Succession Plan in Black Family Business: Myth or Reality?

A myth has been residential among the blacks in Zimbabwe that Black business persons do not plan for the continuity of their enterprises after they die. It is further believed that the Blacks’ entrepreneurial family background is most unfavourable for the business sustenance because members of an entrepreneurial family have negative experiences of endless economically precarious entrepreneurial work. Do black entrepreneurs have a business succession plan? Is the common negative cultural assumption that a known succession plan (among family members) is a recipe for the death of the owner/founder true?

According to Grant Thorton LLB Management Series, “Ninety percent of all businesses in Canada are family oriented yet succession of these businesses often just happens rather than being planned. Some 70 percent of family run businesses never make it to the second generation and ninety percent never see a third generation despite the genuine desire by most owners to see continuation in the family.”

The state of affairs needs to be verified in the Zimbabwean environment.One of the beneficiaries of political independence in 1980 was the black family in Zimbabwe. The Black family businesses have encountered difficulties such as rising global competition, high taxes and harsh economic and financial problems as was experienced by the ethnic Korean population in the United States of America. Other challenges include the complexities of family business dynamics such as ownership, succession, family harmony and solidarity.

Zimbabwe does not have much prior research on family business dynamics. Approximately 80% of the businesses in Zimbabwe are classified as family businesses and are mainly small to medium sized.

Family businesses are increasingly becoming the dominant form of business enterprise in developed and developing economies where they play a pivotal role in the economic and social spheres. Their number is bound to grow greatly in the near future as a result of the rationalisation process taking place in many corporations in the country as well as the gospel of black empowerment preached by the government. The stagnation and harsh economic environment affecting Zimbabwe’s formal sector to create new jobs is forcing people to be enterprising. Family businesses are and can offer great opportunities for economic growth.

Do these black family businesses have a succession plan for sustenance once the founder/owner is gone? Researchers emphasize the role that past experiences in business plays in creating low rates of business ownership among blacks. They identify lack of black traditions in business enterprise as a major cause of low levels of black ownership. The lack of black traditions in business argument relies on a strong generation old link in business ownership. The link may be strong due to the transmission of general business or managerial experience in family owned businesses, the inheritance of family businesses and the correlation among family members in preference for entrepreneurial activities. Other researchers support the assertion that the probability of self employment is substantially higher among the children of the self employed.

The survival and longevity of the black family business is cause for concern if it must be a major contributor to the social and economic well being. International research has estimated that only 14% of family businesses make it beyond the third generation. In South Africa only one in four family businesses survived to the second generation while one in ten makes it to the third generation. The cost of business failure has adversely affected the social and economic growth in Zimbabwe. The high failure rate among first and second generation family businesses is attributed to the inability to manage ownership and succession. The key steps to ensure a successful succession transfer plan are: commitment to preplanning; awareness of potential issues; knowledge from informed advisors and communication to all interested parties.

In a study carried out in Zimbabwe’s ten provinces to identify how far succession strategies have been implemented by the black family businesses, variables such as: Personal and Estate Profile; Business Financial analysis; Family and Business Mission Statements; Business Strategic Plan; Wealth Enhancement; Successor analysis; Successor Development; Advisor Coordination; Quarterbacking and Board of Directors were identified as key to business succession.

The study involved organising a family succession retreat for 5 family businesses to discuss the passing of a business from one generation to the next. The retreats were to be attended by all mature family members involved or not involved in the business, including In-laws. Some of the issues dealt with included: passing of the torch; estate and transfer taxes; future income for parents; fairness and equality for family members who are in business and outside and stages in succession to the business.

The study revealed that 60% of the respondents were engaged in wholesale and retail. Only 20% of the families were engaged in manufacturing while 60% and 20% were engaged in farming and food services respectively. Zimbabwe has recently gone through a land reform programme hence most of the people in other businesses are also involved in farming since they have benefited from the Government Land reform programme.

