Family firms show mettle in time of crisis

Just how challenging was the pandemic for family businesses, and what unique dynamics helped them to survive such an unprecedented event?

Such were some of the issues occupying Dr Linda Murphy, lecturer in management at Cork University Business School at UCC, when the full weight of this “once in a lifetime” event suddenly arrived in 2020.

After managing her own family business for a number of years, she joined UCC as a lecturer in Management in 2008, where she teaches at undergraduate and postgraduate level.

Murphy’s research interests include business continuity, socio-emotional wealth and careers in family business.

The extended effect of Covid-19 upon Ireland’s family firms set her on an ongoing journey to investigate how they responded to the crisis. Her research was structured around two main phases: recorded diary entries over a 12-week period amongst a carefully chosen selection of differing companies, followed by in-depth interviews.

“How organisations learn and bounce back from unplanned events affects every aspect of the organisation from wellbeing to leadership. The impact of Covid-19 on the Irish economy made for grim reading, between the spike in unemployment and business closures. But while every crisis is unprecedented, research suggests that certain organisations, by their nature, have a greater ability to overcome critical events and bounce back from adversity.”

Family businesses, which are the backbone of the Irish economy, and part of our social, historical and economic fabric, are one such type of organisation, Murphy points out.

“According to the most recent report, family businesses account for 64 per cent of all businesses in Ireland and come in all shapes and sizes and sectors from farming to hospitality. Many of these businesses are multigenerational, some surviving six generations and beyond.”

Clear structure, open communications

Meanwhile, Carol Ann Casey, managing director of CA Compliance Limited, advises owners to family business to put robust contractual shareholder and employee agreements in place from the outset. She advises that the business needs a written code of conduct on how family members must behave with one another, as well as regular soft skills training and independent mediators. Open communication, she adds, is critical.

“Conflict is normal within families,” says Casey, who is also a Small Firms Association member, SFA expert on Mediation and Conflict resolution, and SFA/Ibec representative on the Skillnet board. “People grow up trying to differentiate themselves, and are encouraged to be independent and responsible for themselves. But if ‘being independent’ goes too far, self-absorbed behaviours and controlling relationships can lead to conflict when working in a family business.”

To thrive, the family must develop tools and systems for managing conflict and internal challenges, and have a plan to pass on the business to the next generation. It is not about avoiding conflict, but managing it.

“It is vital to listen, to ensure matters are spoken about within a business,” says Casey. “The best leaders listen well and actively. They reiterate what is said and think carefully about other people’s perspective. It is important not to be self-righteous but, instead, to focus on what ‘we think’ is the right decision, or idea, for the business, thereby reaching cooperation, collaboration, or maybe compromise.”

 ‘Organisational resiliency’

While we are accustomed to reading stories of their demise due to emotional and nepotistic tendencies, the good news for family businesses is that certain aspects of family ownership may also contribute to their survival and influence how they respond to and recover from Covid-19, as  Murphy explains.

“Often an unheard voice alongside louder multinationals, family businesses may prove to be the champions in our economic recovery during and after Covid-19 due to their ability to cope with critical events,”she says.

The term “organisational resiliency” has been used to describe the inherent characteristics of organisations that are able to respond more quickly, recover faster or develop more unusual ways of doing business under duress than others. What potentially makes family businesses more organisationally resilient than other types of firms?

“Research has shown that family businesses, over time, accumulate stocks of individual and family resources which support family businesses during times of crises,” Murphy outlines. “Such resources include idiosyncratic, deep-firm specific tacit knowledge which has been transferred from generation to generation, their established networks including customer base and supply chain, their strong reputation based on the family name and individual and collective creativity.”

The “know how” embedded in family businesses, and the “know who” in terms of customers, suppliers, history and innovation, are key strengths which can be drawn on – particularly in times of crises and turbulence.

“Family businesses are also seen a being flexible in nature allowing them to make decisions more quickly, without the bureaucracy other types of businesses have to deal with.”

As a result of Covid-19’s unprecedented and unforeseen disruption to everyday life, many family businesses had to adapt or demonstrate their ability and capacity to adapt resources for survival due to government restrictions put in place.

“These restrictions may limit or change how family businesses operate, interact with stakeholders and, in essence, survive,” says  Murphy.

Family resources

Some businesses adapted quickly and innovatively, moving their operations online and redefining how they do business.

“We saw family-owned restaurants operating takeaway menus and family-owned retail stores offering online sales and delivery. In fact, some of these businesses were able to operate relying on family members alone, thus reducing the risk of the spread of the virus to non-family employees,” Murphy explains.

“During a time of crisis, the family itself is a key resource – businesses can turn to family members, both those directly and indirectly involved in the business, to help out, which is a resource unique to family businesses.

“Helping is a natural occurrence in family businesses and the family in the business provides an additional pool of resources to tap into.”

Non-economic motivations have also been put forward as reasons why family businesses can weather storms – including their identity, emotional attachment to their businesses, commitment and sense of obligation to the continuity, non-family employees and local communities.

“While family businesses can turn to family members for help and support, the role of non-family employees is vital to family businesses survival,” Murphy stresses. “All participants stressed how grateful they are to their non-family employees as they remained with them throughout the crisis.

“Participants spoke about re-opening and the ‘whole family’ being reunited – referring to non-family employees – many of whose families have been working in these family businesses for generations.”