Ep. 74: Karim Ghandour - The Effects of COVID-19 on Family Businesses
As companies around the world have encounter some of the toughest terrains, we explore the challenges family business are facing during the COVID-19 pandemic. In this episode of Count Me In, we gather insights from Karim Ghandour, succession strategist and founder of the Legacy Line Family Office. Karim explains what he does as a succession strategist, talks about some things companies need to be aware of today, and shares insights on best practices for business owners. Join us for this discussion that also covers cashflow, digital transformation and the importance of cybersecurity, today, more than ever. Download and listen now!
FULL EPISODE TRANSCRIPT
Adam: (00:05)
And we are back with episode 74 of Count Me In. IMA's podcast about all things affecting the accounting and finance world. I am your host, Adam Larson, and I'll be introducing you to our featured guests, Karim Ghandour. Karim is a succession strategist and the founder of Legacy Line Family Office. He joined my cohost Rouba to talk about the challenges that family businesses are facing during COVID-19 pandemic. Rouba asked Karim to share some of his insights on best practices for business owners, as it relates to cashflow digital transformation and cyber security without further ado, let's bring you to their conversation now.
Rouba: (00:47)
So Karim, I know that you work with a large family business owners around the world, you know, you have offices in Portugal and Beirut and the UAE. Can you tell us a little bit more about what you do?
Karim: (01:05)
Yes, as a family succession strategist, I assist family businesses, family offices, organize their estate in order to sustain that legacies. I do that by being the focal point of the family advisory team, being legal, tax, governance, or asset management. We act as the confidant for the families.
Rouba: (01:31)
It's studied by Deloitte found that 53.7% of first generation family members remain involved in the business. What type of role does governance actually play in such an instance and more specifically crises governance, and do the leaders that you work with consider it essential?
Karim: (01:48)
Well, it depends on, depends on the, on where is the family business is, is in it’s journey, it's evolution journey. If the first generation or the founders are relatively young, okay, then governance might not be a focal point of the decision making. They usually founders depend more on the intercoronary instincts. However, if the family business is managed or owned by the second generation or the third generation, then definitely governance becomes more relevant, and actually by the time they reach the third generation, it's a must to have a proper governance system at least.
Rouba: (02:37)
And perhaps even more so during this time, I mean, it goes without saying that we're going through potentially one of the toughest times in human history, both economically, and from a human standpoint. COVID-19 transformed our lives in every single way.
Karim: (02:52)
Most of the businesses that not really plan for such an event. So definitely there's a lot of planning will be done in the months to come.
Rouba: (03:04)
Yeah, and technically, how has the impact been on family businesses in the region and around the world? I mean, you work with them. It'd be great to get your perspective on, on how severe or not the impact has been.
Karim: (03:17)
It's a bit early to, to evaluate the situation, even in the public company, most of public companies will be publishing results of the second quarter in the first or second week of July. At least that will give us a glimpse of what is the real impact of the situation financially and otherwise.
Rouba: (03:44)
Fair enough. Middle East Family Business, a survey conducted last year, found that 66% of those interviewed said that they do intend to step up their digital capabilities over the coming two years. But with most companies around the world, reporting at least one cyber attack per year. How aware are family business owners that you work with of the importance of cyber security and the potential threats of financial loss data breach, and in some cases, business continuity and how invested are they in actually securing their companies, especially at a time where most business transactions and communication is actually taking place remotely online?
Karim: (04:25)
It's striking when you analyze a family businesses. A lot of them, I would say, did not invest in their innovation and technology. And especially, I notice usually I look at the family business and I see who's a dependent, who's managing, look at the leadership of the family business. And usually when we have a leadership which belongs to the X generation or the baby boomers generation, usually they resist the whole concept of digitalization, and therefore they would reject an idea like cyber security fencing and passing on other information.
Rouba: (05:11)
Have they not been impacted? I mean, did it ever happen that they reported any cases of cyber attack and still they're resistant?
Karim: (05:19)
Of course, and I mean, we experienced last year they were using their Gmail and Gmail got hacked. Yeah, and there was an event, which after we evaluated the situation, we noticed it was one of the employees was using their Gmail actually, which calls that a hack. But they're not taking it as seriously as they should. And we are noticing and advisory work, cybersecurity is becoming more relevant. The Big Four are pushing for it. I've seen this in more than one occasion. I witnessed two years ago, a German family who liquidated, who sold their business, 4 billion euros. And one day when one of the Big Four assessed the situation, it was clear, they have a lot of vulnerability in terms of cyber security, and they advise them accordingly. There's a lot of work to be done that there's definitely a lot of work to be done on that front.
Karim: (06:40)
When we consider, the family business segment, some of these are considered complex multigenerational institutions that have faced and continue to face numerous challenges, be it from the continuity standpoint, succession planning, maintaining relevance, and demand, diversification. Do you think that they are relatively more prone to withstand the difficult times more than say conventional companies and particularly when considering like legacy businesses and the historical changes that they've had to endure across at some 0.4 generations back?
