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...