Managing Succession in Crisis

Octavian Pilati is an Austrian entrepreneur with a 29-character long surname and a rich family history. Dealing with a crisis in the family business from 2015 to 2018 Octavian is now sharing his experiences and knowledge about family business, family dynamics, crisis, fraud and a lot more.

As descendants from the princely family of Khevenhüller-Metsch his family dates back to before the year 1000. The other family roots (Graf Pilati, Filo della Torre and del Pezzo) all have similar long histories. For Octavian’s family the most formative event happened in 1730, when Sigismund Reichsgraf von Khevenhüller bought several estates in Lower Austria. By doing so he build the foundation of the family business Octavian is engaged in today.

The family business brought forth Octavian’s first professional challenge. In the years 2015 to 2018 the company slid into a major crisis stemming from a failed investment and Octavian decided to take over the management. As a student of mechanical engineering at the TU Vienna Octavian has a deep understanding of technical product development, which helped him to approach the difficult situation in an unusual way.

Octavian was business savvy from an early age on. Not even a decade old he was already offering guided tours through the family’s historic buildings during summer months. He moved onto selling lunches and later lending money to classmates – his interest rates were well above the level of the 80s. At the age of 13 his father decided that it’s a good time for Octavian to start investing in the stock market. Since then he has been on a stark exchange on this topic. His enthusiasm for lending and trading continued in boarding school in Ampleforth, England.

England is where he spent his teenage years (13-18) and discovered his love for rugby and travelling. His passions besides that are reading, biohacking and product development. He believes in lifelong learning and is therefore drawn to anything interesting that pops up.

[00:00:12.290] - Kirby Rosplock

Welcome to the Tamarind Learning Podcast. My name is Dr. Kirby Rosplock, and I'm your host today. Today we're talking about succession in crisis, and I am pleased to have with me Octavian Pilati, who will share more about what he experienced when his family and their family business was changing hands and what was happening to create a lot of stress and anxiety. So, Octavian, I'm thrilled to have you here today. Thanks so much.

[00:00:42.750] - Octavian Pilati

Thank you for having me.

[00:00:45.950] - Kirby Rosplock

Well, tell us a little bit more about your story, Octavian. I am so fascinated by what you've endured and experienced and what your family has gone through. Perhaps you can share more with our listeners about what happened when it came to succession in your family.

[00:01:02.550] - Octavian Pilati

It's my pleasure. To put things short, our family business has been in forestry and agriculture for many years. So I'm a descendant of one of Austria's princely houses. We have been busy in agriculture, politics for about a thousand years, and the family came from of ledge. If you're from Australia, you probably have heard of them. And in 2014, we had a crisis in our family business, which lasted to about 2018. And in the middle of that crisis, we had a leadership succession from my father onto me. And what's also important to know to understand the dynamics that unfolded is that starting 2009, we started having succession talks between my older half brother, myself and my father. And as you can probably guess, that by the time of 2014, it was still in the hands of my dad. We didn't get very far in those succession talks, which added some extra spice to the crisis, I would like to say. And the crisis itself unfolded due to an investment my father made where he leveraged our land, which was the basis of our family business, and the company he invested in, turned out to be fraudulent and went into bankruptcy, which triggered the guarantees.

[00:02:33.190] - Octavian Pilati

So that's what basically triggered the whole thing.

[00:02:38.370] - Kirby Rosplock

That is just a tragic and I can't even imagine the pain and suffering that I'm sure your father felt, knowing that he inadvertently thought he was probably just doing some financial engineering and had no idea what this one investment, how it could completely undermine his whole legacy.

[00:03:09.050] - Octavian Pilati

Yeah. It took him some time for it to settle. That's something that when crisis hits, and crisis hits from a decision you have made, you will see this in people quite often that there's a phase where people don't want to see it. They're like, oh, it's all still fine. Things will work out. It's not as bad as it seems. And that's why often in crisis, it can be a good idea to have a little bit of a change in leadership or get some extra advice, which also was the case in our family.

[00:03:41.990] - Kirby Rosplock

Well, and tell us a little bit more about your role. How are you impacted by what happened from this investment? And tell us your story.

[00:03:53.450] - Octavian Pilati

Yeah, so at the time, I was still a student in 2014. Things started unfolding a little earlier in 2013, but I wasn't much informed about matters. My dad and my half-brother always said, well, you're a student, you're still young, finish your studies, you don't need to worry. And in 2014, more and more meetings were taking place with other investors and the new CEO who came in and the meetings were happening in English language. And I went to boarding school in the UK. So my English is pretty good and my dad doesn't speak English. So that's how I started getting involved, just to come along and translate for him. So that's where I started to have my first impressions and was thinking, well, let's see how this is going. And in November 2014, there was the annual General meeting. And that's when the new CEO who came in a few months prior announced that he found some fraudulent documents and that he thinks the company is a fraud. And that's when it was official that we are going to have a problem. And the first thing I did back then, I still remember, I sat there and I was like, oh dear, okay, I live off my family, I had a good student life, I didn't have to worry about anything.