(07:18)
Generally, and it has been proven family business across continents, family businesses are more resilient than non-family businesses. And the reason for that, because a family businesses plan and think in terms of generation, whereas nonfamily business they think in terms of fiscal year quarters. Moreover, when it comes to the staff and the team, you see more loyalty in family business, than a non family business. Employees specially senior employees have been working with the family for a long time, they feel like they have this extended family feel and that's why they when they do a sacrifice, they know there's somebody watching and that they will take that in consideration, and you don't see that in non-family business. And finally it hasn't been proven that family business, when it comes to the decision-making as owners, as shareholders or on the management, they're faster than nonfamily business and they are more agile. And that's all of that attributes to results.
Rouba: (08:34)
So can one assume that if they, they have enough reserve to sort of sustain cashflow for another 18 months or so they would be some of those companies that come out of this situation.
(08:47)
Definitely. Family businesses, one of the issues they face is the lack of capitalization. Unlike the non-family business, which are more capitalized. So it's an issue of cashflow definitely next 12 to 18 months, it's all about cashflow. If they make, they make it, they don't, then that will be a part of the larger statistics, which we hope on the big buck. We right now we might experience one of the worst economic downturn since the 1920s. And with that, we expect family businesses, and non-family businesses to be wiped out.
Rouba: (09:33)
You know, predictions are predictions, but, the next few months are going to be very indicative. And that's why I think, the role of people like you advisors, like you is crucial, because you might be the make or break in, safeguarding, the wealth, the wellbeing of a company. That's why I wanted to know what kind of advice would you give to family businesses for them to survive, not just during this pandemic, but also to have a, not smooth, because I don't think there's anything smooth about the situation, but a better recovery tomorrow when the time comes July onwards.
Karim: (10:09)
Well, everybody's assessing right now, the situation it's a bit early to make decisions What we are advising our clients to whatever decision they want to make to involve the stakeholders and their future that's being the employees, shareholders, (inaudible), or clients. It's very important that, you include the stakeholders during this time, this crucial time. Second, you need to have to have an open, to be open minded regarding the future. Many of the things which were unacceptable or wouldn't look at now, they need to reconsider their vision. They need to reconsidered their business model to move forward. And finally, to harness technology. As you said earlier, there's a shift right now on the way we work, the way we study and it's not harnessing technology is not an option anymore. They have to, it has to be part of the business model. It has to be embedded in the business model of any family, family, or not family.
Closing: (11:21)
This has been Count Me In IMA's podcast, providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like, what you heard. And you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.
Adam: (00:05)
And we are back with episode 74 of Count Me In. IMA's podcast about all things affecting the accounting and finance world. I am your host, Adam Larson, and I'll be introducing you to our featured guests, Karim Ghandour. Karim is a succession strategist and the founder of Legacy Line Family Office. He joined my cohost Rouba to talk about the challenges that family businesses are facing during COVID-19 pandemic. Rouba asked Karim to share some of his insights on best practices for business owners, as it relates to cashflow digital transformation and cyber security without further ado, let's bring you to their conversation now.
Rouba: (00:47)
So Karim, I know that you work with a large family business owners around the world, you know, you have offices in Portugal and Beirut and the UAE. Can you tell us a little bit more about what you do?
Karim: (01:05)
Yes, as a family succession strategist, I assist family businesses, family offices, organize their estate in order to sustain that legacies. I do that by being the focal point of the family advisory team, being legal, tax, governance, or asset management. We act as the confidant for the families.
Rouba: (01:31)
It's studied by Deloitte found that 53.7% of first generation family members remain involved in the business. What type of role does governance actually play in such an instance and more specifically crises governance, and do the leaders that you work with consider it essential?
Karim: (01:48)
Well, it depends on, depends on the, on where is the family business is, is in it’s journey, it's evolution journey. If the first generation or the founders are relatively young, okay, then governance might not be a focal point of the decision making. They usually founders depend more on the intercoronary instincts. However, if the family business is managed or owned by the second generation or the third generation, then definitely governance becomes more relevant, and actually by the time they reach the third generation, it's a must to have a proper governance system at least.
Rouba: (02:37)
And perhaps even more so during this time, I mean, it goes without saying that we're going through potentially one of the toughest times in human history, both economically, and from a human standpoint. COVID-19 transformed our lives in every single way.
Karim: (02:52)
Most of the businesses that not really plan for such an event. So definitely there's a lot of planning will be done in the months to come.
Rouba: (03:04)
Yeah, and technically, how has the impact been on family businesses in the region and around the world? I mean, you work with them. It'd be great to get your perspective on, on how severe or not the impact has been.
