Keeping it in the family
For many people the words ‘family business’ conjure up images of the local grocer who is pushing eighty, but still barking orders at his equally aged and overworked wife. Or the greasy panel beater who keeps his three sons industriously employed on the workshop f loor. While these stereotypes do ref lect reality to an extent, not all family businesses are small, mom-and-pop operations. Think of retail giant Walmart or BMW, LG and Samsung – all of which are family-owned businesses. Locally, we have the formidable family-owned titans of Pick n Pay (the Ackermans), Richemont (the Ruperts) and the smaller but equally legendary Van der Merwe family of the farm Boplaas.
Yet no matter what their size or which sector they operate in, family businesses are critical to the financial wellbeing of countries.
“Family businesses are the backbone of all economies, without exception,” says André Diederichs, a director of the Family Business Association of South Africa and an accredited family business consultant. “Reports have indicated that family businesses account for around 50% of our GDP, so they are enormously important,” adds Dr Jonathan Marks, director of the GIBS FullTime MBA Programme, who is spearheading academic research on the sector. In SA close to 80% of registered businesses are family-owned, according to Diederichs, figures which are closely replicated in other countries such as the UK and US – where at least 75% of registered companies are family-owned.
In Mediterranean economies, built on a foundation of strong, tightly-knit communities, around 90% of companies are family-owned. Encouragingly, despite the mounting challenges faced by most SMEs in South Africa, it appears that familyowned enterprises are faring relatively well. A Family Business Survey conducted by PricewaterhouseCoopers revealed that 69% of family businesses have grown sales in the past year, compared with less than half in 2010. The majority of owners also appear to be buoyant about their future prospects, with over 93% of businesses expecting “steady or aggressive growth” in the next five years. A quarter of the businesses surveyed, however, reported being “apprehensive” about the transferring of their business to the next generation, believing that they lack the required skills and aptitude to own and run the company.
As Diederichs points out, such apprehension is well founded. “One of the biggest challenges facing family businesses is keeping the entrepreneurial f lair going – and instilling the same f lair in the next generation,” he explains. Sadly, the majority fail in this endeavour, with only 30% of family-owned enterprises successfully moving from the first to second generation – and a dismal 14% surviving from the second to third. “Most family-owned businesses collapse in the third generation, as the successors start using and abusing the wealth that was created before them,” Diederichs says.
In many cases, the collapse is not the result of a lack of business acumen – which can be solved by hiring outside professional managers – but of poor succession planning and a lack of formal governance structures. Although more than 90% of local familyowned businesses have procedures in place to deal with family member issues and conflict, according to the PwC survey, there is doubt over their effectiveness. “We suspect that some family businesses are seriously underestimating the degree of conflict that the next transition point may generate, and would benefit from a greater understanding of the best practice governance measures they might take now to mitigate it,” says Andries Brink, PwC National Private Company Services Leader.
Diederichs agrees. He encourages every client to agree to a formal family business constitution, which is carefully structured to prevent emotions from impacting on critical business decisions. “We start with a 100-year vision…the moment you do that, everything changes, as you force [current owners] to think like stewards,” he explains.
Perhaps the most salient piece of advice came from Fanie van der Merwe, co-executive director of Boplaas – SA’s oldest family business and run by the Van der Merwes since 1743. Van der Merwe revealed the family philosophy to Diederichs: “Run your part f lat out and ensure that you hand over the baton correctly to your successors… You don’t own the business, you only borrow it from your successors.”
Gareth and Raymond Ackerman