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Family business as influencer for economic growth

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Timothy Olawale

Businesses that are owned by families are the most common ownership business model in the world, with their impact on the global economy considered significant.
  
It is estimated that total economic impact of family businesses to global Gross Domestic Product (GDP) is over 70 per cent.

They are recognised as one of the engines of the post-industrial growth process since they are given credit for developing across generations’ entrepreneurial talent, a sense of loyalty to business success, long-term strategic commitment, and corporate independence.
  
Family business, being one of the oldest forms of business organisations globally, is defined as a business in which two or more members of a family are involved, and the majority of ownership and control lies within the family.
   
However, some family businesses are large multinational corporations that operate in many countries such as Ford Motors, Nestle, Cadbury, and Mercedes Benz and a host of others, while indigenous family businesses that still exist that have passed through second generation also abound in Nigeria.

   
Following its contributions to global GDP, it is also characterised by challenges, having a very low survival rate.
   
For instance, a study by the Institute of Family Business in the United Kingdom, said about 30 per cent of family firms make it to the second generation, and only a third survives to the third generation.
 
Accordingly, family businesses in the start-up stage were characterised by informal organisational structures, owner-manager and more inclined to appointing family members as chief executives.
  
This, the study said, affects the overall performance, competitiveness and innovative development of the businesses.
  
Experts submitted that family businesses that refused to engage professionals in their businesses tend to be smaller in size and market value, more risk averse, less innovative, less productive, less international, less inclined to execute Corporate Social Responsibility, and they are also more characterised by poor management practices.
  
A report by Africa Investment Forum, which recognises family businesses as important players on the continent, said the past decade had seen African family-owned companies grow quickly.
  
It revealed that Foreign Direct Investment (FDI) flows to Africa rose by 11% to $46 billion in the past year, and several factors, including the realisation of the African Continental Free Trade Area Agreement (AfCFTA), could boost this further.
 
According to the report, different management strategies have been highly successful in Latin America and the Middle East, where family businesses comprise about 70% of the top 100. Family businesses in Africa represent only 20% of the top 100.
  
At a conference organised by Africa Investment Forum, families running business empires were given a platform to share their views on how Africa’s unexplored wealth can benefit all.
  
The Elnefeidi Group, a family-owned business with more than 80 years of experience in various industries, is run by second and third generation members.
  
It is one of the businesses that believes start-ups can help turn around the continent’s economies if they are supported and nurtured.
 
The company’s representative, Hana Elnefeidi, at the forum said: “We need to take care of the youth, having money is not enough. Start-ups should be helped with business plans, helped to structure their business model and to position their businesses where there are opportunities.”
  
Elnefeidi, with businesses including agriculture, automotive, mining and real estate, located in several countries across the continent, believes families should not just share their money with start-up companies, but also their networks, knowledge and expertise.
  
Globally, 69% of family businesses grew. In spite of this, 87% of family businesses in Nigeria expect to grow over the next two years, which is slightly higher than the global average (84%).
 
Growth among Nigerian family businesses over the last 12 months is lower than the global average. About 53% experienced growth (including 20% that witnessed double-digit growth of their businesses).
 
The law of nature guarantees that those in the top echelon of leadership will retire someday. The report stressed the need to prepare for this and ensure that we do not lose key organisational memory.
 
The Group Managing Director of Dangote Industries Limited, Olakunle Alake, while delivering a paper entitled, “corporate governance and succession planning,” at a forum recently, said proper planning by most businesses and companies founded by Nigerians seem incapable of surviving beyond one generation.
  
He said great indigenous businesses collapsed partly because effective corporate governance structures and succession processes were not put in place to ensure that these businesses were sustained.
 
According to him, for businesses with poor corporate governance structures, the founder is often the chairman and the chief executive and makes all decisions.
 
He said such owners believe in owning all without a thought for tomorrow, saying: “he alone had the vision, energy, strategy and ran the business. When the man died, the business died.”
 
However, Alake pointed out that with a good board, sound corporate governance structures, and proper succession planning, the founder can retire without looking back, and the company will continue to thrive because there would be transferred vision and goals.
 
Former President, Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN), Samuel Kolawole, decried that the story of indigenous family businesses has been rather pathetic.

He said many of the businesses thrive during the lifetime of their founders, and disappear either immediately after their deaths or soon after.
 
Kolawole, who adduced many reasons for this problem said: “To my mind, the major problem is that these family businesses fail to evolve. There are different stages in the life of any organisation. Readiness to evolve as the company grows is key to survival.
 
“By evolution, I mean evolution in models, processes and general administration, sticking to the way they are used to doing business could lead to failure. For example, as a business grows, its requirements as to administrative expertise will change. When owners see it as “family business” and are not willing to let “outsiders” come in to participate in management, the business will gradually die.
 
“Another issue is the culture of fear. The fear that the trade secrets have to be kept within the family, and this cultural fear of trusting other people to participate in the business or fear of betrayal, shuts out good ideas that could ensure longevity.
 
“Related to this is the desire of many founders of family businesses in Nigeria to bequeath their businesses to their children. Even in the present age, you find owners of businesses appointing their children just finishing from school as directors.
 
“These children don’t grow through the ranks. It is erroneously believed that if you just send them to the best Business or Management Schools in the world, they can just go straight to the top and manage those companies.”
 
Kolawole said where there is no succession planning, disagreement amongst the children after the founder’s death can ground the company.
 
“That is still happening today; especially where the late founder had more than one wife. But with institution of good corporate governance practices, training and enlightenment, we can begin to see better survival rate of indigenous family businesses in Nigeria,” he said.
 
In his submission, the Director-General, Nigeria Employers Consultative Association (NECA), Timothy Olawale, said family businesses are rarely viewed as a sector, which could influence economic growth, even when they contribute to national development through creation of jobs/employment, payment of taxes, and also play an important part in business value chain in the nation.
 
X-raying the importance of family businesses to national development, Olawale recalled a “PwC Survey Report on Family Business, which revealed that family businesses globally contributed more than 60% to GDP and provides over 70% of employment.”
 
Arguably, he said the contribution of the group of businesses is reflectively evident in growth, which recorded turnover of over $1billion, and regretted that most of these businesses do not last long in Nigeria compared with the developed countries.
 


Speaking further, he averred that with family businesses’ potential for contributing to GDP growth and overall economic renaissance, there is an urgent need to encourage and create an enabling legal and economic framework that will not only promote family businesses, but also ensure its sustainability beyond one generation.
 
Noting that it is imperative that conscious and national efforts should be made to facilitate development and sustainability of family businesses in Nigeria, he said with their contribution to development of global economies, Nigeria will benefit tremendously in a mutually-assured and nationally-backed effort at supporting and promoting family businesses.
 
Similarly, Founder and Executive Director, Falcon Corporation Limited, Audrey Joe-Ezigbo, said a big part of Nigeria’s economy is actually hinged on a lot of family-tied businesses, and therefore creates an urgent need to ensure those businesses scaled up, transcend generations, and help in wealth creation.
 
She said this would help take Nigeria out of the current economic doldrums, noting that the only way to achieve this is to ensure transfer from the founder to a next generation by being able to build an enterprise wealth framework for the family distinct from that of the business.
 


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