Sustaining A Multigenerational Family Business

Abiola Adediran is a partner at Genea Family Office Limited helping enterprising families to build sustainable, lasting legacies.

Family businesses are very important vehicles for wealth creation, however, sustaining a family business for multiple generations is a continuous challenge. Research suggests that not even two-thirds of family businesses move beyond the first generation, and by the third generation, most of them are no longer in existence.

Business leaders are sometimes faced with the decision either to work on maximizing the value of their business and sell or to retain ownership of the business within the family and continue to grow it for the benefit of succeeding generations.

Many business founders would prefer the latter because of the emotional attachment they have to the businesses. These sentiments are understandably true and real.

Sustainability is important for businesses irrespective of whether they are family-owned or not; however, the dynamics are a bit different and can be quite complicated for family-owned businesses. There could be instances where emotion, loyalty and an inward orientation could make the family business leaders make choices that could hamper growth. High levels of concentration of ownership can also cause risk aversion and the sustained profitability of the businesses could be threatened by the increasing lifestyle demands of the family that keeps expanding. This is in addition to other challenges that businesses face as they navigate through changing economic cycles, growing competition, changing market realities and new technologies.

As a family business advisor, I’d like to share some principles I find key to helping ensure that family business leaders are able to successfully hand over the business from one generation to another.

1. Succession planning is a critical responsibility.

This can be a complex and challenging process because it often involves different personal, financial and business objectives, and because each family is unique, there is no one-size-fits-all approach or blueprint for understanding succession. The planning process must ensure that the next generation is interested in managing the family business and is prepared for it.

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 addressing difficult conversations instead of avoiding them, identifying the successor and preparing the next generation for the demands of ownership and leadership.

2. Ensure strong family board leadership.

The family board should ideally consist of family, non-family and independent members that are expected to provide strategic guidance to the business and monitor its management by not sacrificing the long-term health of the business for short-term gains. The board provides greater accountability to the executives running the business to ensure that objectives are achieved and also acts as an independent party in addressing difficult issues that could lead to family strife and disputes. The balance between family and non-family board members will ensure unbiased advice on critical matters for the long-term benefit of the business.

The selection of board members should be competency-based. While the family members provide context to the family’s history and legacy, non-family board members can add significant value from an outside-in perspective without being obsessed with the family tradition or the history of “how we have always done things” to strengthen the 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 attributes like integrity, commitment to make an impact and willingness to speak the truth to the management should be sought after.

3. Hold family assemblies to foster harmony.

A family assembly is a periodic meeting of eligible family members to discuss matters relating to the family and the family enterprise that centers around defining and aligning on the vision, values, roles, responsibilities and priorities for the family enterprise.

This forum provides an opportunity for family members to be informed about the business’s performance, key decisions that need to be taken and updates on happenings as they relate to the ownership, structure and impact of external factors on the business as well as to strengthen the family bond, unify and harmonize their desires, goals, decisions and actions.

Certain measures should be put in place to ensure successful meetings that seek to build consensus and alignment on key issues and resolve disputes and conflicts. Clear objectives and goals for the meetings should be set, all family members should be encouraged to participate actively, disagreements should be resolved in an amicable manner and, where possible, a qualified facilitator should be engaged to facilitate the deliberations and manage the emotional energy.

4. Build a strategic plan for clear direction and focus.

One thing successful businesses 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 business is going and 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 mindful that strategic planning in a family-owned business could be influenced by factors such as varying shareholder objectives, limited capital, management succession and family legacy issues. These factors need to be carefully managed to achieve successful outcomes.

5. Proactively manage your finances.

Financial management for family businesses should evolve beyond accounting and bookkeeping into a management function that seeks to maximize the use of capital. A significant proportion of failed family businesses are a result of weak financial controls and a lack of proper financial oversight. Therefore, business leaders should use both current and long-term assets efficiently using financial analysis techniques by leveraging the skills and experience of finance experts.

In conclusion, change and agility are constant factors that enable family enterprises to survive multiple generations and achieve long-term success, therefore family business leaders need to be resilient, agile and adaptable.

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