Covid-19 Qualitative Research Summary
Stephen P. Miller, PhD Adjunct Assistant Professor
In recent weeks Kenan-Flagler Family Enterprise Executive Director David Worth and I have been talking with family business leaders to learn how they are coping with the effects of the COVID-19 pandemic and the necessary government restrictions on business activities. Five themes quickly emerged.
Theme 1: The effects are largely industry specific. Some businesses which have been designated as essential are experiencing increases in business. Family-owned grocery stores, contractors, logistics businesses, and some financial service firms, for example, are experiencing increased demand. The leader of a family-owned retail mortgage originator reported record closings in the first quarter as homeowners refinance their home mortgages to take advantage of lower interest rates. A contractor in a major urban area reported increased activity as his firm has been called on to help convert a convention center into a temporary hospital and as an idled airport accelerated planned construction projects. A supplier of processed grains to food processors, grocery stores, and bakers reported a meaningful pickup in orders. And a family firm involved in the logistics business has seen demand for services increase dramatically as more people shop from home.
On the other end of the spectrum are businesses which have been designated as non-essential. Family-owned restaurants, hotels, attractions, and many retail businesses have been crushed as they have completely shut down. One leader of a family-owned firm in the hospitality industry commented that while he has faced crises that required partial shut-downs in the past, he has never faced the need to completely cease operations for such a long and uncertain period of time. Contingency plans did not anticipate such a catastrophic event.
In between the two extremes, every business leader we talked with reported some effect on their business. Leaders of real estate firms with multi-family housing, office, retail and other commercial properties report a decrease in rent collections, although April rents were not as bad as many expected. They are more concerned about May and June rents and are working with tenants whose income has been affected to develop terms to help them get past the crisis. The leader of a wholesale oil and gas distribution business and chain of convenience stores reported that business is down, but not as much as he had originally feared, as many people must still travel to work and shop for essential needs.
Theme 2: The highest priority is the safety and welfare of employees. We often observe that family business leaders develop a particularly close relationship with their employees, often cultivating a family culture throughout their organizations. This has never been more apparent than during the current crisis. Taking care of the health, safety, and financial well being of their employees was the first thing almost every family business leader mentioned. We talked with one contractor who had been able to procure thousands of face masks, gloves, and other protective equipment for his workers and has implemented social distancing rules on the job. The leader of a chain of family- owned grocery stores has installed protective plexiglass screens for his cashiers and gloves and masks for all employees. The CEO of a major family-owned destination paid employees through the end of March even though his business was completely shut down. Once it became apparent that the closure would be months rather than weeks and the CARES Act was passed, he was able to furlough most employees so that he could continue to provide benefits and idled workers can collect unemployment benefits until they can come back to work.
Theme 3: Cash is still king – now more than ever. After employee safety, the next most pressing priority for the leaders we interviewed was ensuring they have enough cash to make it through the crisis. Even the businesses experiencing increased demand are taking steps to shore up liquidity as there is still so much uncertainty about how long it will take to safely reopen the economy. Many have drawn down available lines of credit, even if they do not have an immediate cash crunch since the future is so uncertain. Most are looking at ways to cut expenses and develop operational efficiencies.
For many family firms experiencing severe declines in revenues, cash flow is quite literally a matter of survival. As reported in the Kenan Institute’s report on their analysis of data collected in a survey conducted by the Small Business Investor Alliance in March,1 over 80% of small businesses have cash flow concerns. Over 40% do not have cash reserves or access to capital to sustain the business for the next 60 days, and over 66% do not have adequate reserves or access to funds to continue operating beyond the next 60 days.
We are hopeful that the passage of the CARES Act since that survey was conducted will provide the liquidity bridge many family firms need to make it past the crisis. This may be a time when the federal government has gotten it right by applying lessons learned during the 2008 – 2009 financial crisis and recognizing the importance of small businesses to the economy and employment. While we have heard reports of difficulty in applying for the loans/grants authorized in the CARES Act and that the benefits don’t fit the need of every small business, we think the action taken so far is positive and hope that any shortcomings in the legislation and execution of its provisions will be corrected quickly.
