In mid-March, when more than 40 U.S. states issued stay-at-home orders due to the COVID-19 pandemic, family offices found their crisis management plans subjected to an impromptu stress test.
Family offices embedded within a large operating company seemed to fare best. They were able to rely on a more established business infrastructure and were often already prepared to support remote working arrangements by employees, with dedicated technology resources and access to data stored in the cloud infrastructure.
Stand-alone single-family offices (SFOs), on the other hand, didn’t respond as well, as they were less likely to have disaster recovery or contingency plans that enabled a virtual working environment. The ones who did best had prepared to back up critical operations that allowed them to continue monitoring the family business interests. Proactive risk assessment planning and evaluations were key to identifying these critical operation points.
Ultimately, as we engaged with our family office clients on their response to the pandemic, three examples stood out:
- Embedded SFO. An embedded SFO doesn’t stand alone and is part of an operating company. Family office services, like money movement, accounting and reporting for family members and tax planning and compliance are provided by the employees of the private enterprise. When it became clear that all nonessential businesses would need to shut down and work remotely, an SFO took advantage of its operating company’s infrastructure to transition everyone from the office to a virtual work environment in just a few days. The office was able to maintain continued focus on key business operations even while remote. Employees are now slowly beginning to return to the office, but plans continue to offer remote working capabilities for the near future and perhaps even long term.
- Stand-alone SFO with operating company. Family offices that were considered essential businesses had the option to remain open, and several did. An SFO decided to forge ahead and continue reporting to work. The office’s culture was strongly influenced by the mindset of the family it served—which had a healthy appetite for risk taking. The founders of the company continued their appearances in the office as did the other office employees. Business continued as normal, except all their supporting vendors were the ones working from home.
- Stand-alone SFO without operating company. The SFO had a high-touch, white glove-approach to client services to family members and family-owned entities who are the clients of the SFO. Prior to the pandemic, most items were handled by hand and in person. As such, their paper-intensive processes required all expenditures and checks to be completed manually. During the early days of the shutdown, someone would go to the office and leave a folder for review by a superior. This proved to be impractical. After two weeks, the office decided to implement DocuSign technology so the approvals could be done via email.
Overall, the offices that were prepared shared two key characteristics: They could turn to business continuity plans that: (1) had been shared with all stakeholders; and (2) were tested and updated regularly. Their plan remained current and wasn’t something they had to dust off to reflect new employees, processes or developments.
One of the enduring lessons that we believe family offices will carry from the pandemic is that no matter how large or small, all family offices need to operate with a clearly defined set of rules and procedures. That means taking stock of what worked and what didn’t. Family offices should consider eliminating or streamlining procedures that have stuck around just because “it’s the way it’s always been done.” To be successful, family offices need to operate as corporate entities and be managed like a business with a clear set of procedures to ensure that they can continue operations even during difficult times.
This piece is adapted from the authors’ original article in the August 2020 issue of Trusts & Estates.