[00:05:23.540] - Octavian Pilati

If this is gone tomorrow, what am I going to do? I got my first proper job back then. I would always work for the family business on weekends sometimes, or part-time or in the summer. But I got my first proper paid job with another company. That was the first thing I did, and I started there in March the following year.

[00:05:53.330] - Kirby Rosplock

And tell us how this unfolded, what happened next after helping translate some of the English gaps for your father and how did things escalate?

[00:06:08.550] - Octavian Pilati

Well, I still continue to translate and the first big change for me personally was in I believe it was June 2015, where I still remembered it vividly. I sat in in Munich in a beer garden with my colleagues because the company's headquarters was in Munich and we would go there once a month for a meeting and then we would always hit the beer garden afterwards. And I got a call from our lawyer who on the phone asked me if I had read the email. And I was like, what are you talking about? He's like, read your emails and then call me back. So I was like, okay. I read my emails and my dad and my older half-brother went on holiday to relax a little bit. And my dad wrote an email to our lawyer, some other investors, and the CEO saying that he is away for two weeks and in the meantime, his youngest son, Octavian, is going to handle matters. So if anybody needs anything, here's his number and his email address. So, yeah, that's when I had my first taste of two weeks of kind of being in the driver's seat, honestly.

[00:07:21.520] - Octavian Pilati

I talked with the lawyer and we agreed that I would just say I will think about it or no to anything. I was being asked for two weeks, so that's basically what I did. I didn't have a clue what was going on, so I stuck to that plan and it worked out well.

[00:07:38.610] - Kirby Rosplock

It worked out well. It certainly helps you get through that probably really stressful period where you're stepping into shoes that you hadn't previously had the ability to prepare for as well as having to think on your feet really quickly and react to what was being asked of you.

[00:08:03.770] - Octavian Pilati

Yeah, precisely. I did this for two weeks. My dad came back from holiday and our lawyer asked him to come to his office and bring me along. And I thought it's just going to be a kind of debrief of what's happened in the last two weeks. And in that meeting, the lawyer told my dad that he would suggest handing over the crisis management to me and I had no idea he was going to suggest that. And my dad, in the moment there, he just said, okay, if that's what you're suggesting, that's what we're going to do, and ask me if I'm ready to do this. And I felt very honored and actually very happy to be asked. And without knowing what this would mean for me, I said, yes, I am. And that's when I ended up kind of handling things for the family in the crisis.

[00:09:01.230] - Kirby Rosplock

Tell me a little bit more about what you learned about yourself, what you learned about your family, what you learned about business succession, doing it during a crisis.

[00:09:13.890] - Octavian Pilati

Well, first thing I learned, which was a major problem afterwards, is if you we should have had a chat in the family about this with everybody who is impacted by this decision, which we didn't do. My dad just decided on his own and other people were, let's say, not very happy with how it went. So my half brother and his wife, who she was a lawyer, she's a lawyer, he studied economics. They were always advising my father and was it was the three of them handling things and my brother had his own company, his own, his own family. So he, he said, look, I don't want to drop everything to do this, I'm happy to advise, but I'm not going to step in. And he would have liked to be consulted because he didn't think it would have maybe been device's idea to put a 25 year old in charge, which was some very good points there, looking back at it. So that was the first thing that impacted the family dynamics. Not positively, let's say. Secondly, what happened to me and I see it with other next gens sometimes or rising gents. You believe that you have some decision making powers but you don't really.

[00:10:35.560] - Octavian Pilati

So I was crisis manager but my father still legally was the one who had to make the decisions and to a certain point I could make decisions and he wouldn't mind. But after this certain point it was him. So we did have some moments where the lawyers and I and other advisors, we made a plan and he then said no, we're not going to do it this way and then it's back to drawing board. Those were the moments where I sometimes sat and thought oh maybe am I really up for this? Is this really how I want to work? Kind of thing. So that's also something that you should always ask yourself what am I really in charge of and who makes decisions for what and when and where are the boundaries? That's another thing I very strongly learned. And if the family foundation and emotional foundation, the relationships between family members, if there's any cracks there's, anything that's not stable that will show more in times of crisis, pressure comes on everybody and things will come up. All the, let's say, emotional traumas maybe from your childhood, whatever, those things come up. People start quarreling about really unimportant things in the moment but it happens.

[00:11:59.800] - Octavian Pilati

And that's something that can be rather surprising not only for yourself but also for your advisors.

[00:12:08.170] - Kirby Rosplock

Certainly that family dynamic is a wild card in a crisis situation and I think I love that. Sorry you had to learn this horrible lesson about the rule of law in authority and legal control and why that has so much basis for crisis management. Because it sounds like you had tremendous responsibility but really ultimately your father had ultimate authority and that means that you could be working really hard towards what might be a very sound solution but if ultimately he disagreed with it, to your point, you're back to the drawing board so that again can erode. I'm sure that relationship with your father and create stress on that personal family side.

