Cybersecurity in Family Businesses: Best Practices for Protecting Your Legacy

Family Business Audiocast (FBA) is a dynamic platform dedicated to elevating family businesses by providing insightful discussions on governance, leadership, and strategic investment. As a global resource hub, FBA unites leaders, investors, and educators in a collective effort to foster innovation and ensure long-term success in the family business sector.

Key Takeaways

• Cybersecurity is critical for family businesses to protect their operations, reputation, and multi-generational legacy.
• Family enterprises face unique challenges, including reliance on outdated systems and informal governance structures, making them attractive targets for cyberattacks.
• Real-world examples like Maersk and Travelex illustrate both the risks of inadequate cybersecurity and the potential fallout for family-owned businesses.
• Proactive strategies, such as those employed by the Schwarz Group, demonstrate how investing in cybersecurity can safeguard operations and enhance trust among stakeholders.

The Digital Threat to Legacy

In the digital era, family businesses are more exposed to cyber threats than ever before. These enterprises often combine decades of trust with closely knit networks, but that trust can sometimes lead to vulnerabilities. Cybercriminals see family businesses as attractive targets due to their perceived lack of robust defenses compared to larger corporations. Whether it is ransomware, data theft, or phishing scams, these attacks can paralyze operations and erode the hard-earned trust that these businesses have cultivated with their customers and partners. The risks are more than financial; they can jeopardize the reputation and continuity of a family’s legacy.

Take, for example, the Maersk ransomware attack in 2017. This family-owned global shipping giant experienced significant disruptions when their systems were compromised, leaving their operations at a standstill for weeks. The incident cost the company millions and demonstrated how even the most established family enterprises are not immune to cyber threats. While Maersk was ultimately able to recover, the attack serves as a stark reminder of the critical need for preparation and resilience in today’s interconnected world. For smaller family businesses, the consequences of such an event could be far more catastrophic, potentially ending decades or generations of effort in one swift blow.

Real-World Challenges in Cybersecurity

One of the most pressing challenges for family businesses is their reliance on legacy systems. Over time, many family enterprises have organically built up their technology infrastructure, often layering new tools on top of older ones. While this approach can help reduce costs in the short term, it leaves businesses vulnerable to cyberattacks. Outdated software and hardware often lack the necessary security measures to protect against modern threats. For instance, the Travelex ransomware attack in 2020 revealed how an organization’s inability to modernize its digital systems could lead to catastrophic failure. The attack not only disrupted operations but also resulted in the bankruptcy of the once-thriving family-founded business.

Another challenge lies in the human element. Family businesses are often characterized by strong relationships and informal governance, which can sometimes lead to a lack of cybersecurity awareness. Employees may unintentionally compromise systems by using weak passwords, falling for phishing scams, or failing to update critical software. Leadership may assume that cyber threats primarily target large corporations, leading to underinvestment in cybersecurity measures. Unfortunately, this mindset only increases the likelihood of an attack, as cybercriminals specifically target businesses they perceive to have weaker defenses.

Protecting the Future Through Digital Resilience

Despite these challenges, family businesses have unique strengths that can help them excel in cybersecurity when leveraged correctly. Their focus on long-term thinking and values-based leadership makes them well-suited to prioritize initiatives that protect their legacy for future generations. Unlike public companies that are often constrained by quarterly performance targets, family enterprises can adopt a proactive and sustainable approach to cybersecurity. By embedding digital resilience into their core strategy, family businesses can turn a potential vulnerability into a competitive advantage.

An inspiring example is the Schwarz Group, the family-owned parent company of Lidl and Kaufland. By prioritizing cybersecurity as a fundamental part of their governance model, they have safeguarded their operations and positioned themselves as leaders in digital resilience. Their commitment to securing not only their systems but also their partnerships and employee networks demonstrates how family businesses can thrive by taking cybersecurity seriously. This proactive approach not only protects operations but also builds trust among stakeholders, ensuring that the business remains robust in the face of future challenges.

Summary

• Cybersecurity is a vital investment for family businesses to protect their operations, reputation, and legacy.
• Real-world cases, such as Maersk and Travelex, highlight the consequences of neglecting cybersecurity.
• Addressing challenges like outdated systems and informal governance is essential to building resilience.
• Successful examples, like the Schwarz Group, demonstrate how family businesses can lead in cybersecurity with proactive strategies.

At Family Business Audiocast, we are dedicated to helping family enterprises navigate these challenges and secure their futures. Stay connected with us for upcoming resources, including white papers and webinars that delve deeper into safeguarding family business legacies in an ever-changing world.

Read a few past newsletters.

Outsourcing and Strategic Alliances: Growing Family Business Through External Expertise, Navigating Challenges in Family-Owned Businesses, Navigating Regulatory Changes in Family Office Governance, Conflict Resolution in Family Businesses, Digital Transformation in Family Business: Adapting to the Future, Family Office in Real Estate Investing

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Family Business Audiocast provides insights into the internal workings of the single-family office - governance, culture, corporate operations, growth, and mission. It does this through this newsletter and conversations with leaders in the family office ecosystem.

Family Business Audiocast is founded, produced, and created by R. Adam Smith with contributing editors Jasmine Ren and Aaqib Gondal.

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This article was written by R. Adam Smith, Jasmine Ren, and Aaqib Gondal.