When charismatic, larger-than-life owners decide to ‘throw in the towel’ and exit their business, they may inadvertently be paving the way for uncertainties. If these transitions are poorly managed, the lack of a clear succession plan could spell the beginning of the end for the business, threatening its existence beyond the founder’s reign.
However, Ugandan entrepreneurs, business owners and founders on the African continent may want to learn from Mr Warren Buffett, who will be stepping aside as the chief executive officer of Berkshire Hathaway, described by some analysts as a legendary investment company.
Mr Warren Buffett recently made it known to the shareholders that he will be ‘going quiet’ after he steps down at the end of this year. The 95-year-old will be replaced next year by the 63-year-old, Mr Greg Abel after being hand-picked and designated as a successor in 2021.
‘I can’t think of a CEO, a management consultant, an academic, a member of government – you name it – that I would select over Greg to handle your savings and mine,’ Buffet wrote of Abel, the vice chairman of non-insurance operations.
Pick a leaf
Asked if Mr Warren Buffett move to step aside as the CEO and naming a successor whom he handpicked four years ago is something to emulate, Dr Julian Adyeri Omalla, businesswoman and a renowned entrepreneur in Uganda, responded in affirmative.
Dr Omalla who is the founder and managing director of Delight Uganda Limited, told BD Life in an interview last week that the important ingredient in choosing a successor is capability and not bloodline.
‘Whoever has the right drive, ability, focus and the brain required to see to it that the dream reaches the reality and the ultimate vision we are working towards . I don’t see any problem with passing over the management responsibility to that person even if he or she is not a relative or a friend,’ says Dr Omalla also known as Mama Cheers.
Her position is on the ground that your relatives or children might not have much interest in what you are doing yet you would like to leave a legacy that should continue to benefit society.’
So, whoever has the right Emotional Intelligence and is smart enough to continue growing what has been built, I will go with that person,’ she notes.
There is always that strong desire for us to handover the management of the business to our close relatives, but according to Dr Omalla, the question is, are they the right people?
If the answer is yes, then be it and if the answer is in the contrary, Dr Omalla sees no harm having competent people take charge of the operations and management of the company.
She says: ‘Having a non-relative at the helm of the business does not mean my family is out of the picture, they will still be shareholders. The only difference is that the right person is in charge, ensuring the legacy that was built from scratch continues to live on while delivering on the noble intentions we set out to achieve.’
Like Warren Buffett who describes the 63-year-old Canadian businessman taking over as the CEO from him as ‘a great manager, a tireless worker and an honest communicator,’ Dr Omalla, believes that whoever will be at the helm of the company when the founder steps aside or no more should be somebody you understand well and vice versa.
‘The person’s professional competence and understanding of the business should be beyond reproach,’ she says.
Experts weigh in
In an interview with Mr Charles Ocici, the founding executive director of Enterprise Uganda, the country’s premier institution for enterprise and business management, the decision by Mr Buffett to hand-pick a non-relative to manage a business empire he built has plenty of lessons for Ugandan business owners and founders.
Mr Buffett is simply following a law that God made available to us, which is to make good use of the planet by dominating it in a way that is helpful to all of us.
He says, ‘It is only through capable hands that we can achieve what we set out to do. Those hands that may see us through may not be that of our relatives or that of our friends, but of those who have capabilities and necessary competencies. That is the biggest lesson we can pick from Mr Buffett’s decision to appoint somebody beyond his family to run a business empire he successfully built over decades.
He continues: ‘If you want to hand over a great thing to another person, then you have to prepare that person to be that good. If you don’t do that, there is a big chance that the person taking charge will damage what you built your entire life. If your decision is to hand over to a family or friend, the same principle applies – preparation. Everything must be done on merit.
According to Mr Ocici, it is dangerous to hand over management of wealth to anybody with no experience of managing such weight. The danger is such weight could surge into a burden too heavy to carry, and that will be the beginning of the collapse of the wealth generated over decades but diminishing in months if not just years.
‘Anybody who cannot multiply, say Shs10,000 to Shs12,000, but instead diminishes it day by day, then that wealth will not go past the generation that bequeathes it,’ says Mr Ocici, also a renowned financial coach.
Mr Ocici notes that a family may not be actively involved in running its business, but should be clear on the capabilities of the manager they put in charge, picking a cue from Mr Warren Buffet.
For Ms Susan Khainza, a Chartered Financial Analyst, lessons from Mr Buffett, offer important lessons to the majority of local businesses.
She continues: ‘Mr Warren Buffett has always stated that once his children were old enough to understand these matters, he involved them in the planning of his estate. They review his will and he adopts their suggestions before he signs his will, a practice they do regularly.
‘He does this so that they understand his decisions and know their future responsibilities. It prevents family conflict, strengthens relationships and prevents children from being blindsided after their parents’ death. He has also said that very wealthy parents should leave their children enough so that they can do anything, but not enough so that they can do nothing.’
Protecting founder families
According to Ms Khainza, Mr Warren Buffett’s choice of successor had his children’s blessing. Before 2021, Mr Warren Buffett had publicly stated that there was a succession plan, and they had identified a successor. In 2018, Mr Greg Abel was named vice chair.
‘Before the public announcement that Buffett was stepping down, his family, everyone in the company, all stakeholders and the public were ready for the transition,’ says Mr Khainza.
Ms Khainza notes that shareholding of Berkshire Hathaway has a dual class structure – class A and class B. Mr Warren Buffett’s shareholding is Class A, which has more voting power than Class B shares, allowing him to maintain control over major decisions and prevent takeovers.
For stability in the company leadership, even as he has stepped down, he is keeping his Class A shares.
‘In Uganda, we do not like speaking or planning for our deaths, even if we know that death is inevitable. We have to face this fear to avoid succession battles after a parent’s death. Parents can adopt Buffett’s suggestion and review their wills with their children once they are old enough to understand matters of inheritance.
They can adjust their wills based on the conversations they have with their children. If the children have any concerns, they are voiced before the signing of the will, and their ideas are part of the transition process,’ Ms Khainza tells BD Life.
She is also of the view that local companies should seek both legal and financial expertise in determining their shareholding structure and voting rights as provided for in the Companies Act.
They need to specify the different classes of shares and the particular rights, preferences, limitations and other terms, including voting rights attached to each class.
This, she says, would protect founders and their children from hostile takeovers and enable them to keep control over decision-making.
They would be able to appoint a non-family member to run the organisation and make transitioning from the founder to the next generation a much easier legal and emotional process.
‘However, they should be aware that minority shareholder protections protect minority shareholders from oppressive conduct. If affairs of the company are conducted in a way prejudicial to their interests, the minority shareholders can seek redress from the Registrar or the Courts,’ says Ms Khainza.