The Sunday Mail
Family-run businesses contribute significantly to local economic growth, and their contribution towards Vision 2030 cannot, and should not, be underestimated.
Family-owned businesses are the engines of our economy and extend to all sectors — agriculture, mining, transport, tourism, manufacturing, retail, education and so on.
Economies across the globe are driven by companies that started as family-run businesses and morphed into the world’s renowned multinationals.
Such companies include Ford Motor Corporation, Johnson & Johnson, Boeing and Mercedes Benz, to name a few.
In a country like ours, where growth has shrunk into negative territory this year, economic activity is dominated not by big corporations, but by small- to medium-sized enterprises (SMEs), the bulk of which are family-owned and are the biggest employers in Zimbabwe.
There is no doubt that Zimbabwe’s economic growth ambitions as spelt out in Vision 2030 cannot be achieved without family-run businesses.
But, for family businesses to grow beyond “mum and dad” and metamorphose into big corporations and survive for generations to come, they need to be properly structured and governed.
Family-owned businesses cannot grow sustainably if they turn a blind eye to good corporate governance.
The reason why most promising family-run businesses have collapsed in Zimbabwe is mainly because they were badly governed.
They also did not pay attention to tenets of good corporate governance.
Complexity
Corporate governance in family-run businesses can be very complex, depending on the size of the family and nature of family relations.
This is so because of the need to manage sensitive family (kith and kin) relationships, which are not found in non-family businesses.
Striking a balance between managing family relations on one side and running a business professionally, on the other, often poses serious corporate governance challenges.
For businesses to grow beyond founding members, family members should take a more professional approach by establishing appropriate corporate governance structures that ensure sustainable growth of the business for the benefit of present and future family generations.
If family businesses are to grow beyond “mum and dad”, they need to be run professionally and should have appropriate organisational and corporate governance structures.
Research has shown that family businesses that have outlived their founding members have done so on the basis of good corporate governance.
In Zimbabwe, we have many examples of businesses that started as family-run businesses, but have since morphed into big corporations.
Examples include Meikles Group, Econet Wireless Zimbabwe, Nyaradzo Funeral Services and Securico, to name but just a few.
Econet Wireless
Econet Wireless Zimbabwe — founded by Zimbabwean billionaire entrepreneur Strive Masiyiwa as a family business — grew in a very short space of time to be one of the leading companies operating in Zimbabwe.
Today, Econet has transformed itself into one of Africa’s top telecommunication companies in Africa.
Through innovation, Econet has unbundled into Cassava Smarttech, Steward Bank and other businesses with operations across Africa and overseas.
Dangote
Nigerian multinational industrial conglomerate, the Dangote Group, which is led by Africa’s richest man, Aliko Dangote, started as a family-run business. It is now one of the biggest corporations in Africa, with operations spanning across Africa in cement production, sugar refinery, oil refinery and petrochemicals.
Dangote Group is currently constructing the biggest oil refinery and petrochemical complex in Africa, in Lagos, Nigeria, at a cost of US$15 billion.
The project is expected to create 9 000 direct jobs and 25 000 downstream. This complex will have capacity to process 650 000 crude oil barrels a day and is set to transform Nigeria into a producer and net exporter of petrochemicals and fertilisers by 2022.
Size of business
It should be noted from the outset that establishing appropriate corporate governance structures is by no means confined to the size of a family business.
A small family business needs corporate governance structures in as much as a big company does.
What distinguishes small and big companies is that most family businesses can be governed by a few structures as compared to listed companies.
It should be noted that no one type of governance model or structure fits all family enterprises.
The governance structures in a family business are determined by the following, among others:
- Size and nature of the business;
- Whether a business is being run by its founders;
- Size of family;
- Generation. For example, whether the business is first, second or third generation;
- Ownership of business. For example, between family and non-family members; and
- External environmental factors i.e. laws and regulations.
As indicated above, there is no one-size-fits-all when it comes to governance structures of family businesses.
Whether the business is being run by the founding members, or it is a first-, second- or third-generation business, the need to have governance structures cannot be overstated.
Every family business needs to have some form of corporate governance arrangement if it is to be competitive and sustainable.
Organisational structures
A family business cannot thrive if it does not have an appropriate organisational structure.
Having an organisational structure means putting in place the following: a board (governing body), management structure, business units, systems and procedures and internal controls.
The advantages of having a defined organisational structure include the following:
- Allows business to have separate management and governing structures;
- Defines and clarifies roles, responsibilities and rights within the business, thus easing tensions between family and non-family employees;
- Creates transparency on recruitment, promotion, and compensation of both family and non-family members;
- Enables family business to recruit skilled non-family personnel;
- Motivates non-family members;
- Creates efficiency in running the business; and
- Allows for succession planning.
Board of Directors
A family business needs a board of directors comprised of family and non-family members. The size of the board will depend on the size of the family enterprise and also on the generation level.
The common trend in Zimbabwe is that where a family business is still being run by the founding members, usually the directors tend to be all family members.
Founding members have a phobia for outsiders and are usually protective of their businesses.
Second- or third-generation businesses often invite non-family members to sit on their boards as ownership becomes more divided over time, hence the need for impartial people to sit on the board.
A board brings in checks and balances and allows a separation of management activities from governing/ownership issues.
A board allows family members to focus on day-to-day management activities through maintaining oversight over operations and guidance on the strategic direction of business.
Outside directors infuse new ideas and a broader range of experience and expertise in a family-run company.
Having these directors brings a breath of fresh air necessary to ease family tensions.
Outside directors also assist in bringing objectivity and transparency in running the affairs of the company.
Further, outside directors additionally help family businesses to deal with contentious family issues (inheritance, compensation, benefits et cetera).
So, it is clear that if run professionally, family-run businesses can grow into big global corporations.
Allen Choruma can be contacted on e-mail: [email protected]
