Family businesses are the backbone of any economy and Nigeria is no different. The family is the smallest building block of society and it holds utmost importance in a person’s life. It is a most powerful unit when it is close-knit and empowered. The United Nations have set aside the 15th of May, as the International Day of Families, This is to raise awareness about this critical unit of society and to seek ways to protect it.
Indeed family-owned businesses have long been part of Nigerian business life and history, yet so many of the prominent businesses in the early 50s and 60s are no more. What happened to them?
Family businesses face unique challenges. Passing a business down to the next generation is often unsuccessful. Only one-third of all family businesses are successfully transferred to the next generation. Research also shows that only about 15% are transferred onto the third generation. Succession planning experts cite the primary reason for the high failure rate is due to a founder’s failure to effectively plan for the transfer of ownership and management of the business.
Here are some issues to consider:
Your children may not be interested
A common mistake that business owners make is assuming that your children want to follow in your footsteps. Don’t just assume that your offspring must be your natural successors. They may not have the inclination or the desire to join the business. They may want to follow their own life path and not yours. The next generation has to have the desire to run the business. Also, they must be capable of running it effectively. Ideally, they should want to join the business without force or coercion.
Can they do the job?
Does it have to be a family member that leads the company, no matter the outcome? The best person to succeed you may not be a family member. Without preparation, children of many families are brought into senior positions. Have you given your children room to grow in the company? Or have you held on to the reins so tightly that even those among them who are already in the business have not been able to express themselves, or develop their decision-making or leadership skills?
Hold them accountable
Be completely clear about roles, responsibilities and reviews. By doing so, you would ensure that family members are performing at the required level. Do they command respect in their own personal capacity, as a result of their skills, experience and intellect. Or are they dismissed or only grudgingly “accepted” as “oga’s” child? Underperforming or dysfunctional family members being allowed to wander through the business without accountability, is very demotivating for other hardworking staff. This can be very damaging for morale and the prospects for a successful transition may be bleak.
Should they join the business straight from school?
Your children will benefit from maturing and gaining confidence independently rather than as the children of the boss. Issues such as punctuality, earning their own money, accountability and credibility are important. The knowledge and experience they garner outside the business can be useful when they enter the company.
There are generational differences
The next generation tend to have a different lifestyle than the founder and entrepreneur who built the business from scratch with blood, sweat and tears. In some instances, they might have been to top educational institutions. Some have enjoyed the good life. And in many cases, they have been over-indulged. As a result they often do not share the same commitment or passion of the founder. On the other hand, their work style is not an indication of a lack of commitment to the business. The older generation has much to learn from the new way of working.
Youth and innovation
Family businesses are dynamic in nature. As members of the younger generation learn from their elders, so too must the older generation be flexible enough to capitalize on and embrace the skills and ideas of the youth to innovate. Older generation must be willing to embrace technology and explore new opportunities. This is crucial for a firm’s long-term survival as it embraces change and seeks to remain relevant. Many founders refuse to change with the times and resent any new ideas.
Are you being fair?
Particularly in a patriarchal society like ours, many families assume that the eldest son or child will take over the business. Of course the owner can make a decision to pass leadership to the child of their choice. But, it can be a challenge to try to balance fairness in employing certain children or even grandchildren in a family business with various skill levels. Even compensation levels and ownership levels as opposed to others. If the candidate has not earned the respect of family members of employees, this “natural’ choice may not necessarily be ideal. This could build up resentment, jealousy and envy that may bring an outstanding company to its knees. Further complications are often introduced by the extended family system and that must also be addressed.
Mentor your successor
Mentoring can take several years, even if your successor has worked in the company. It is a good idea to have an expert who isn’t a family member, serve as the mentor. Objectively evaluate your successor and with input from stakeholders including Directors, investors, managers and employees. Even after handing over the reins, one should continue to assess and stay connected as you gradually disengage.
Deploy a professional selection process
A family hire should be as thorough as any other hire. Does their personality and capability fit the job? In choosing your successor, you should seek to identify the best person positioned to move the company forward both internally and externally. The success of the transition exercise is based on an objective and transparent handover process.
Ranking of successors should be based on key criteria. These criteria include educational background and past work experience and leadership positions. You would do well to take note of their interpersonal skills, problem solving and decision-making ability. Your successor’s personal strengths and weaknesses should be considered. As well as their professional and leadership abilities. This is because, it is of far greater importance than your blood relationship. Don’t employ someone just to fill a vacancy or just because they need a job. The role must be suited to them.
Seek professional advice
Family businesses have a greater need for formal communication in order to resolve a host of other pressing family and business issues. Sometimes volatile topics steeped in emotion make it difficult. Hence, a third party facilitator will make discussions constructive and less emotive.
Would you consider selling the company?
If you are still at the helm of a profitable business and see no real prospects of your children moving it forward, there is the option of selling a stake. Another option to consider is selling the company in its entirety. The proceeds of the sale will be in the form of financial assets which your heirs will eventually inherit.
Smooth succession planning takes time and should be developed over several years. The successful transition of a business from one generation to the next, has a better chance of sustainability with carefully objective planning. Whether it’s to a family member or not. The earlier the planning starts, the better.
READ ALSO: Money Matters: New Year Money-Resolutions
Nimi Akinkugbe has extensive experience in private wealth management. Through her platforms, she seeks to empower people regarding their finances and offers frank, practical insights to create a greater awareness and understanding of personal finance.
For more personal finance tips visit:
Website: www.moneymatterswithnimi.com
Twitter: @MMWITHNIMI
Instagram: @MMWITHNIMI
Facebook: MoneyMatterswithNimi
