Do Family Offices Need a Crisis Management Plan?

By John Deverell CBE

Most family offices and family firms do not have a crisis management plan. The principal and the CEO will be relying on their ability to see the potential for things going wrong and reacting in good time. But the reality can be very different; an incident can quickly spiral out of control and become a crisis. Then, without a plan in place that allows for an organised response, it may not be possible to get off the back foot. 

In this time of tremendous uncertainty and change, there are a great many risks to family offices, their principals and the families involved. As such it has never been more important to have a crisis management plan in place so that the office can act quickly to mitigate any problems as they arise. 

At the moment a crisis might include a key person risk such as the head of the family contracting Covid and failing to recover. Travel restrictions may prevent senior family members or key family office leadership from convening to deal with the crisis or to put succession plans into place – and may even result in them getting stuck in another country for the foreseeable future. Or, it could be that you are a Hong Kong based family and you are sensitive to exposure to the Beijing regime and feel a need to relocate quickly. 

Similarly, the current economic uncertainty may cause a business crisis such as an operating company getting knocked sideways by Covid because employees are falling ill in great numbers, or private equity investments plummeting as the stock markets struggle to recover. There could be reputational damage, if billionaires are seen to be furloughing staff and tax payers are forced to pick up the bill.

Whilst many family offices have weathered the Covid storm to date, it is widely predicted that we will experience a second wave of the virus. Indeed, some countries are already being hit by round two or by the aftermath of Covid and  its effect on the world’s economy. Now is the time to put a crisis management plan in place or to review an existing plan to ensure the family office and all of its stakeholders are prepared for Covid to strike again – or for any other crisis which impacts on the family, its businesses or the family office itself. 

What constitutes a crisis? 

Before a family office determines whether a situation facing it is a potential crisis, it is useful to define the term. The opening paragraphs of a crisis plan should do so. There can be a temptation to define a crisis in financial terms – for example, an adverse event that has the potential to cost the company, say, anything more than a threshold of £0.5 million. But sometimes a minor event or issue, if badly or belatedly handled, can lead to much worse than a relatively one-dimensional family loss. Therefore, it may be inadvisable to define a crisis purely or even mainly in financial terms. 

There are also the reputational aspects of a crisis to consider. Reputation is hard, if not impossible, to value in monetary terms. The company’s leadership team should be mindful of the family’s as well as the company’s reputation – the two are inextricably linked. Therefore, a definition of a potential crisis should include reference to possible damage to the family’s reputation.

So a full definition of a crisis might be as follows: 

Any abnormal and unstable situation that threatens the family, the business, its strategic objectives, its reputation or the viability of associated business. 

By way of further explanation: a crisis can be due to a wide range of events and incidents. These might be external – for example the unauthorised disclosure by a third party of sensitive information, or dishonest activity by a counter party with which the business is linked – or an unsubstantiated allegation promoted on social media. Or the causes can be internal – for example questionable actions by an employee. Often a crisis is simply the consequence of a failure of oversight or of negligence. 

There is often the possibility that senior management learns about the problem late in the day and then compounds the issue with a hesitant or piecemeal response. If the issue becomes public then the business may struggle to recover. The reputation of the business and that of the family may well be compromised. 

Sadly, the reality is that a family and its interests may also be badly affected by something which is not under their control and maybe has nothing directly to do with them. Again, those running the family’s affairs needs to be aware of such risks. 

The need to identify a potential crisis early and to act quickly

The principal or CEO will always prefer to hear potentially bad news from someone in their organisation than from an outsider or, worse still, from the media or from an investor. So, if in doubt, let the boss know soonest – even if it is out of hours or at a weekend. 

Many families and their businesses claim that their best defence against social media is their low profile. While it is true that for every family business that is well known there are dozens that are not, it does not take much for a family firstly to have a profile and secondly to lose control of it. Warren Buffett famously said: “It takes 20 years to build a reputation and five minutes to ruin it”. This can apply to a family as much as to any other entity. Therefore, it makes good sense for a family office or firm to monitor what is being said about it on social media. If the family has international interests then the office needs to be aware of what is being said more widely. 

