Abiola Adediran is a partner at Genea Family Office Limited helping entrepreneurial families build lasting, lasting legacies.
Family businesses are very important vehicles for wealth creation, but sustaining a family business over several generations is an ongoing challenge. Research doesn’t even suggest that two-thirds of family businesses go beyond the first generation and by the third generation most are no more.
Business leaders are sometimes faced with the decision to either work on maximizing the value of their business and sell it, or to keep ownership of the business within the family and grow it for the benefit of future generations.
Many company founders prefer the latter because of the emotional connection they have with the companies. These feelings are understandably true and real.
Sustainability is important to businesses whether they are family owned or not; however, the dynamics are a bit different and can be quite complicated for family businesses. There may be instances where emotion, loyalty, and an inner focus can lead family business leaders to make choices that can hinder growth. A high degree of ownership concentration can also lead to risk aversion and the sustainable profitability of the companies can be jeopardized by the increasing lifestyle demands of the expanding family. This is in addition to other challenges companies face as they navigate shifting economic cycles, increasing competition, changing market realities and new technologies.
As a family business consultant, I want to share some principles that I believe are essential to ensuring that family business leaders can successfully pass the business from one generation to the next.
1. Succession planning is a critical responsibility.
This can be a complex and challenging process as it often involves different personal, financial and business objectives, and because every family is unique, there is no one-size-fits-all approach or blueprint for understanding succession. The planning process should ensure that the next generation is interested and prepared to run the family business.
Business leaders can get started with the planning process by getting the family aligned and building a strong case for succession planning, creating an exit plan by engaging in difficult conversations rather than avoiding them, identifying the successor and making the next generation for the demands of ownership and leadership.
2. Provide strong leadership from the family board.
The family board should ideally consist of relatives, non-relatives and independent members who are expected to provide strategic direction to the company and oversee management by not sacrificing the long-term health of the company for short-term profits. The board is more accountable to the executives who run the company to ensure that objectives are met and also acts as an independent party in addressing difficult issues that could lead to family conflicts and disputes. The balance of family and non-family members on the board of directors ensures unbiased advice on critical matters for the long-term benefit of the company.
The selection of board members should be competency-based. While family members provide context to the family’s history and heritage, non-family board members can add significant value from an outside-in perspective without being obsessed with family tradition or the history of “how we’ve always done things” decision-making process.
It is better to have more non-family board members than family board members and apart from skills and expertise in strategy, finance and other high-level business issues, important qualities such as integrity, commitment to making an impact and willingness to tell the truth are speak the management must be sought.
3. Hold family gatherings to promote harmony.
A family meeting is a periodic gathering of eligible family members to discuss matters pertaining to the family and the family business, centering on and aligning the vision, values, roles, responsibilities and priorities for the family business.
This forum provides family members with the opportunity to be informed about the performance of the company, the most important decisions to be made and updates on events related to the ownership, structure and impact of external factors on the company and the family to reinforce. to bind, unify and harmonize their desires, goals, decisions and actions.
Certain measures should be taken to ensure successful meetings aimed at reaching consensus and agreement on important issues and resolving disputes and conflicts. Clear goals and objectives should be set for the meetings, all family members should be encouraged to participate actively, disagreements should be resolved amicably and, where possible, a qualified facilitator should be involved to facilitate deliberations and emotional support. control energy.
4. Create a strategic plan for clear direction and focus.
One thing successful companies have in common is a strategic plan. Every family business should have a strategic plan that is shared with all relevant stakeholders, not just family members.
It is important for all stakeholders to know where the company is going and to choose the right path to get there. Strategic planning and thinking about the interests of the family helps to clarify the mission, vision, values, goals (destination) and strategy (detailed plan) to achieve the goals and fulfill the mission.
Business leaders should be aware that strategic planning in a family business can be affected by factors such as shifting shareholder goals, limited capital, management succession, and family legacy issues. These factors must be carefully managed to achieve successful results.
5. Manage your finances proactively.
Financial management for family businesses must evolve from accounting and bookkeeping to a management function that strives for maximum use of capital. A significant proportion of family business failures are the result of weak financial controls and a lack of proper financial supervision. Therefore, business leaders must efficiently utilize both current and long-term assets using financial analysis techniques by leveraging the skills and experience of financial experts.
In short, change and agility are constant factors that enable family businesses to survive several generations and achieve long-term success. Family business leaders must therefore be resilient, agile and flexible.