Breaking the cycle of family business failure

Tuesday June 08 2021
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Mukwano Mall in Kampala. Proper succession planning will help families to realise their long-term family business objectives. PHOTO/Michael Kakumirizi

By RICHARD LUYOMBYA

Ugandan family businesses are still weak in terms of succession planning.

Only 26 per cent of family businesses in Uganda have a robust, documented and communicated succession plan in place according to a report by Price Waterhouse Coopers (PwC).

The report titled, ‘From trust to impact East Africa Family Business Survey 2021,’ shows that to create a company with a legacy for future generations, families must embrace more than good family governance and proper succession planning.

Most of the world’s most enduring companies are family businesses. Coopers Brewery, Walmart, Samsung, and BMW all have a controlling family dynasty at their centre.

However, these successful family firms are a rarity.  Most family firms fail to survive multiple generations.

Experts attribute this to lack of documentation in a family business as many rely on trust to operate.

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A survey on family businesses by PwC underscores that family businesses tend to place a high premium on trust as a key component to operate.

This lack of professionalism is perhaps the main reason why many fail as sentiments drive the business.

“When I came on board, I had a conflict with my mother over the style of work. For example, there was a debate on formalisation of the business which I introduced,” Ms Joseline Kateeba, the managing director of Crest Foam Uganda, shared an incident while speaking at a webinar to launch the 2021 East Africa Family Bussiness Survey by PwC.

Crest Foam is one of Uganda’s robust family businesses.

The survey undoubtedly highlights some of the factors that continue to explain why family businesses lag behind.

Documentation

The aforesaid absence of documentation is one of the factors that provide fertile grounds for the family business to fail. Family business owners at the webinar underscored this.

Mr Jayesh Shah, group managing director and chief executive officer of Sumaria Group, says documentation premised on family values helps to deal with emotions.

Values can act as a powerful radar in times of change or upheaval and can be the ‘glue’ for business and family success.

“If you do not introduce these aspects in a family business, you will not succeed. Values should be documented,” Mr Jayesh said.

Family business owner, Mr Alex Davis, the chairman of Davis and Shritiff Group explains that values are simply quality and integrity that drive the organisation.

The values, according to Mr Alex entail openeness in communication. Communication should be regular by sharing all finances and dividends to create a feeling of teamwork to avoid surprises.

“In our family, we have dinner together. The dinner is nearly a meeting of the board of directors to talk about the business,” Thibault Relecom, CEO Unibra Group, a family business says.

Family dinners are also a palform platformfor conflict resolution in a family business.

“To manage conflicts, you need to set up a family council where to report grievances,” Mr Jayesh adds.

Recruitments

Just like any other organisation, family businesses are prone to recruitment conflicts.

Family business recruitments are in most cases not done on merit. During recruitment, family members get a sense of self-entitlement.

Renown family business owners speak strongly against this.

“It does not mean that because you are a family member, you qualify for the job. Family business should desist from this,” Mr Alex says. 

He adds: “My son, for example, reports to the CEO.”

Having skilled labour recruited on merit is fundmantal in business growth. This is because of the need to account for any action which might be difficult to realise with irregular recruitments.

It is also not advisable to have family members in management positions of the business because exercising authority might be difficult.

Mr Jayesh says that it sometimes becomes difficult to fire a non-performing family member.

Succession

Recrucitments in a way induce succession talks in a family business, an “animal” that has affected the life span of many businesses.

Although family members hold the vision of the business, a family member taking charge of administration issues is not advisable.

The family business owners also caution against “forcing” family members to take charge of the businesses as some might not be interested.

“Family members should be let to do other things or oversee the operations of the business without necessarily handling finances,” Mr Jayesh says.

The survey

The PwC survey shows that 26 per cent of Ugandans have a robust succession plan and less than 20 per cent have a will, a family constitution, a family employment policy, and a family conflict resolution mechanism.

Proper succession planning help families to realise their long-term family business objectives.

Family businesses are fairly common across the African continent,. However, only a handful enjoy longevity.

Some of Uganda’s family businesses that have sustained their business for generations include Madhvani Group and Mukwano Group, Nice House of Plastics and , Crest Foam. 

The survey results also tell a story of resilience and hope for Uganda’s family business growth in revenues and profits, capital resilience, and operational agility despite the challenges.

However, family business owners must do more on improving family governance, succession planning, and deliver on the trust agenda which has integrity, competence, and consistent delivery of quality results.

Africa

On the continent, the survey says that family dynamics are a sensitive issue, with topics such as succession planning being an emotional matter.

According to the survey, 76 per cent of the African family, businesses do not have a succession plan in place to ensure that the business is passed down to the next generation in a planned and formalised manner.

“Family values matter. But less than half of survey respondents have put them in writing and only half have codified governance policies,” reads part of the survey. 

In Africa, only 41 per cent have a will or testament in place and various other policies are also being neglected.

The survey, however, says communication among family members relating to family business increased induced by the Covid-19 lockdown.

Sustainable growth       

The first hurdle is to keep the business profitable and navigate through uncertain times. Sustainable growth will require more than improved digital capabilities, business diversification and expansion into new markets. It will require family businesses to deliver on the trust agenda which has integrity, competence and consistent delivery of quality results at its core. This means family businesses must examine the fit-for-purpose state of their business strategies, continue professionalising, and optimise business capital. All these aspects will strengthen business resilience.

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