Picking up adverse tweets is one thing, but having a sense of what to do about it – if anything – is quite another. Judicious inactivity might well be the appropriate reaction – but this should be a considered reaction, rather than left to chance with eyes closed to the implications. Therefore, having a crisis plan that addresses issues with reputation and provides guidelines on how to react – and what should be the threshold for doing so – can enable a family office to be prepared if damaging comments are made in the public sphere. 

If offices feel uneasy referring to the plan as a crisis management or crisis preparedness plan, there are other terms for use, such as substituting the word ‘issue’ or ‘incident’ for ‘crisis’ – or referring to a ‘business continuity plan’, though there can be differences in the definitions. 

Getting to the true facts of the case as a matter of urgency is always important. In the early hours of an adverse event, uncertainty and speculation abound. The lack of a full hand of information is  not an easy basis for deciding whether to act and what to do. To get to know everything usually takes time – and that may imply a delay in taking action that might, in turn, bring its own risks. It is thus a function of experience and good leadership to have the confidence and judgment to act without knowing every single angle, perception or fact.

News management and transparency in the age of social media

In these times of abundant news outlets and social media, the crisis management plan will need to consider openness – to what extent the family and the company should be ‘transparent’. 

Family trusts, offices and companies will tend to secrecy or at least discretion. Those managing such entities will assert that there needs to be a legitimate interest if the office is to divulge information. That said, when things do go wrong and where there is an argument in favour of public interest (albeit often hard to define exactly what that interest is), there is nowadays a presumption of openness. 

In the past,an accepted principle was to say only what had to be said, and keep everything else under wraps. Today, a response based on ‘no comment’ excites both derision and outrage. The guidance is therefore to be open about everything of relevance, and to withhold only that which absolutely has to be kept secret. 

What does this mean for a crisis management plan? The company’s or family office’s lawyers will advise that the bare minimum be said. On the other hand, the communications advisers -assuming the office retains the services of a PR company or employs a head of communications – will typically exhort timely openness on all relevant facts – as appropriate. 

It is therefore essential that the crisis plan makes provision for the rapid assembly of the leadership team, either remotely or face-to-face, and that the team includes both legal and communications experts around the same table. Working together, they must reach agreement on what can be said and what must not be said, in response to given situations – ideally before the event. Because time is always tight once things start to go wrong, these discussions can therefore only happen effectively if the leadership team frequently meets in the absence of crisis. 

This has the purpose of discussing the principles and practice of how they should operate and what they should do and say, against a variety of contingencies – the ‘what ifs’. Better to do this in the cool light of the day through a workshop-based discussion – rather than when a crisis is raging and the office faces huge pressures, perhaps including demands for interviews by the media or by the authorities. 

Ultimately, crisis resolution is the responsibility of the leadership, to whom it may be appropriate to grant media access in certain situations. It is the remit of the communications adviser to prepare leadership accordingly, whether this is the principal or CEO, or – for less serious issues – another senior family member or senior representative. 

Effective communication is key in times of crisis

As far as communication with external entities is concerned, the office should operate under the 

following principles, which might be set out and explained in the crisis plan in these terms: 

• The health and safety of the public, the family and our employees comes first: we will offer help immediately and communicate that we are doing so, and show sincere concern for those affected and a desire to help in any way possible.
  
• Response must be rapid and appropriate: we will quickly establish with whom we need to communicate, what should be said and will provide timely updates. We will be judged on how the crisis is handled during the first critical minutes and hours.
  
• We will strive for balance between our wider responsibilities and the legal concerns of the company and the family: remembering that the health and safety of the public, the family and our employees comes first.
  
• We will always tell the truth: we will not speculate in the absence of fact, whatever the pressure of questioning.
  
• We will notify key stakeholders: of the situation and of our actions in response (personally, not through the media).
  