Almost all the businesses were owned by sole proprietors while a fifth were owned by a corporation/company. Ninety five percent of the respondents were male while only 5% were female. Half of the respondents were aged between 50-59 years while a quarter were aged between 40-49 years. Fifteen percent of the respondents were aged between 60-69 years while only ten percent were in the 30-39 age bracket. All business revealed that they had family members participating in operations of the business. Over 80% of the businesses were first generation except 15% which was second generation. The bulk of the business owners had attained Grade 1 to Form 6 education level; 25% (Diploma); 25%(University Degree) and 10% (Post Graduate Diploma).

Succession Planning Strategies

Regarding the first succession strategy on Personal and Estate Profile, almost half of the respondents indicated that they had gathered all the important information they needed to prepare an estate and succession plan. Slightly over half had not gathered the information for some aspects on succession for they did not know what information to collect for the Estate profile. Ninety percent indicated that the family knew where the important documents were in the event of an emergency hence helping balance competing family and business needs.

On business financial analysis, ninety percent of the respondents indicated that the business financial statements were open to family members. The statements were discussed with a view to grow interest in the family members who are outside to participate in business. However, ten percent of the old generation black businesspersons expressed fear that once family members knew that the business was doing well, it would spell danger to their lives. Further investigations revealed that this is true in polygamous families.

Ninety five percent of the respondents indicated that they had talked about the goals, mission, values and objectives of the business but had not written them down. The mission statements/white paper described the family’s vision, values and acted as a multigenerational collaboration exercise that could be used as a framework for determining the future business and family policies alignment. Only five percent had a written down white paper containing the mission statements.

Sixty percent of the businesses that responded had been assisted to come up with a business strategic and implementation plan that determined which family members could rise to the challenge of successful entrepreneurship and business management. The business strength, weaknesses, opportunities and threats had been clearly laid down. Forty percent did not think a business strategic plan was necessary though.

Seventy percent of the respondents indicated that the business owner had not planned for the retirement and future of the business and self. Only forty percent scouted for a successor in or outside the family while sixty percent indicated that they preferred their own family member to inherit the business irrespective of having interest or not. Sixty percent of the successors were handpicked by the owner and given on the job training while forty percent had gone through a period of formal and apprenticeship training in business succession. Stewardship was considered the most essential quality of a good successor.

A majority of the respondents stated that they assumed an advisory role on retirement. It took them between 3 – 5 years to adjust to a pending retirement, let go off the business and fully develop external interests. Seventy percent of the respondents kept advisor reports and documents for future reference. While monthly progress reports were given sometimes, a quarter of the respondents said that they saw no need of getting monthly reports once advice had been given. Almost half of the respondents held a Board of Directors meeting while over half consulted family members only when there was need.

The black family business in Zimbabwe especially in the young generation category is making great effort at succession planning. Failure to plan succession is a recipe of failure to business continuity. There is a possibility the owner might fail to retire when he/she is due. The owner owes it to the family to create a realistic and workable succession plan. Strengths and weaknesses of the successor must be identified. Provision and development of skills is necessary. Ownership and management transfers are conscious acts of intentions. A tough and pragmatic decision as to which family member if any, can continue to run the business successfully has to be made. The successful continuation of a business requires objective decision making by all family members and a commitment to develop personal goals within the family business structure. Old generation business persons fear to disclose information about the business operations, but the majority of the young and first generation entrepreneurs have spurned the cultural belief that once you disclose information about your riches then you are dead. Lack of past experience in business management and ownership is fast being overcome. Black family business owners are making a conscious effort to ensure that they plan for succession in their businesses.

In order for family owned businesses to be successful members must communicate rationally and objectively. The characteristics of each family or potential successor must be identified. The qualities should include commitment to the business. There should be constant dialogue between the advisor and the business. Follow up strategies to obtain buy-in for family objectives must be made. Accountability goals and task timeliness for all parties in the succession process must be developed.

Failure to utilise family council may lead to delayed decision of who takes over. That is devastating to the business-especially in the event of death, where the business can end up in limbo due to probate. The founder should meet and discuss with the family to determine who has the desire, skills and vision warranting taking over the business. Ways to share wealth and ensure ramification of extended family such as spouses should be examined.

By Katazo C. Mbetu
Executive Dean, Midlands State University

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