It is a fact that family-owned businesses are major contributors to the economy and the catalyst of growth in many countries across the globe. The Family Firm Institute (FFI) estimates that family enterprises which comprise of two-thirds of all businesses, generate between 70 and 90% of global GDP, and are responsible for hiring at least half of the global workforce. Asides the volatility and turbulences of the Nigerian economic climate which affects the sustainability and growth of small to medium-sized businesses, most businesses in Nigeria are also confronted with the challenge of business continuity and leadership succession.
Most small to medium-sized businesses fail to survive beyond the founder’s generation let alone to the second or third generation while some do not exist for more than three years after the death of the founder. Hence, the concept of multigenerational wealth is almost non-existent in Nigeria. Several examples of vibrant and successful companies which went moribund after the death of the founder abound. Thus, it is safe to conclude that most businesses in Nigeria are bedevilled with sustainability quandaries. The question then is why is this so? The simple and most logical answer to this question is inadequate preparation and lack of an effective succession plan by the founder for the continuity of the business after his exit. It is ironic that founders often dictate and influence every aspect of their business, except how it will continue to be looked after their exit.
The lack of the culture of a well-articulated succession plan reduces the scope for leadership development, encourages leadership transition crises and disruptions leading to impediments to the growth and continuity of the business. This alarming trend of failure directly impacts on employment sustainability, better standards of living, job creation and economic emancipation of the country. Thus, it is imperative for organisations to avoid the manifestation of these ugly circumstances by taking adequate steps to cater for the continuity of the business.
Succession planning in businesses is a conscious and pre-emptive strategy to identify, prepare and build human capital for key positions that are critical to the success of the organisations. It guarantees a seamless transition and the continuity of the businesses long after the exit of the principal actors due to disability, death or retirement. It is also an instrument for sharing and transfer of knowledge from generation to generation.
In random research, I conducted amongst my clients who owed small to medium-sized businesses, a common denominator in all of them was the absence of a formal documented plan for succession. Few businesses which had a semblance of succession plans chose the traditional approach which lacks equity and merit. It is influenced by our socio-cultural laws which impede the objective selection of a qualified successor. The founder completely neglects the need to place a premium on character and competence in order to achieve a well-thought-out and objective succession plan.
In most cultures and tribes in Nigeria, patriarchy is the only acceptable norm for succession. The first male child of the family is automatically elevated to take over the mantle of leadership after the exit of the founder. Fundamental considerations such as the personal interest, preparedness, intellectual capacity and qualification of the heir to undertake such enormous responsibility is undermined and sacrificed on the altar of patriarchy. An aggregation of these factors is a recipe for disaster for businesses that follow this approach.
Another drawback of the traditional succession is the common occurrence of infighting within the family especially in polygamous families. Each branch of the founder’s family is often loyal to his immediate branch rather than the common interest of the business. These arrangements often heighten animosity and resentments within the family thereby impeding the success of the business.
Thus, the best mechanism to guarantee that businesses outlive their founders for generations yet unborn is to make the succession plan a forethought rather than an afterthought. Succession in a business is a building process rather than an isolated occurrence; hence, it should start as early as practicable in the life of the business to ensure a smooth and effective transition. Timing is imperative owing to the fact that finding leaders and visionaries are a rare feat. Often, the founder opts to stay in place as long as he/she desires, and considers a transition to the next generation any earlier than this, to be difficult. This unwillingness to relinquish control of the business often leads to leadership crises upon the sudden death or incapacitation of the founder.
Thus, a comprehensive roadmap must be implemented to identify potential successors which could be family members, employees or someone from outside the company but it is advisable to groom someone who is already in the business. It should also allow for time for discussion, planning, pivoting, mentoring, and the development and testing of successor candidates.
Once the likely successor has been identified, the development of his skills and abilities by mentorship must be paramount to the incumbent. A deliberate training plan must be created to ensure that he or she has adequate time to learn the skills, gather the information, and practice the leadership roles critical to the future success of the business. It is also fundamental that all stakeholders for example, the existing employees and family members are also privy to the training plan. While the focus of the plan is the capacity development of the successor, his personal interest and development must never be undermined. His ideas and reactions must also be incorporated into the business. An infraction on his personal interest and development may breed resentment and an eventual lack of interest in the business.
While the verbal transmission of the knowledge required by the successor is a good tool, the formal documentation of the knowledge in a database is also an excellent appendage. It is also wise to record the best practices for the business.
The next step is to ensure that the likely successor engages in constant job shadowing of the founder to understand the rigours and responsibilities of the position he aspires to fill. It gives both the business owner and the likely successor an opportunity to identify if the person is indeed interested and suited for the position. Formal training on leadership courses aside the physical training should be encouraged. Enrolling the likely successor for management and leadership courses in universities is a very good tool in the process of the training. Another tool that can be implemented is the cross-training of the likely successor. This is a training that cut across all the various departments of the business. This encourages the development of various new skills and versatility.
It is also imperative to give the likely successor incremental opportunities by exposing him to the management staff and external contacts of the business in advance to encourage a positive working relationship. Where the intention of the founder is to make the business a family business after his exit, the most common governance mechanisms that can be implemented in that circumstance is to establish:
•Board of directors to oversee the operating company or companies
•Owners council to plan for owner-level issues and make ownership decisions
•Family assembly to unite, inform, and educate the entire business family together
•Family council to plan for the family, resolve family disputes, and make family decisions
•Family constitution which is a set of family policies that govern family behaviour
This governance system may help the family clarify and achieve their strategic direction. It offers families clarity on their purpose, on their roles and areas of responsibility, how they will support one another, and rules for fair decision-making. These governance practices strengthen family relationships and allow disagreements to be handled in a neutral and transparent way.
A business succession plan is a combination of estate planning, tax planning and corporate restructuring. Thus, it is fundamental that a founder who intends to create a formal document must engage the services of a lawyer vast in estate planning and succession. The lawyer will also engage the services of other professionals like accountants, investment managers and tax consultants to successfully advise the founder. This is instructive especially in circumstances where the business is co-owned.
The succession plan will form part of the estate planning documents of the founder. It is advisable that is contained in two separate documents. The first document should contain the process to be implemented in an emergency when a replacement is required suddenly while the second document should contain information on the planned departure of the founder in the long term.
It is also critical that the likely successor and the management staff of the business are involved in the draft of the document to ensure that all circumstances are catered to. The document is a living plan that may be subject to change. Thus, it must be reviewed periodically especially when circumstances change or when there is an organisational change in the business. It must also be reviewed to identify if it still reflects the will of the founder in the circumstance. All key stakeholders in the business must also be involved in the review process.
Olamide Onifade is a practising lawyer and the founder of Olamide Onifade & Associates.
2nd Floor, 149, Ogudu Road, Ogudu, Lagos
Tel: 09093335636
Instagram: Olamide_lady_lawyer
Email:barristerolamideonifade@gmail.com
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