Since 86% − 89% of family businesses in South Africa Africa fail in succession in the third generation, this is a huge economic loss. The next generation of entrepreneurs deserves a challenging future. In a series of eight articles, Fred de Boer, an executive coach and business developer at PUM, shares steps to be put in place for successful succession.
The management (directors / large shareholders and executives) of family businesses are often not prepared for their succession and for solving family disputes. Sixty-two per cent of company managements are not prepared for the possible illness or death of their main manager. Not even half of family company managements have a concrete plan of succession on the shelf.
Only half of the companies that do have a business follow-up plan have chosen a successor. Only 29% have procedures for solving family disputes in place. The above has been demonstrated by biennial research conducted by PwC among 1 600 managements and members of family businesses in 35 countries, including South Africa.1
Successor from family?
The survey showed that in the coming years, the management of a large number of family businesses will be going from one generation to the next: more than a quarter (27%) of the 1 600 company managements and board members surveyed expected to transfer their businesses within five years. In 53% of these cases, the successor has to come from their own family. At present, 48% have a concrete plan of succession. Of those who do have a succession plan, only 50% have chosen a successor.
Temporarily in the background
Many follow-up issues have been temporarily relegated to the background as a result of the COVID crisis and related management issues. However, in the coming years, the theme will again be top of the agenda of many shareholders and boards.
Objective criteria
For example, succession planning must contain objective criteria which can be assessed to determine who is ready to take over the reins. Companies with powerful, independently operating managements are best able to keep the company in the family.
Unprepared for quarrels
PWC’s family business research also shows that few companies are prepared to deal with conflict situations between family members. Only 29% have procedures in place on how to deal with solving business disputes. According to the research, more companies than two years before experienced tensions with regard to their future business strategy and the competencies of those who should lead the company in the future.
No liquidity
Fifty per cent of company managements have a lack of liquidity to buy out relatives. Fifty-six per cent have not established procedures for acquiring the shares of incompetent or deceased shareholders.
Healthy family relationships
The importance of a protocol for conflict-handling is essential. Disputes over money and succession affect the way in which the process is handled. The healthier the family relationships, the greater the chance of a healthy business.
Note
1 https://www.pwc.co.za/en/press-room/africa-family-business-survey-2021.html
Author
Fred de Boer, executive coach and business developer at PUM (Netherlands)