1 Small Business Investor Alliance. (2020). Survey of Impact of COVID-19 on Small Businesses. Retrieved from: https://kenaninstitute.unc.edu/publication/survey-of- impact-of-covid-19-on-small-businesses/
Theme 4: Frequent and transparent communication is critical. We often say that communication is the “holy grail” of family business. That has never been truer than now. We heard lots of stories in our conversations with family firm leaders about increasing the frequency and changing methods of communication. With such a fast-changing situation and so many decisions that need to be made “in the moment,” every day seems like a month.
One family CEO said that he is overcommunicating to make sure he stays in touch with what’s really happening and how events are affecting his business. Since his office personnel are working from home, he has replaced weekly meetings with his senior leadership team with daily phone conferences. He is sending out one-page briefs every week to all employees to tell them what he knows and what he doesn’t know. He emphasized the importance of complete transparency by telling them the good, the bad, and the ugly.
Here at the Family Enterprise Center, we also emphasize the importance of good governance in family firms, including having experienced outside independent directors or advisors. Several CEOs told us they are holding weekly board phone or video conference calls to lean into their board members for information, advice, and support. Another CEO told us that he is making an extra effort to stay in touch with customers and shareholders to address their needs and concerns.
Theme 5: It is critical to stay positive, look for opportunities, and plan for what the business will look like on the other side of the COVID-19 pandemic. The most encouraging finding of our interviews with family enterprise leaders was the degree to which they are staying positive, looking for opportunities in the midst of a challenging environment, and thinking deeply about how their business models may need to change in the post-pandemic landscape.
One family business leader in the hospitality business is thinking about ways to diversify her business so that she is not totally dependent on one source of revenue. A leader of a grocery business is preparing for changes in his supply chain that has been shown to be more fragile than thought as a result of the pandemic. The leader of a financial services firm is changing his systems to allow for e-signatures to speed document processing and looking for potential acquisitions.
The CEO of a wholesale oil and fuel distribution business is thinking about how his business model needs to change as we move more towards renewable energy sources. The decline in demand for his current products foreshadows what he can see happening in the next couple of decades. The chairman of a large contractor is communicating to his legislators that additional fiscal stimulus that may be needed to help restart the economy should include a major commitment to badly needed infrastructure projects. Those needs have been recognized for years and acting on them now would provide a long-term stimulus to the overall economy and to his industry.
It has become clear that the COVID-19 pandemic is a health crisis that has created an economic crisis. Developing a vaccine and treatments for the COVID-19 virus and ensuring that our hospitals and health care system can handle the number of patients with COVID-19 symptoms without
overwhelming their capacity is the top priority. Solving the health care crisis will ultimately solve the economic crisis. The family business leaders with whom we spoke recognized that reality and put the health of their employees, customers, family, and community members above all other considerations.
At the same time, many of these leaders know that the long-term survival of their family firms may well depend on the decisions they are making now and on how long the crisis will last. Most are grateful that the federal government has recognized the importance of small businesses, which employ about half of the private-sector workforce, to our economy through passage of the CARES Act and have applied or intend to apply for loans/grants through the programs created by that legislation.
What most impressed us about the family business leaders with whom we spoke were the same things that impress us about great family business leaders most of the time and under most circumstances. They genuinely care about their employees, customers, suppliers, and communities. They are passionate about their businesses. And they are resilient, always looking for creative solutions to challenging problems and for opportunities amid a crisis. We know that some family firms may not survive as a result of the COVID-19 pandemic, and that is tragic. We also know that many will come out on the other side of the crisis stronger than before, some with new business models more well adapted to the post-pandemic business landscape. Please let us know if the Kenan-Flagler Family Enterprise Center can do anything to help you and your family firm be among those who thrive well beyond the COVID-19 pandemic.