Lack of a succession plan is a principal cause of the high failure rate among first and second generation family businesses. Engineering a successful transition was the focus of the first annual forum on family business in Nigeria, organised by Rome Business School and the Centre for Value in Leadership (CVL) in Lagos. DANIEL ESSIET reports.
What can family businesses do to evolve leaders, who can manage the challenges of leading a multi-generational family-owned enterprise? This is a critical issue, following increasing squabbles among siblings over the management of family businesses. The other issue is that some of family business owners usually do not have succession plan and a large number do not believe that their businesses may survive till the next generation.
Business experts and small business owners met to discuss these issues. The meeting was the first annual forum on family business in Nigeria. It was organised by Rome Business School and the Centre for Value in Leadership (CVL) held in Lagos. It saw business owners and managers discuss topics in family business, which included business investment, skills and the future regulatory framework.
Founder, CVL, Prof Pat Utomi, spoke about the importance of family businesses , which he said, represent majority of all businesses. They also employ about half of the nation’s workforce, and contribute a substantial amount to the nation’s gross domestic product. However, many of these businesses still struggle to survive the generation after their owners.
Utomi noted that the success and sustainability of family business are crucial to the nation’s economy.
A key challenge facing family businesses, he observed, was ensuring a successful transition from one generation to the other as many enterprises have ceased to exist and a large number of them failed to transit.
According to him, successful business transition from one generation to another was critical to the long-term success of the business.
He noted, however, that succession disputes thatb trail those businesses can be devastating for those involved. To him, it was a critical subject for entrepreneurship studies. He said as more family businesses emerged, there was need to protect the existing base of family businesses, and education, skills and lifelong learning should be used to sustain the effort.
Utomi stressed the need for organisations to provide the knowledge, skills and support needed by their businesses to build and protect their legacy for future generations.
The partnership between CVL and Rome Business School, according to him, was intended to address issues relating to ineffective management of business succession, provide support for business succession plan and business transfer, including the different options for business transfer, so that they can learn about the common issues that arise in family businesses, and how to resolve them through planning, mediation and knowing where to seek help.
Utomi stressed the need to continue to engage business owners and practitioners to highlight and discuss the reasons why succession planning and exit strategies are so important to long term success.
Director, First Bank Sustainability Centre, Lagos Business School and Chairman, Board of Directors, Diamond Bank Plc, Dr Chris Ogbechie, said the impact of successful family business transfers can be significant.
Ogbechie,who spoke through Dr Franklin Ngwu, a Senior Lecturer in Strategy, Finance and Risk Management, Lagos Business School, praised the organisers for holding the forum to address the challenges involved in business succession and transfer, and urged them to bring forward recommendations for practical interventions.
An entrepreneurship consultant, Mr Aluko Oluwole, said succession is becoming a pressing issue because evidence suggested that succession has not been going so well.
He said the success and long-term sustainability of family owned businesses are crucial to the economy, providing local employment and creating local supply chains.
According to him, family businesses are the bedrock of the economy and their failure must be avoided at all costs.
He counseled that in situations where children do not join the family business, or turn out not to have inherited the entrepreneurial genes of the founder, it would be in the best interests of the firm to hire a professional to run it while the family retains some control.
As reluctant as many families may be to tackle the issue, Oluwole added that the health and longevity of a family business depend on careful transition plan—and on communicating the results of that plan to the co-owners at the right time. Doing so, he maintained, would help the business survive and deliver lasting value to the family.
A professor of Corporate Governance, Lagos Business School, Fabian Ajogwu (SAN), explained that family businesses present distinctive challenges because they combine the values and expectations of the workplace with more intimate family bonds. Ajogwu observed that while business values and family values overlap in a family business, role separation sometimes become more difficult.
He added that most family businesses fail because of the expectations that the owners put the family’s interests first, which may conflict with the goal of maximising economic return in a business. He said succession often poses a serious challenge to family businesses. According to him, many family businesses fail to plan for succession, dealing with the issue only after the death or incapacitation of a controlling family member.
He stressed that founders must provide clear instructions on the succession and assets sharing in forms of Wills to safeguard the family and the business. If a family business is to survive, he advised, the business owners must prepare legally to smoothly cede control to their children.
He advised that business founders should establish a trust to hold company stock for the benefit of family members, the applicable governance and fiduciary rules are thereafter a matter of trust law as well as business law.
As part of succession plan, he said, a more capable child or an outside manager could be selected to manage the business, while the remaining off springs receives some measure of economic compensation through their beneficial trust interest.
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