• We will conduct the first press briefing as soon as practicably possible: once proactive engagement with the media has been decided, we will provide media updates on a regular basis.

 
Dealing with a crisis is a 24/7 matter. The plan must therefore enable the leadership team to assemble out of hours. The leadership team should be content to supply home telephone numbers for this purpose. This covers the possibility of personnel being unobtainable on their mobile telephones or – worst case – the mobile network being out of action, as it was following the 7/7 London terrorist attack. 

A ‘Second XI’ or back-up team should also be listed in the plan and be empowered and trained to take decisions should any of their superiors on the leadership team be unavailable. I would further advocate that the office consider having a website – if it does not already do so – on which it can post information in the event of an issue of public interest. This in turn means that the office must be able to get access to update its website out of hours, and that the plan should include the relevant points of contact to enable them to do this. 

It is a moot point whether family offices should have a policy of using social media actively – or indeed a policy of not doing so, given the usual desire for discretion. Suffice to say that social media as one vehicle of choice should at least be considered, given the benefits that an up-and-running social media community can bring, should the office need to disseminate news and updates widely and rapidly on behalf of the family or its business interests. 

The value of The Prepared Mind

Louis Pasteur once said: “Fortune favours The Prepared Mind”. Appropriately, the value of a crisis plan is that it enables preparedness as well as the methodology to handle all such situations. Thus it reduces both the likelihood and the impact of things going wrong. It will be written and designed to enable the family and their businesses to react quickly and positively in a time of crisis. It is, however, a guide and not a definitive template on how to resolve all potential crises. Above all, it gives time and space for the right people to think about what they need to do next, and to act accordingly – having considered possible scenarios in advance. 

Dealing with incidents and crises is thus all about having a prepared mind. By being familiar with potential scenarios, the family’s leadership team can both plan and train for them so that they can react appropriately when they happen for real. As crises do not occur in a uniform manner, a prepared mind equips a leadership team with the agility and responsiveness to handle even the most significant problems.

Some family office representatives may argue that they don’t run businesses on behalf of the family and are not susceptible to crises in the same way as those that do. For example, the family business may have been sold some years before, or now be run by another branch of the family. In such cases the current and future generations of the family are likely to rely on investments for their livelihoods rather than directly on business activities. 

But crises harmful to the family may still arise if incidents and issues connected with those investments are not handled quickly and professionally. For example, investments in corrupt or unethical business – perhaps because of inadequate due diligence or a changing situation – can cause significant financial and reputational damage to the family. And there could be legal implications if the US Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act might have been transgressed, or if there has been internal abuse or fraud in connection with the investment process. Furthermore, investments in property and land imply responsibility – if not legally then at least morally – to ensure that those assets are properly, safely and sustainably managed. 

As family offices and businesses expand their interests into what may be for them new sectors or new parts of the world, then the attendant risks could – if they materialise – initiate a crisis. For example, the Modern Slavery Act that came into force in the United Kingdom in April 2016 requires the directors of any business with an interest in the United Kingdom and with revenue above a certain threshold to set out clearly how they ensure that they do not employ enslaved or extorted labor. This has now become particularly topical in public discourse in the context of a wider interest in slavery and its manifestations, whether historic or modern. By geographic extension, it is advisable that family investors in international manufacturing companies take reasonable steps to ensure that supply chains in third countries are not likely to cause embarrassment. 

The collapse of the Rana Plaza textile factory in Bangladesh, resulting in the deaths of over one thousand workers, was an example of major supply chain embarrassment for those international investors and manufacturers who relied on that factory as a source of cheap garments. More recently, Boohoo has been the focus of adverse attention in the context of Leicester-based clothing manufacture. Up to now, the impact has been largely reputational in nature. In the future, the legal implications are likely to be equally, if not more, severe. Such events require the rapid assembly of the family leadership team in order to consider their position and take steps as necessary. For example, the team might consider whether it is appropriate to divest as quickly as possible – or perhaps to stay invested and thus take some responsibility for seeking to change the way the company concerned does business. The team might decide at the same time to formulate statements in the event of public interest in their position. 

