Families need effective business succession plans

Tuesday, November 15th, 2022 03:00 | By
A sample will. PHOTO/Courtesy.

Many firms in Africa are family-owned and controlled by the founders. At the same time, a new generation of entrepreneurs who are eager to pick up the business mantle is emerging.

This bodes well for a continent with a young and rapidly expanding population. But for the momentum to be sustained, business owners need to act now to help secure a more prosperous future. The prevailing philosophy tends to be ‘live in the present’, but a better one might be ‘look to the future’.

Many companies in Africa have little in terms of plans to safeguard against “key man” risk, which is what happens if a key figure in the business dies or is incapacitated (a serious possibility since many businesses are controlled by those in their dotage).

What is missing is an effective succession plan. Succession planning involves establishing agreements, trusts and efficient structures that enable the smooth transfer of assets. The formation of informal or more formal family offices with teams of accounting, legal and investment professionals also helps to create accountability and responsibility. This supports the family to work together to achieve common goals. This should go hand in hand with good communication strategies.

In most African businesses, the idea of a succession plan is never dealt with in business setups. According to a study by PWC South Africa in 2016, the key potential failure of family businesses was succession planning, with only 17 per cent of family entities having a succession plan in place compared with 13 per cent in the 2014/15 survey. The lack of a succession plan has been seen to adversely affect most African businesses, especially family entreprises. Change happens fast and businesses may not get a second chance to adapt if key personnel leave. At worst, businesses are going under for lack of a succession plan.

This is particularly pertinent when 65 per cent of African business families’ top priority is growth, according to a recent PWC Family Survey report. Successful families need to see their business interest grow by 10 per cent every two to three years. This is essential to protect the family’s interests - easier to be done in an emerging market environment that in a developed market.

A succession plan provides a solution to facilitate the growth of the family business and create and maintain a legacy that can grow from generation to generation.

Bringing the “next gen” into the family discussions sooner will create harmony and build the foundations for a secure transition of responsibility. This ability to use the family business as a bouncing board to other interests is becoming more common. 

Sustainability is another key concern of family-owned businesses. In our experience, many of our family business clients are aware of the impact of their investments on the environment and their local communities. For them, they are as concerned about ESG (environmental, social and governance) as they are about ROI. This is really an area where we see families pull together using proper governance structures to drive the direction of family interests.

Taking over a family business is not easy and is particularly difficult if the next gen does not have the respect of the incumbent workforce. Evidence of experience gained outside the family business will go towards earning credibility and respect. Authenticity is key, along with credibility and a lot of humility in the knowledge that the workforce are  the ones who drive the business.

Many of the “next gen” are US, or EU educated, and really are hybrids of two worlds combining ancestral tradition and respect with modern technical knowhow.

 — The writer is a Director, Ocorian Mauritius

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