Family wealth built over decades can be wiped out by a single generation when business owners fail to plan who takes control, experts have warned.
Disputes among family members over ownership, inheritance, management and access to family assets have been turning successful businesses into battlegrounds, threatening both family relationships and enterprises that took years to build.
According to a South Africa-based Sirdar Group, less than 30 percent of African family businesses survive to the second generation, while under 10 percent of such businesses survive to the third generation. While several factors could account for the high failure rates of family businesses, failure in leadership succession has been cited as critically affecting the survival of family firms.
The reminder emerged during a generational wealth and family governance engagement hosted by Stanbic Private Banking, recently, where family business practitioners and experts reminded family business owners to start succession conversations before death, retirement or family disputes force them to do so.
The experts sensitized on clear succession plans, family constitutions, defined ownership structures and early preparation of the next generation can help families protect wealth from becoming a source of conflict.
They mentioned that a common assumption among the majority of the business founders is that their successors- usually children- will naturally know what to do with the businesses they inherit.
For Co-founder and Senior Partner of South Africa-based Sirdar Group, Mr Tim Holmes, ‘family governance should begin while the founder is still alive and the family is united.’
‘Rather have it in place before the family blows up and has all kinds of disagreements,’ Holmes said.
A family constitution, Mr Holmes said, can help establish common principles on issues ranging from decision-making and responsibilities to how family resources should be used to support children.
‘Without such agreements, decisions that appear minor during the founder’s lifetime can later become flashpoints,’ he insisted.
The objective of planning, therefore, is to ensure that the principles for making such decisions are understood and accepted before disputes arise.
Founder and Chief Executive Officer of Noesis Strategic Institute, Mr Murtaza Virsi, says families often make the mistake of believing that children automatically acquire the skills required to manage wealth simply because they were born into a wealthy family. They do not.
Leadership, discipline and responsibility, he argues, must be cultivated long before a child is expected to assume responsibility for a family business or its assets.
‘Money has to have its ways of flowing into the family as well,’ Mr Versi said. He said even seemingly ordinary responsibilities in childhood can help develop the habits needed later in life.
‘These are the skills for leadership: discipline, consistency,’ he said.
Mr Versi also encourages families to expose children to business early and create an environment where they can ask questions and challenge established ideas.
The traditional approach in which ‘the dad speaks, the child listens’, he said, may not adequately prepare the next generation to lead in an increasingly complex business environment.
For him, preparing successors means allowing them to develop their own judgement rather than simply expecting them to reproduce the founder’s way of doing things.
‘A child may inherit shares, property or other assets without having the experience, interest or skills required to manage a complex business. This is where succession planning intersects with professional governance,’ he affirmed.
For Stanbic Private Banking, which hosted the engagement, the discussion reflects a wider challenge facing families that have successfully accumulated significant wealth: ensuring that the systems that created that wealth are strong enough to sustain it beyond the founder.
Stanbic Head of Private Banking, Ms Shangwe Kisanji, said the purpose of bringing families and specialists together was to encourage them to look beyond wealth creation and consider what happens to their assets, businesses and values when control passes to the next generation.
She said succession should not be treated as an issue to be addressed only when a founder is approaching retirement or when a family member dies, but as a process that requires early conversations, preparation and structures that can withstand changes in family circumstances.
‘From simply creating it to ensuring that it survives the transition between generations,’ Ms Kisanji said, describing the shift families need to make in their approach to wealth.
Her remarks placed the workshop in the context of a broader question confronting family-owned businesses: whether wealth that took one generation decades to build can remain intact when leadership changes.