It is no longer a secret that family businesses world over can struggle with governance, leadership transitions and even survival, longevity or business continuity. From context observation, the majority of Small and Medium Enterprises (SMEs) in Nigeria are family-owned businesses. More so, over 60 per cent of all firms in most countries are classified as family businesses, according to an Irish report. Family businesses are common in Nigeria, especially in Lagos State, which is the economic nerve of the country. The importance of this form of business cannot be overemphasised, they are expected to contribute to the economy in these three key areas: creating jobs, improving Gross Domestic Products (GDP) and improving the standard of living or reducing the poverty level. However, the failure rate of family businesses, especially in Nigeria, is high. According to data, 95 per cent of family-owned businesses in Nigeria do not survive the third generation of ownership. This should be a huge concern to the government, policy makers, family business owners and future entrepreneurs.
Apart from the known challenges, such as decrepit infrastructure, inconsistent government policies, double taxation, among many others, which are contributory to business failures in Nigeria, the lack of succession plan is a serious issue militating against the survival and continuity of these family businesses. Succession plan is the process of identifying and preparing suitable family members or employees through mentoring, training and job rotation to replace key players within the family business as those key players leave their positions for whatever reason, such as retirement, advancement and attrition.
With succession planning as a very important aspect of a business, overwhelming evidence from a survey and finding from a study indicate that 94.2 per cent of entrepreneurs and business owners in Nigeria lack succession plan, or a poor succession plan exists in their business organisation. This portends a concern for the multi-generational growth of SMEs, especially family businesses, and is also a threat to business continuity in Nigeria. Succession planning is one of the most demanding and necessary phases in business transition, but this is usually left unattended or left till it is too late amongst business founders and leaders in Nigeria. Unfortunately, many of the companies do not even prioritise succession planning, choosing only to focus on how to grow their business profits rather than consider it along with sustaining the next generation business leaders, or having multi-generational business growth in mind.
The purpose of adequate succession planning for family businesses is that it will minimise the gap and risk in the operations of organisations when key leaders or management staff suddenly leave the business. Remember, in our country, most especially in Lagos State, some prominent family businesses sprang up in the 1980s and the late 1990s. However, these businesses were founded by the then business moguls, but if you look around, the businesses are no longer in existence. Significant examples are the late Bashorun M.K.O Abiola (Concord Group, Abiola Bookshop and Abiola farms); the late Alhaji Ahmadu Chachangi (Chanchangi airline); IRS Group of companies, founded by the late Chief Isiaka Rabiu Ayodele; Sunrise Group of companies, founded by the late Chief Ajibade Falodu; Balogun Group of Companies, founded by the late Alhaji Lai Balogun; Sanusi Brothers Group of Companies, owned by the late Ayodele Sanusi, and the late Chief Augustine Ilodibe.
These businesses thrived while their founders were alive, but folded up few years after their demise. The lack of succession planning has been identified as one of the major reasons many of these first-generation family businesses do not survive their founders. A significant number of these family businesses do not go beyond the first generation. Many of these companies failed, not because of economic reasons or hostile business environment, but because of poor management, lack of clear policies and strategy for continuity. Ordinarily, succession planning would have effectively taken care of the issues if it was considered in good time.
However, the case is different in climes where the importance of adequate succession plan is recognised. The growing role of family businesses is evident even after the exit of the founder in these countries. Largely, the continuity of these businesses is supported by a good corporate culture of succession plan. Some of these companies are Walmart, owned by the Walton family (USA); Ford Motor Company, founded by Henry Ford in 1903 and now owned by the Ford family (USA); Tata and Son Limited, owned by the Tata family (India); LG Electronics, owned by Koo family (South Korea). Nigerian family businesses can also build appropriate structures and culture to guarantee this form of business continuity and multi-generational growth. Succession plan can help achieve this by considering a deliberate effort of developing competencies into the leadership positions of your business. Therefore, succession planning can be introduced into Nigerian businesses as an important tool to create this multi-generational growth, coupled with having a formal corporate governance structure and adopting strong internal control measures in the businesses.
Please note that by making succession plan arrangements early enough, business founders and owners can help make a smooth transition and minimise any negative effect of their departure from the company. Because succession planning is an essential part of doing business, no matter how certain the future of the company currently appears, if it is disregarded it can threaten the business continuity. Consequently, from a specialist perspective, the key assurance of multi-generational growth is to establish the right conditions as it concerns your corporate culture, governance, accountability, record keeping and information management so that the survival and multi-generational growth of your family business can be assured. The starting point of this whole awareness is to consider and allude to whether the business will continue to operate after the departure or exit of the founder from the business. Some business owners or founders choose to simply liquidate the assets and close the business with the exit of the founders, or when they are no longer involved, while others wish for the company to continue. If the owners/founders decide the business should continue, one of the most important decisions is to have the business succession plan. It will help to identify, train and mentor the business successors.
So, to ensure a high survival rate of family businesses, succession planning must be put into the family businesses strategic plan. Even though some SMEs adopt the informal approach, this usually ends up ineffective and undesirable for multi-generational business growth. If you want your children to carry on your business, you have to groom them and make sure they are competent to take over from you, the founder. For a business succession plan to work, successors must have been adequately groomed through mentorship and training for them to have adequate capability and knowledge to carry on the family business. The succession plan should also be reviewed annually if it is in place to ensure up-to-date managers’ suitability and competence for the key positions, and to also ensure that all aspects of the business management have been accounted for.
Please note that the risk of the absence of a succession plan to your business is detrimental to the continuity of your family business. I, therefore, recommend you hire a specialist to achieve or streamline this very important aspect of multi-generational business growth. If it is currently missing or unstructured, you need to address it before it is too late. Good luck!
By Dr Timi Olubiyi, an entrepreneurship and business management expert. He can be reached via email@example.com