Keep­ing it in the fam­ily

Finweek English Edition - - NEWS - Jes­sica Hub­bard

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

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