Optimists, pessimists, realists and dreamers. People’s response to COVID-19 has ranged from those fearing the end of life as we know it, to those dreaming of an opportunity to press humankind’s reset button and build a better world. COVID-19 has given rise to a proliferation of thinkers, philosophers, armchair futurists, not to mention a new class of previously unqualified virologists and epidemiologists. From the tabloid newspapers to the Economist, publications are brimming with opinions, viewpoints and thinking.
Thinking. That’s what we humans tend to do when we are most worried. Beneath the thinking, there is an alarming recognition that the fabric of day-to-day life, our health and wellbeing, our businesses and economic security and our personal liberty have proven to be pretty fragile. More fragile than we ever dared to believe.
The current crisis also has a deeply personal aspect. It touches on our fears and dreams and sadly, can directly impact the health and lives of family members.
The past ten years have been a time of progress, change and prosperity. Yes, there have been some ups and downs, but overall it has been a time of advances and abundance. Our lives have been busy and full. Only very rarely have we had to confront any number of ‘what if’ questions. Yet, since February, there has been a shift in the ‘zeitgeist’ prompting a more sober reflection on our lives and our world. In recent conversations with families, it is clear that the current sense of fragility has people pondering a number of different ‘what if’ questions.
Mortality and succession
It would be strange if in the midst of a global pandemic we were not thinking about our own health and mortality. Provoked by COVID-19, heads of families have no doubt turned to wondering what might happen if they become ill or worse. For many, although the obvious aspects of estate planning may have been taken care of, the more sensitive questions of succession have very often been shelved. Who will lead the family? Who will oversee the family’s assets and assume leadership of the family business? Who will be the go-to person for guidance and advice? These are the kind of questions that are easily avoided in good times, but which are now sharply in focus.
And these are not simple questions. They very often touch at the heart of family dynamics and can trigger rivalries for future control, not only amongst family members but also amongst trusted employees. Durable solutions are needed and despite the pressures of the current situation, it is important that these matters are dealt with in a thoughtful, planned and rational way.
Back on the 31st Dec 2019 as we ushered in the new year, very few people would have imagined that some ten weeks later the world would be almost shut down, many businesses shuttered, with asset values receding. Some of the wealthiest families have seen significant falls in their wealth – in exceptional cases by as much as 72% – although more often between 20% and 40%. This has been especially so for families whose wealth is tied to holdings in large family-linked companies. Of course, there have also been winners. But with no end to the crisis in sight, or any real understanding of how economies will emerge from the lockdowns, many families are asking searching questions about their wealth and ongoing prosperity.
Over time, while some families will have lost ground, there are others who will build new fortunes with foundations in this global pandemic. Researchers at UCLA have shown how a number of enduring and prosperous US companies started their businesses during the Great Depression. Survivalist-entrepreneurs starting out in the early 1930s built businesses like Marriot International, E & J Gallo wines and Publix supermarkets. Today we can see the expansive growth in the wealth of technology entrepreneurs whose company values have soared even through these dismal past weeks.
Crises often precipitate one of two types of decision responses. The first is the ‘reversion response’ – back to doing those tried and tested things that have been proven to work and have so often been relied upon. The second is an ‘inversion response’ – actions based on an understanding that the new world may be inside out and upside down, and that the old rules might not apply.
Psychology research sheds some further light on decision-making. In general, people who are more naturally risk averse are likely to have greater risk tolerance when attempting to stem losses. A usually risk-averse person facing a choice between a certain loss or a possibly greater loss which is less certain, is likely to take the riskier option. This has real implications for family decision-makers right now. This crisis is without precedent and adds real pressure on those tasked with making key financial decisions. Whether they tend towards reversion or inversion, family decision-makers now need to be hyper-aware of their instinctive response and to rigorously interrogate underlying assumptions.
Towards a less fragile future
Lockdowns around the world have given people time to be more introspective. From Asia, to Europe and the US, as the city smog has lifted during the lockdown, so too have people started to imagine how we might live differently. As science and technology step up to the COVID-19 challenge, there is a renewed faith that we can solve problems through innovation and creativity. This has led people to see through the fragility of our world to imagine a better future for their children and for those who follow.
Many have recognised that ongoing underinvestment in healthcare and other public services has created a more vulnerable world for everyone. At the same time, the impacts of global warming, pollution, and biodiversity loss have awakened the concerns of philanthropic individuals and families. Not content with simply giving, these ‘activist philanthropists’ combine giving with advocacy, motivating public opinion and influencing public policy. These families have understood that whatever the cause they are invested in, when philanthropy is linked to advocacy, the impact is multiplied. They also see the potential for philanthropy to act as a talisman, uniting family members behind a common goal and providing the family with a vehicle for expressing their values and purpose. There is good reason to hope that COVID-19 will accelerate and galvanise these efforts to create a better world.
Leading a family through these troubled times can be a tricky business. On the one hand, it requires a good understanding of the changing world outside of the family, and on the other hand, an understanding of the ripple effects of this crisis within the family. It is a time for leadership with courage, creativity and vision.
Courage to contemplate a family’s future and plan for succession, even where this involves hard discussion and tough decisions.
Creativity to look beyond the current economic distress to the opportunities that a changed world will undoubtedly bring, even if this means pivoting, changing course and finding new avenues for business and investments.
Vision to help shape a better world, so that the generations that follow not only have the legacy of financial security, but also the tools to build a better world, brimming with possibility and prosperity.