Succession Plan in Black Family Business: Myth or Reality ?

Posted on February 14, 2010 | Category: Politics; Business, Sport

http://www.thestandard.co.zw/

A myth has been residential among the blacks in Zimbabwe that black business
persons do not plan for the continuity of their enterprises after they die.
It is further believed that the blacks’ entrepreneurial family background is
most unfavourable for the business sustenance because members of an
entrepreneurial family have negative experiences of endless economically
precarious entrepreneurial work.

Do black entrepreneurs have a business succession plan? Is the common
negative cultural assumption that a known succession plan (among family
members) is a recipe for the death of the owner/founder true?
According to Grant Thorton LLB Management Series: “Ninety percent of all
businesses in Canada are family-oriented yet succession of these businesses
often just happens rather than being planned. Some 70% of family-run
businesses never make it to the second generation and 90% never see a third
generation despite the genuine desire by most owners to see continuation in
the family.”

The state of affairs needs to be verified in the Zimbabwean environment. One
of the beneficiaries of political independence in 1980 was the black family
in Zimbabwe. The black family businesses have encountered difficulties such
as rising global competition, high taxes and harsh economic and financial
problems as was experienced by the ethnic Korean population in the US.

Other challenges include the complexities of family business dynamics such
as ownership, succession, family harmony and solidarity.

Zimbabwe does not have much prior research on family business dynamics.
Approximately 80% of the businesses in Zimbabwe are classified as family
businesses and are mainly small to medium sized.

Family businesses are increasingly becoming the dominant form of business
enterprise in developed and developing economies where they play a pivotal
role in the economic and social spheres. Their number is bound to grow
greatly in the near future as a result of the rationalisation process taking
place in many corporations in the country as well as the gospel of black
empowerment preached by the government.

The stagnation and harsh economic environment affecting Zimbabwe’s formal
sector to create new jobs is forcing people to be enterprising. Family
businesses are and can offer great opportunities for economic growth.

Do these black family businesses have a succession plan for sustenance once
the founder/owner is gone? Researchers emphasise the role that past
experiences in business plays in creating low rates of business ownership
among blacks. They identify lack of black traditions in business enterprise
as a major cause of low levels of black ownership. The lack of black
traditions in business argument relies on a strong generation old link in
business ownership. The link may be strong due to the transmission of
general business or managerial experience in family owned businesses, the
inheritance of family businesses and the correlation among family members in
preference for entrepreneurial activities. Other researchers support the
assertion that the probability of self-employment is substantially higher
among the children of the self-employed.

The survival and longevity of the black family business is cause for concern
if it must be a major contributor to the social and economic well being.
International research has estimated that only 14% of family businesses make
it beyond the third generation. In South Africa only one in four family
businesses survived to the second generation while one in 10 makes it to the
third generation. The cost of business failure has adversely affected the
social and economic growth in Zimbabwe. The high failure rate among first
and second generation family businesses is attributed to the inability to
manage ownership and succession.

The key steps to ensure a successful succession transfer plan are:
commitment to pre-planning; awareness of potential issues; knowledge from
informed advisors and communication to all interested parties.

In a study carried out in Zimbabwe’s 10 provinces to identify how far
succession strategies have been implemented by the black family businesses,
variables such as: Personal and Estate Profile; Business Financial analysis;
Family and Business Mission Statements; Business Strategic Plan; Wealth
Enhancement; Successor analysis; Successor Development; Advisor
Co-ordination; Quarterbacking and Board of Directors were identified as key
to business succession.

The study involved organising a family succession retreat for five family
businesses to discuss the passing of a business from one generation to the
next. The retreats were to be attended by all mature family members involved
or not involved in the business, including in-laws. Some of the issues dealt
with included: passing of the torch; estate and transfer taxes; future
income for parents; fairness and equality for family members who are in
business and outside and stages in succession to the business.

The study revealed that 60% of the respondents were engaged in wholesale and
retail. Only 20% of the families were engaged in manufacturing while 60% and
20% were engaged in farming and food services respectively. Zimbabwe has
recently gone through a land reform programme hence most of the people in
other businesses are also involved in farming since they have benefited from
the government land reform programme.