Karim: (03:17)
It's a bit early to, to evaluate the situation, even in the public company, most of public companies will be publishing results of the second quarter in the first or second week of July. At least that will give us a glimpse of what is the real impact of the situation financially and otherwise.
Rouba: (03:44)
Fair enough. Middle East Family Business, a survey conducted last year, found that 66% of those interviewed said that they do intend to step up their digital capabilities over the coming two years. But with most companies around the world, reporting at least one cyber attack per year. How aware are family business owners that you work with of the importance of cyber security and the potential threats of financial loss data breach, and in some cases, business continuity and how invested are they in actually securing their companies, especially at a time where most business transactions and communication is actually taking place remotely online?
Karim: (04:25)
It's striking when you analyze a family businesses. A lot of them, I would say, did not invest in their innovation and technology. And especially, I notice usually I look at the family business and I see who's a dependent, who's managing, look at the leadership of the family business. And usually when we have a leadership which belongs to the X generation or the baby boomers generation, usually they resist the whole concept of digitalization, and therefore they would reject an idea like cyber security fencing and passing on other information.
Rouba: (05:11)
Have they not been impacted? I mean, did it ever happen that they reported any cases of cyber attack and still they're resistant?
Karim: (05:19)
Of course, and I mean, we experienced last year they were using their Gmail and Gmail got hacked. Yeah, and there was an event, which after we evaluated the situation, we noticed it was one of the employees was using their Gmail actually, which calls that a hack. But they're not taking it as seriously as they should. And we are noticing and advisory work, cybersecurity is becoming more relevant. The Big Four are pushing for it. I've seen this in more than one occasion. I witnessed two years ago, a German family who liquidated, who sold their business, 4 billion euros. And one day when one of the Big Four assessed the situation, it was clear, they have a lot of vulnerability in terms of cyber security, and they advise them accordingly. There's a lot of work to be done that there's definitely a lot of work to be done on that front.
Karim: (06:40)
When we consider, the family business segment, some of these are considered complex multigenerational institutions that have faced and continue to face numerous challenges, be it from the continuity standpoint, succession planning, maintaining relevance, and demand, diversification. Do you think that they are relatively more prone to withstand the difficult times more than say conventional companies and particularly when considering like legacy businesses and the historical changes that they've had to endure across at some 0.4 generations back?
(07:18)
Generally, and it has been proven family business across continents, family businesses are more resilient than non-family businesses. And the reason for that, because a family businesses plan and think in terms of generation, whereas nonfamily business they think in terms of fiscal year quarters. Moreover, when it comes to the staff and the team, you see more loyalty in family business, than a non family business. Employees specially senior employees have been working with the family for a long time, they feel like they have this extended family feel and that's why they when they do a sacrifice, they know there's somebody watching and that they will take that in consideration, and you don't see that in non-family business. And finally it hasn't been proven that family business, when it comes to the decision-making as owners, as shareholders or on the management, they're faster than nonfamily business and they are more agile. And that's all of that attributes to results.
Rouba: (08:34)
So can one assume that if they, they have enough reserve to sort of sustain cashflow for another 18 months or so they would be some of those companies that come out of this situation.
(08:47)
Definitely. Family businesses, one of the issues they face is the lack of capitalization. Unlike the non-family business, which are more capitalized. So it's an issue of cashflow definitely next 12 to 18 months, it's all about cashflow. If they make, they make it, they don't, then that will be a part of the larger statistics, which we hope on the big buck. We right now we might experience one of the worst economic downturn since the 1920s. And with that, we expect family businesses, and non-family businesses to be wiped out.
Rouba: (09:33)
You know, predictions are predictions, but, the next few months are going to be very indicative. And that's why I think, the role of people like you advisors, like you is crucial, because you might be the make or break in, safeguarding, the wealth, the wellbeing of a company. That's why I wanted to know what kind of advice would you give to family businesses for them to survive, not just during this pandemic, but also to have a, not smooth, because I don't think there's anything smooth about the situation, but a better recovery tomorrow when the time comes July onwards.
Karim: (10:09)
Well, everybody's assessing right now, the situation it's a bit early to make decisions What we are advising our clients to whatever decision they want to make to involve the stakeholders and their future that's being the employees, shareholders, (inaudible), or clients. It's very important that, you include the stakeholders during this time, this crucial time. Second, you need to have to have an open, to be open minded regarding the future. Many of the things which were unacceptable or wouldn't look at now, they need to reconsider their vision. They need to reconsidered their business model to move forward. And finally, to harness technology. As you said earlier, there's a shift right now on the way we work, the way we study and it's not harnessing technology is not an option anymore. They have to, it has to be part of the business model. It has to be embedded in the business model of any family, family, or not family.
Closing: (11:21)
This has been Count Me In IMA's podcast, providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like, what you heard. And you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.
