1.  Bringing Forward the Conversations about Long-Term Succession and Strategy:

Where the conversation has not yet started about the long-term objectives for managing the inter-generational transition, now would be a good time to start. This can be a complex discussion that takes months to plan – involving amongst other issues detailed thought about family ownership retention, dividend and investment policy, executive remuneration, family member employment policies, board representation, overall control, and family councils – which will not be possible to complete if family members are faced with a medical emergency or if the focus is on immediate business survival. One initial step that can be taken is for the current family leadership to put in place a contingency plan of who the internal or external team of trusted individuals will be to help guide the process in the event the current leadership becomes incapacitated.

2. Senior Executive Contingency:

Companies are putting in place coverage plans for their senior and critical executives in case they are incapacitated for a period of time to ensure there is a designated person to cover each key role. This is all the more critical for a family business if longer-term succession issues may cause complexity where family members are active in the business. It is important for family businesses to differentiate between short-term contingency and long-term succession. Unless there is already a long-term agreed succession plan in place, the short-term contingency should be expressly stated to cover only a specified period of time and should clarify a process to be followed if a longer-term vacancy needs to be filled.

3. Longer Term Funding Contingencies:

Many companies are now planning for scenarios where a serious down-turn in business continues for 12-18 months and assessing now the future sources of funds, whether in terms of impending refinancing dates, additional borrowing capacity, or the scope for seeking additional equity, whether from family sources or PE partners. The key in all of this is to plan early for any such contingency, rather than leaving it too close for the deadline period. In a period of prolonged economic distress, the availability of credit and funding will become gradually more difficult and companies should not underestimate the time it will take to put together a PE funding package, in particular in this environment where the PE partner will itself be dependent on the availability of funding commitment drawdowns and third party debt. It is also important to remember that banks are more likely to meet additional funding needs where a company can demonstrate a track record of taking early “self-help” steps, including quick action on cutting costs, as well as pro-actively engaging early with the bank rather than waiting to be contacted about an impending repayment date that may not be met.

4. Drawing-down under Bank Facilities:

Companies are generally reviewing the cost/benefit analysis of drawing down now on their currently available facilities to ensure there is a surplus of cash-at-hand for an extended period, particularly where existing revolving credit facilities (RCF) make it economic to do so. Where current contingency planning relies on more expensive overdraft facilities, companies are giving consideration to putting in place new RCF facilities at cheaper rates, usually with a minimum draw-down commitment, or putting in place invoice finance facilities so as to have funding and cash flow security well in advance of needs.

5. Executive Pay Cuts:

There is an almost unprecedented level of senior pay cuts being implemented, which is a marked departure from previous downturns. There is no overall consensus on the appropriate levels, with many of the public examples being in a wide range from 10% to 50%, but it is important for family businesses not to automatically feel led by the headline-grabbing cuts being taken by executive teams in listed companies, where broader investor relations, public policy, and industrial relations issues are at play given the public disclosure obligations for those companies. There may also be tension between non-owner management members and family members participating in the equity. The overall rule of thumb at this stage for large privately-owned companies is that cuts should be assessed against (a) the impact of COVID-19 on the business and the extent of the cashflow pressures facing the company; (b) the general level of staff cuts or furloughing being rolled out across the business and the requirement for management to show leadership in solidarity for the long-term benefit of the business; (c) the proportionality of any proposed management cut to the hit being taken by equity holders, also having regard to the relative pay levels of management and the extent to which the risk/reward burden is currently shared with management.

6. Dividend Suspensions:

There is a very strong trend of private companies suspending all dividend payments, even where the cash position is relatively robust. This has to be assessed carefully in a family business where dividends form part of the base pay or base entitlement of family members, if not legally then at least by reference to custom and practice. It is important to remember that a company is never under an obligation to pay a dividend and the directors are under an overriding fiduciary duty not to pay a dividend unless they are satisfied as to solvency.

7. Employee and Shareholder Health & Safety:

It is essential that businesses that are capable of continuing through the COVID-19 pandemic follow all relevant governmental guidance, whether in the form of working from home or for essential services, ensuring that social distancing, advisory signage, hand-washing facilities, hand-sanitisers are in place. The convening and holding of shareholder, board, and family council meetings will not be able to take place in the usual way but there are workarounds that can be adapted to comply with Company Law requirements and relevant Government guidance.

8. Insurance Issues:

Companies should be checking their business interruption insurance. In most cases, coverage will only cover on-premises outbreaks and often only of specified diseases, which will not necessarily include COVID-19 or which may exclude SARs type respiratory diseases. Some policies will include additional coverage for closure due to governmental direction, which may provide a stronger basis for a claim. Even if there is no coverage under the policy, it may be worth negotiating a goodwill discount for future premia if there is epidemic coverage in place but which does not cover COVID-19. For businesses that continue to operate on-premises, they should check with their broker that their employer and public liability coverage policies continue to provide cover.

9. Cybersecurity:

Companies are operating in an enhanced risk environment due to increased remote working. Many companies are taking steps now to increase cybersecurity training and issuing cybersecurity policy reminders to their personnel. Off-site order handling which involves taking payment details can also create an increased risk profile and additional oversight and security measures should be considered.

10. Keeping Regulatory Compliance on the Agenda:

With so many competing demands, it is important not to forget the continuing obligations in respect of regulatory compliance. In particular, extra care needs to be taken regarding the handling of health data from employees under data protection requirements at a time when companies may regularly be discussing health issues with employees. Another area for vigilance is competition law compliance when putting in place any special arrangements with suppliers or competitors or when engaging in industry-wide initiatives.