African businesses risking failure without succession planning 

By Onome Amuge

With a new generation of entrepreneurs emerging on the continent who are eager to pick up the mantle of business, Africa, a continent with a young and rapidly expanding population, is poised for tremendous business success.

But the lack of succession planning by many African businesses, most of which are family-owned and controlled by the founders, is putting this momentum and potential business success at risk.

For the momentum to be sustained, business owners in Africa need to act now to help secure a more prosperous future for the continent, according to John Félicité, director, Ocorian Mauritius.

Félicité, according to a statement by Ocorian, a global diversified financial services group, which was made available to Business A.M., said the prevailing philosophy among African businesses tends to be ‘live in the present’, but a better one might be ‘look to the future’.

“Many companies in Africa have very little in terms of plans to safeguard against ‘key man’ risk, which is what happens if a key figure in the business dies or is incapacitated (which is a serious possibility since many businesses are controlled by those in their dotage),” Félicité said.

According to him, an effective succession plan is the missing link, explaining that succession planning involves establishing agreements, trusts and efficient structures that enable the smooth transfer of assets.

“The formation of informal or more formal family offices with teams of accounting, legal and investment professionals also helps to create accountability and responsibility. This supports the family to work together to achieve common goals. This should go hand in hand with good communication strategies,” he said.

The Ocorian director, citing a 2016 PWC South Africa study, said succession planning was the key potential failure of family businesses, with only 17 percent of family entities having a succession plan in place compared with 13 percent in the 2014/15 survey.

“The lack of a succession plan has been seen to adversely affect most African businesses, especially those that are family businesses. Change happens fast and businesses may not get a second chance to adapt if key personnel leave. At worst, businesses are going under for want of a succession plan,” he said.

But succession planning becomes even more important given that nearly two out of three or 65 percent of African business families prioritise growth, Félicité said citing a recent PWC Family Survey report.

“Successful families need to see their business interest grow by 10 percent every two to three years. This is essential to protect the family’s interests – easier to be done in an emerging market environment than in a developed market,” he said.

According to him, a succession plan provides a solution to facilitate the growth of the family business and create and maintain a legacy that can grow from generation to generation.

He said bringing the “next gen” into the family discussions sooner will create harmony and build the foundations for a secure transition of responsibility.

Another key concern of family-owned businesses in Africa is sustainability, Félicité said.

According to him, Ocorian’s experience is that many family business clients are very aware of the impact of their investments on the environment and their local communities and are as concerned about ESG (environmental, social and governance) as they are about ROI.

“This is really an area where we see families pull together using proper governance structures to drive the direction of family interests,” he said.

In his recommendations for a successful succession plan, Félicité enlightened business leaders that authenticity is key, along with credibility of competence and a lot of humility in the knowledge that the workforce are the ones who drive the business. He also emphasised that evidence of experience gained outside the family business will go towards earning credibility and respect.

He said taking over a family business is particularly difficult if the next gen does not have the respect of the incumbent workforce.

Interestingly, according to the Ocorian director, many of the “next gen” are educated in the US or EU, making them hybrids of two worlds combining ancestral tradition and respect with modern technical knowhow. They are also eager to be understood and respected by their elders for their knowledge and experience, and they are bringing new energy to change old regimes and modernise African countries.

“If this can be harnessed with effective succession planning strategies, then many African businesses will be set to succeed,” he said.