Ep. 74: Karim Ghandour - The Effects of COVID-19 on Family Businesses

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 indicat...