Reputational damage is not the only potential crisis for a family office

While this article has largely concentrated on the effects of a reputational crisis, the family should also consider the possibility of crises of a more tangible and personal nature. A family office might well expand its staff and its remit in order to take some responsibility for the safety, security and wellbeing of the family itself. This could cover planning for family travel, for running family properties, for investments, for physical and for cyber security, and to cover contingencies in the event of an issue in any of these areas. 

Good cyber security is a function of sensible procedures while travelling, as well as proper processes and protection back at home and in the office. Travel security is also a function of good procedures in the light of sensible awareness of the risks. And contingency planning needs to take account of those instances where complacency or failure to heed advice, or a combination of apparently random factors, leads to a family traveller going missing – or, worst case, a kidnap, which is hardly a unique phenomenon among well-known families. And procedures also need to cover the employees of the family office. 

The family office crisis plan should also cover the possibility of regulatory and tax issues (especially where the family has multi-jurisdictional interests) and should consider the issues caused by a divorce, however unforeseeable in terms of likelihood or impact. Activities by wayward members of some families have in the past led to blackmail attempts requiring careful handling. Potential complications with succession issues would also be a basis for bringing together the leadership team – in advance – in order to assure themselves and the family that everything is in place for a smooth transition. 

This could include checking that “key man” insurance and the requisite powers of attorney in the event of incapacitating injury or illness of a family leader are in place, as well as listing all the stakeholders, both internal and external, who would expect to hear a death announcement direct from the family or its office rather than from the media. 

With this in mind, family offices will increasingly attend to contingency and succession planning. Workshops based on relevant scenarios with key leaders and managers present are an excellent vehicle for the necessary discussions and ensuing actions. This process can be well designed to ensure that all possibilities have been considered and covered – and if they really have, then it serves as useful reassurance. 

There is no ‘i’ in team, but there are two in ‘Crisis’

Early recognition and intervention is always the most effective way of preventing a real incident or issue turning into a crisis for the family and its business. All employees have a role to play in the management of a successful outcome. The leadership team must be prepared to act quickly, positively and as responsible corporate citizens in the face of a potential crisis. That the family and its business leaders are seen to be well prepared and to act correctly, provides reassurance and confidence to all who work with them and who are dependent on them. 

Trust in the leadership, as well as education and training, will encourage employees to escalate concerns and potential issues quickly upwards through their management – or in emergencies direct to the leadership team. This trust will enhance a sense of teamwork; in times of crisis all must work together towards a successful resolution. Conversely, without this sense of trust and the dynamic to report concerns quickly upwards, the best plan may not be adequate. 

While the family office will be chiefly concerned with protecting the family’s wellbeing, interests, assets and reputation in both the short and the long term, it will also wish to show that it has the interests of its employees, the wider community and the environment at heart, and to plan for this as well. 

In effect, family businesses and offices must be prepared – and be seen to be prepared – to deal effectively with sudden and unexpected events across a wide range of interests both in time and space. The leadership team must be aware of the potential risks facing them, and be prepared to respond quickly to events outside their direct control. Management of crises cannot be left to chance. By increasing awareness of the risks, through training and education and by having a well-understood crisis plan in place, family offices will be better able to deal with a wide range of events in a timely way and to recover and resume service as normal. Ultimately, that is the purpose of a crisis plan. 

What your crisis plan should include: 

• The plan’s purpose.

• Defining potential crises and categories of incidents.

• The process for contacting and getting the leadership team together in and out of hours, and their deputies if any of the top team are unavailable, including their specific responsibilities. 

• The escalation process, rapidly up to the leadership team. 

• Critical information requirements – what the team needs to know in order to be able to decide and to act – effectively an information checklist. 

• Media and communications guidance – this will include media enquiry guidelines, pre-drafted statements and use of social media and websites. 