Almost all the businesses were owned by sole proprietors while a fifth were
owned by a corporation/company. Ninety five percent of the respondents were
male while only 5% were female. Half of the respondents were aged between
50-59 years while a quarter were aged between 40-49 years.

Fifteen percent of the respondents were aged between 60-69 years while only
10% were in the 30-39 age bracket. All business revealed that they had
family members participating in operations of the business. Over 80% of the
businesses were first generation except 15% which was second generation. The
bulk of the business owners had attained Grade I to Form VI education level;
25% (Diploma); 25% (University Degree) and 10% (Post Graduate Diploma).

Regarding the first succession strategy on Personal and Estate Profile,
almost half of the respondents indicated that they had gathered all the
important information they needed to prepare an estate and succession plan.
Slightly over half had not gathered the information for some aspects on
succession for they did not know what information to collect for the Estate
profile. Ninety percent indicated that the family knew where the important
documents were in the event of an emergency hence helping balance competing
family and business needs.

On business financial analysis, 90% of the respondents indicated that the
business financial statements were open to family members. The statements
were discussed with a view to grow interest in the family members who are
outside to participate in business. However, 10% of the old generation black
businesspersons expressed fear that once family members knew that the
business was doing well, it would spell danger to their lives. Further
investigations revealed that this is true in polygamous families.

Ninety five percent of the respondents indicated that they had talked about
the goals, mission, values and objectives of the business but had not
written them down. The mission statements/white paper described the family’s
vision, values and acted as a multi-generational collaboration exercise that
could be used as a framework for determining the future business and family
policies alignment. Only 5% had a written down white paper containing the
mission statements.

Sixty percent of the businesses that responded had been assisted to come up
with a business strategic and implementation plan that determined which
family members could rise to the challenge of successful entrepreneurship
and business management. The business strength, weaknesses, opportunities
and threats had been clearly laid down. Forty percent did not think a
business strategic plan was necessary though.

Seventy percent of the respondents indicated that the business owner had not
planned for the retirement and future of the business and self. Only 40%
scouted for a successor in or outside the family while 60% indicated that
they preferred their own family member to inherit the business irrespective
of having interest or not. Sixty percent of the successors were hand-picked
by the owner and given on the job training while 40% had gone through a
period of formal and apprenticeship training in business succession.
Stewardship was considered the most essential quality of a good successor.

A majority of the respondents stated that they assumed an advisory role on
retirement. It took them between three and five years to adjust to a pending
retirement, let go off the business and fully develop external interests.
Seventy percent of the respondents kept advisor reports and documents for
future reference. While monthly progress reports were given sometimes, a
quarter of the respondents said that they saw no need of getting monthly
reports once advice had been given. Almost half of the respondents held a
Board of Directors meeting while over half consulted family members only
when there was need.

The black family business in Zimbabwe especially in the young generation
category is making great effort at succession planning. Failure to plan
succession is a recipe of failure to business continuity. There is a
possibility the owner might fail to retire when he/she is due. The owner
owes it to the family to create a realistic and workable succession plan.
Strengths and weaknesses of the successor must be identified. Provision and
development of skills is necessary. Ownership and management transfers are
conscious acts of intentions. A tough and pragmatic decision as to which
family member if any, can continue to run the business successfully has to
be made.

The successful continuation of a business requires objective decision-making
by all family members and a commitment to develop personal goals within the
family business structure. Old generation business persons fear to disclose
information about the business operations, but the majority of the young and
first generation entrepreneurs have spurned the cultural belief that once
you disclose information about your riches then you are dead. Lack of past
experience in business management and ownership is fast being overcome.
Black family business owners are making a conscious effort to ensure that
they plan for succession in their businesses.

In order for family-owned businesses to be successful members must
communicate rationally and objectively. The characteristics of each family
or potential successor must be identified. The qualities should include
commitment to the business. There should be constant dialogue between the
advisor and the business. Follow up strategies to obtain buy-in for family
objectives must be made. Accountability goals and task timeliness for all
parties in the succession process must be developed.

Failure to utilise family council may lead to delayed decision of who takes
over. That is devastating to the business-especially in the event of death,
where the business can end up in limbo due to probate. The founder should
meet and discuss with the family to determine who has the desire, skills and
vision warranting taking over the business. Ways to share wealth and ensure
ramification of extended family such as spouses should be examined. – The
African Executive.

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