I attended a function this weekend. It was the 60th party celebration of a notable entrepreneur in the Nigerian business environment who has made her mark in her area of specialisation. At this function, she announced that she would no longer be running her business but was handing over from Monday to someone else whose name was announced and grandly presented to us.
I was not surprised at the choice of her successor. I had suspected that this was what she was planning based on how this person was being positioned in all of her business dealings. It was also clear that her successor had been working with her for some time and had a very good grasp of the business. What was also apparent was that this successor was likely to be well received by the business community based on the positive response that greeted the announcement.
I was proud of this lady, because she has done a seemingly seamless transition while alive and still able to provide guidance and direction to the business. There are very few businesses in Nigeria that have been able to perform this feat. Examples attested to and commended are the transitions at FCMB and Diamond Bank.
We seem to have a problem in the transition of family owned businesses from one generation to the other in Nigeria. This is a thorny issue for wealthy business families. Many of us can name family businesses that no longer exist in Nigeria. A Survey by KPMG on Family Owned Businesses says, â€œa family business is unique, in that it needs to keep both the needs of the family in mind with every business decision without deterring from whatâ€™s right for the business itselfâ€. The question is, how many families have been able to achieve this balance. KPMGâ€™s report went on to say that, â€œplacing the familyâ€™s needs above those of the business will lead to the quick deterioration of the company, making it unlikely that it will sustain itself much furtherâ€.
Many family owned businesses in Nigeria are no more today, because this balance is difficult to achieve especially because family businesses can be complex in terms of cultures and history. Some examples of families that were not so successful in achieving this balance were: Igbinedion Family (Okada Airlines), Abiola Family (Concord Newspapers, Concord Airlines, Abiola Bookshops, ITTN, Wonder Bread, etc).
There are several issues that work against the successful continuation of family businesses, some of these issues according to Forbes include:
â€¢ Generational transition: Only a third of all family businesses successfully make the transition to the second generation. The examples above clearly show that achieving this transition is challenging. However, some notable families are working on ensuring that this transition is successful for their family owned businesses in Nigeria and we are rooting for them.
â€¢ Alignment of family interests: Alignment of interests between current owners and others becomes more pronounced as members retire and turn over the reins to the new generation, while at the same time looking to the company for their retirement income.
â€¢ Balancing of financial returns: Creating buyout agreements is challenging. When the retiring generation looks to the value of their interest, they sometimes tend to look to a balance sheet number. In fact, the true value of a business should probably be based on an earnings capitalisation model, a concept unfamiliar to many smaller family companies.
â€¢ Interfamily disputes. The interest of one family member may not be aligned with another family member. These situations can become even more difficult in Nigeria, where we have polygamous families and various interests that are at play that may not necessarily be in the best interest of the organisation.
In view of the above, is essential that all entrepreneurs, especially those of us, interested in leaving a legacy behind start to think about putting structures in place for succession planning in our businesses. George Stalk and Henry Foleyâ€™s, Harvard Business Review article titled, â€œAvoid Traps That Can Destroy Family Businessesâ€ advised on the need to avoid the following traps.
Trap #1: â€œThereâ€™s Always a Place For You Hereâ€
Some proprietors of family-owned firms make their children feel obligated to join the company, which can backfire by creating a crop of managers who arenâ€™t interested in being there. More often, though, we see parents emphasise that their offspring are free to join the business and sometimes demand it. If the company is successful, those children are likely to have been raised amid wealth, which broadens their choices as adults. Generally this situation translates into an unspoken promise that â€œthereâ€™s always a place for you here,â€ which can lead children to treat the business as a fallback option and are unprepared by the time they join. Despite their lack of experience, these offspring may ascend to leadership positions because of the family connection, increasing the chances that the business will fail.
To escape this trap: Insist on proper training and screening. This I saw in the activities of the business owner that transited her business this weekend. She had been grooming her daughter for a while by exposing the company to her at an early age, making sure she had the right qualifications for the business and had experience in the business from the bottom rung to the top. Some families make sure that members who succeed them also have requisite experience from notable brands in their field before they join the family business to gain best practice experience.
Trap #2: The Business Canâ€™t Grow Fast Enough to Support Everyone
An underappreciated problem is that families often grow more quickly than their businesses do. Many businesses simply donâ€™t have enough work to employ every family member.
To escape the trap: Manage family entry and scale for growth. Families that have avoided Trap #1 by ensuring that only committed, qualified relatives are allowed to join the firm have already reduced the magnitude of Trap #2. Another solution is to develop strategies to grow the business and create responsibilities for additional family employees.
Trap #3: Family Members Remain in Silos
One of the most striking things about family businesses is the tendency to specialise in the same aspect of the business, whether itâ€™s finance, operations, or marketing. This can be problematic for several reasons. First, by staying in specialised silos, next-generation managers fail to gain the cross-functional expertise needed for executive leadership. Second, when close family members supervise one another, the personal dynamic can prevent candid feedback and interfere with coaching. Together these factors can create a leadership vacuum in the up-and-coming generation. This may prompt the current generation to stay in the top positions too long, limiting the companyâ€™s adaptability to change. To escape the trap: Appoint nonÂ¬family mentors.
To survive over the long haul, family businesses need to adopt formal policies about whom to employ, whom to promote, and how to balance family and business interests.
– Marie-Therese Phido is Sales & Market Strategist and Business Coach Email: email@example.com tweeter handle @osat2012 TeL: 08090158156 (text only)