• Key stakeholders, their points of contact and who in their family office owns the relationship with each of them, to ensure rapid contact at the appropriate level. 

• Legal factors and the implications and use of legal privilege, to include communicating with lawyers, discoverability, document requests and dealing with authorities. 

• Local business continuity, to include (as applicable) safety, personnel preparedness, site evacuation, site lockdown, liaison with the emergency services; alternate office availability, IT, data and telephonic recovery, communications with staff, personal IT security. 

• Travel security and contingency actions.

• Cyber security including when on the move.

• Dealing with terrorist incidents, including violence in the workplace (and in the home as applicable).

• Response to physical and criminal damage to family interests (as applicable), including estates, property, private aviation and maritime assets and disruption of family employees’ livelihoods, as well as handling protests and disturbances targeting family interests (as applicable). 

• Continuous background activity, including situation monitoring, risk register updates, stress-testing, re-validating and auditing the plan, discussing, training and rehearsing through the mechanism of scenario-based workshops. 

Key principles of crisis management – on which to base a plan: 

• Having a PREPARED MIND is the most important principle for the leadership team. Consider the ‘what ifs’ on a frequent basis – devote a few minutes in everyday meetings to doing so. Think through the possibilities. Embed the prepared mind ethos.
  
• Have a validated plan that is understood and rehearsed. Don’t over-complicate or over- template it (there will never be a ‘black book’ for every situation). And just because you have extant procedures, never get complacent.
  
• Get the right people together quickly. Ensure that they know their roles before a crisis.
  
• Be timely, get the facts and ensure the passage of information. But accept that you will have to take some early decisions without knowing everything (that’s where judgment is so important).
  
• Listen to what stakeholders are saying. Foster a sense in your employees that they should quickly report potential issues if they have any doubts or concerns.
  
• Have contextual awareness. Put things in perspective to the relative culture and politics.
  
• Act early and don’t be reluctant to say that you have a crisis. It’s easier to de-escalate in a timely way than to escalate too late in the day. 

• Never say anything definitive unless you are absolutely sure that you know the truth. Take nothing for granted. 

• Remember that major crises are nearly always caused by coincidences of several contributing factors. Your family business or investment may be only one. 

• Remember that there may be a public inquiry or hearing, or a civil or criminal court case that will scour in minute detail every word that you say, every email you write and every action you take. 

• It is vital to say something at the earliest possible opportunity. The vacuum created by the failure to communicate will quickly be filled with rumour, misrepresentation, gossip and poison. 

• When it comes to giving information, there should be a presumption of openness. The question should be: “Is there any good reason why we shouldn’t reveal this?” rather than: “Do we really need to tell them this?” A spirit of openness and honesty will always enhance your reputation. Any suspicion that facts are being hidden will do the opposite. 

• Your message should show concern, action and reassurance. Concern reflects a family’s values and priorities: people; environment; property; business. Good reputation will follow. It is acknowledging or understanding the points of view of protestors; showing sympathy for families; or recognising the hurt or inconvenience a community may have suffered. Action is about what will happen next – an investigation to find out what went wrong; steps the company or family is taking to correct or clean up the damage, to close down a facility, to bring in a back-up until full service can be restored. Reassurance means saying that lessons will be learned and that you have a contingency plan in place to prevent the likelihood of a repeat. 

John Deverell CBE is the founder of  www.thepreparedmind.net 

He helps family clients with issues of governance, leadership and risk mitigation. His company provides internationally recognised bespoke crisis management plans and checks existing plans; and, it writes and runs scenario-based workshops for family offices and other clients. 

John bases his expertise for the benefit of clients on four decades of crisis resolution and risk mitigation . 

John has appeared many times on TV and radio, advising on risk, security and strategy.

This article,. ‘Should a family office have a crisis management plan – and if so, what might it look like?’ by John Deverell is taken from the third issue of the new The International Family Offices Journal, published by Globe Law and Business.