[00:13:02.490] - Octavian Pilati

Definitely. So it eroded trust in the whole family, the situation, the way the decisions decision were made. Also that's something I didn't do very well. I then had a tendency to secrecy at some point where I said okay, the later I tell people about what we are planning less likely somebody is to interfere and break things. Again, if you're listening, secrecy is never a good idea. It just means that the work becomes more and the quarrels become larger.

[00:13:38.950] - Kirby Rosplock

Yeah, and it sounds like Too and I'm parlaying from other families I've worked with, I'll say my own family, too, that when information is withheld and then sort of release. Under these duress circumstances, everyone's blood pressure goes up, spikes even farther, faster. And it also can sometimes just be like pouring gasoline on the fire, which creates an accelerant. And so instead of actually getting to a solution, you're actually deepening. Right, those family schisms and there's family fractures that were already on shaky ground. And then this just creates even more anxiety, animosity and distrust. And I think you hit it on the head when you bring that up because ultimately, crisis doesn't typically bring families together in a way that makes them more trusting. It typically expands their distrust of sort of old pains and old scars and wounds that might have you thought were in the rearview mirror. They all just come right back to the present.

[00:14:53.070] - Octavian Pilati

It depends. I think there's a tipping point, and if you're before the tipping point, a crisis can bring the family together where you say, okay, we have this problem, we need to solve it. Let's do this. It gives the family a unifying mission to tackle. But if you're beyond the tipping point, it gets terribly chaotic where you say, okay, that's why I always like to say your family can be a resource, a very good resource for your family business, but it can also be a big problem. And that depends on how you deal with the family, how emotional stable the family is, what essentially is your behavioral risk. And if you look at it, there's studies on this that in most cases, when a family loses its wealth, it is, and that's over 80% of the time it's down to the family members themselves. So your own family is the biggest risk to your wealth.

[00:15:54.920] - Kirby Rosplock

Actually, I'm so glad you clarified that because I do totally agree with you on the tipping point concept and that there's basically impending crisis in a lot of our lives, right? It's just how we choose to prepare for what we know, what change is coming. And then that might also impact whether it's even a crisis at all. Right? It might just be a transition. It might be just a normal leadership succession or ownership, succession or exit of a business, knowing what you know now, what are you advising families based on your own personal experience to do differently?

[00:16:42.270] - Octavian Pilati

Crisis is bound to happen at some point, so prepare for it. You can make a crisis management plan where you agree ahead of time, okay? If crisis hits, this is who will be the crisis manager. This is going to be our crisis committee. These are the family members who will be in charge of this and that and help here and there. You can plan this roughly because crisis is always different, but again, they were very similar, at least from what internally will happen in the family and in your business. In crisis, it's important to discuss things openly. So don't be secretive. Share the information, use the swarm intelligence that you have in the family and maybe also apply swarm leadership to it. You don't need a crisis manager in charge of everything. You might have somebody who is an engineer in the family. The next one is a lawyer. You can assign different areas of expertise and responsibility to them. And something that hit me very hard on the head after our crisis, where family relationships were damaged, reputation was damaged. In the end, your family business, yes, it's your legacy, but in the end, it's about financial wealth.

[00:18:00.560] - Octavian Pilati

And financial wealth, if you keep your connections, if you keep good relationships in the family, you can reforge that wealth. But if you break those relationships, if you ruin your reputation, if the knowledge transfer between generations is damaged, those are much harder, much more difficult to repair. So I would always say family first, then the wealth and the family business, that's something that I highly suggest to anybody who ends up in a situation like this. And finally, the best investment you can make to preserve your wealth is into the family, into the emotional connections between family members. Repair what you can find. Sometimes you can't repair things that have been done in the past, but you can find a modus operandi where you can still have a trustful relationship with each other. Invest in that. Get the help that the family needs to strengthen that foundation of the family. It's like if you want to build a skyscraper on sandy ground without building the proper foundation, it's just going to top over the first time. A little bit of a stronger wind will come up. You wanted to weather a storm in an earthquake if you can.

[00:19:25.510] - Kirby Rosplock

Wow. Super powerful. Thank you so much, Octavian. It's so great to have you on the Tamra Learning podcast today. I want to point out Octavian is a prolific blog writer, so if you're enjoying hearing his thoughts on crisis management and succession self management, I want to point to you. There'll be some additional links that you can check out about. Crisis management. Starts with self management ten, learnings from managing a Crisis in a Family Business. Turning your family conflict into opportunity. Why? Emotional stability protects your wealth. So, again, I want to just put a plug in for a lot of what Octavian has taken sort of a pretty tragic and very stressful situation in his own family experience and turned it into something we can all learn and grow from. So, Octavian, I just want to thank you for joining us today. Really powerful story, and thank you for your courage and your leadership through a really difficult time.

[00:20:23.330] - Octavian Pilati

Thank you very much. Means a lot to me.

Blog — Octavian Pilati

Crisis Management Starts With Self-Management — Octavian Pilati

10 learnings from managing a crisis in a family business — Octavian Pilati

Turning your family conflict into opportunity - Why emotional stability protects your wealth — Octavian Pilati