Risk Management for Business Families

A key characteristic of all enduring business families is their willingness to do whatever is necessary to adequately and appropriately manage all significant risks and threats to their continuity, as a family group.  This applies however the group re-invents itself, from generation to generation.

Conversely, the most common cause of business family failure is the lack of commitment to manage those same risks.

Of course, there will always be unforeseen and uncontrollable risks, but research and anecdotal evidence suggest that most risks can be forecast and managed, if the family has the will and the ability to do so.

Strategic Approach to Risk Management

The same systematic approach applies to all families:

1. Identify the family’s core values and long-term aspirations.
2. Define the family’s long-term objectives – as goals. (This is the family’s Vision).
3. Realistically assess the family’s current state and capacity (people, resources and attitudes) and its distance from achieving its goals.
4. Create a Family Plan to take the family from where it is now, to where it wants to be.
5. Obtain family-wide commitment to support the Family Plan. Everybody should have a role as a Leader, Participant, or Passenger.  (Nobody should be able to block the progress of the Family Plan, although anybody should be able to excuse themselves from participation).
6. Identify, classify and quantify the risks associated with carrying out the various parts of the Family Plan.
7. Assess and prioritise the risks by: (a) likelihood of occurrence and (b) probable or potential consequences.
8. Develop a Risk Management Plan (“RMP”) to manage and/or mitigate identified risks. Integrate the RMP into the Family Plan.
9. Obtain family-wide endorsement of, and commitment to, the upgraded Family Plan.
10. Implement the Plan.
11. Monitor, measure and acknowledge performance and progress.
12. Adjust the Plan, as required, as circumstances, priorities or results demand (Family Council, Family Office and Family Forum tasks).

Elements of Risk

Every desirable success factor is also a risk factor.  They can be visualised as