordinated to maximize their effect. Collectively, they develop a playbook of actions and policies to respond to what the enterprise experiences.
Each time the enterprise goes through this process, it can improve how it reads its external environment and internal factors, improve how it develops scenarios and how it responds to them, and refine its actions to be future ready.
Role of the Future Readiness Committee
We have long advocated that owners councils, family councils, boards, investment committees, and management teams devote time to anticipating and preparing for the future. We have concluded that the best way to build a disciplined process around future readiness is to form a specialized group—the Future-Readiness Committee—that is accountable for this process.
The Committee’s activities are to:
- Scan, anticipate, identify, and assess the environment and the internal organization, investments, and family for threats, risks, and opportunities. Develop an up-to-date dashboard of key factors to monitor. Consult with experts as needed.
- Work with the leaders and active owners of the enterprise to develop various scenarios based on sound data and analysis. Analyze the consequences of these scenarios on the total family enterprise.
- Develop exercises where enterprise leaders and owners can discuss and create responses to these scenarios and make plans for the enterprise to achieve the owners’ goals. Make recommendations to the leaders and owners.
When it works well, a Future Readiness Committee can allow your Family Enterprise to see around corners, even the corners you didn’t know were there, to take advantage of disruptions, risks, and opportunities, and design a better trajectory for the Enterprise and Family.
Design of the Future Readiness Committee
Placement
Where does the Future Readiness Committee sit in the governance system of a Family Enterprise? There are two likely choices:
- Since the Future Readiness Committee should consider how all parts of the family enterprise and family could be impacted by future events and changes, it could be well placed as a committee of the Owners Council—if there is one.
- If the family company is the overwhelming asset of the family and the owners rely significantly on the top board of the company for advice and plans, it could reasonably be a committee of the top board.
In either case, the Future Readiness Committee should have the support of the owners, understand the entire family enterprise, and coordinate its work with all parts of the governance system.
Composition
The composition of a Future Readiness Committee is imperative to its success. It draws together diverse perspectives, including representatives of the owners, company board, management, investment committee, family, and outside experts. The committee should be granted a reasonable degree of latitude to explore scenarios and ask “what if” questions. It will need to develop relationships with experts, research organizations, and information services to do this.
The committee should draw from the knowledge of outside experts—as sitting members of the committee or as invited guests for particular meetings—as it contemplates and deliberates future risks and opportunities. For example, experts on geopolitics, economics, technology, and other specific topics can be invited for certain conversations.
Committee members should be able to think analytically and creatively about the future, detach from historical ways of doing things, and consider the human dimension of the enterprise as well as the assets.
Meeting Cadence
Establishing a regular cadence of meetings with relevant pre-read materials, especially given the nature of the topics being discussed, will be important for committee effectiveness. There should also be a defined cadence of reporting to the board of directors and owners, to share the committee’s thinking and recommendations.
Defining Success
Ultimately, the committee’s success will be measured by the ability to keep the family enterprise forward-thinking and leaning into future threats and opportunities. For a family enterprise ready to embrace this approach, the Future Readiness Committee offers a structured way to transform uncertainty from a source of anxiety and vulnerability into a competitive advantage.
Larry Peck is Senior Advisor at CFEG where he advises the owners of family enterprises on their total wealth strategies, and supports them in executing direct investments, acquisitions, divestitures, diversification, and capital sourcing. As an advisor and investor, he has successfully navigated past economic downturns and educates family ownership groups about the lessons learned from investing during unstable periods. His work focuses on helping family owners understand where value can be created within their enterprises and designing the strategies and governance required for decisive and united action.
John A. Davis is a globally recognized pioneer and authority on family enterprise, family wealth, and the family office. He is a researcher, educator, author, architect of the field’s most impactful conceptual frameworks, and advisor to leading families around the world. He leads the family enterprise programs at MIT Sloan. To follow his writing and speaking, visit johndavis.com.