t is no longer a secret that family businesses around the world face challenges in governance, leadership transitions, and even survival, longevity, and company continuity. According to an Irish survey, the majority of Small and Medium Enterprises (SMEs) in Nigeria are family-owned businesses, with family businesses accounting for over 60% of all firms in most countries. In Nigeria, family companies are popular, particularly in Lagos State, which serves as the country’s economic hub.
The significance of this type of business cannot be overstated; they are anticipated to contribute to the economy in three major ways: by creating jobs, increasing GDP, and raising the quality of living or lowering poverty levels. Family enterprises, on the other hand, have a high failure rate, particularly in Nigeria. According to statistics, 95% of family-owned businesses in Nigeria do not make it to the third generation. Governments, policymakers, family company owners, and future entrepreneurs should all be concerned about this.
Apart from the well-known challenges that contribute to business failures in Nigeria, such as deteriorating infrastructure, inconsistent government policies, and double taxation, among others, the lack of a succession plan is a serious issue that threatens the survival and continuity of these family businesses. Succession planning is the process of finding and preparing suitable family members or workers to replace key players in the family business as those key people leave their roles for whatever reason, such as retirement or advancement, through mentoring, training, and job rotation.
Despite the fact that succession planning is a crucial part of a business, overwhelming data from a survey and study findings reveal that 94.2 percent of Nigerian entrepreneurs and business owners lack a succession plan or have an inadequate succession plan in place. This raises concerns about SMEs’ multigenerational expansion, particularly in family enterprises, and poses a risk to Nigeria’s business continuity.
One of the most hard and critical phases of business transition is succession planning, but it is frequently ignored or postponed by Nigerian business owners and executives until it is too late. Unfortunately, many businesses do not prioritize succession planning, preferring to focus solely on how to increase profits rather than considering it in conjunction with retaining next-generation business executives or considering multigenerational business growth.
The goal of proper succession planning for family businesses is to reduce the gap and risk in the operations of the company when key leaders or management employees leave unexpectedly. In the 1980s and 1990s, various renowned family enterprises sprouted up in our country, particularly in Lagos State. These enterprises were formed by business moguls at the time, but if you look around, they are no longer in operation.
Typical examples are Concord Group, Abiola Bookshop and Abiola farms established by the late Bashorun M.K.O Abiola; Chanchangi Airline established by the late Alhaji Ahmadu Chachangi; late Chief Isiaka Rabiu Ayodele founded IRS group of companies; late Chief Ajibade Falodu founded Sunrise group of companies; late Alhaji Lai Balogun owned Balogun group of companies; late Ayodele Sanusi established Sanusi Brothers group of companies; and the late Chief Augustine Ilodibe also established a group of companies under his wings. Utuk Motors , Destiny Insurance Ltd , Inyang-Ette Lines , Ekene Dili Chukwu Motors, etc, all fall into this category.
These companies were successful while their founders were alive, but they died out a few years afterwards (that is, after the death of the founder). Many of these first-generation family enterprises do not survive their founders because of a lack of succession planning. And, a lot of these family enterprises are only passed down through the first generation. Majority of these businesses collapsed due to bad management, a lack of clear policies, and a strategy for long-term survival, rather than economic factors or unfriendly business conditions. If succession planning had been explored in advance, it would have effectively addressed the difficulties.
In climes where the importance of appropriate succession planning is recognized, however, the situation is different. Even after the founder’s departure, the growing importance of family enterprises is very much evident in the advanced countries of the world. The success of these businesses is largely dependent on a strong corporate culture of succession planning. Some of these enterprises include, Walmart which is owned by the Walton family in the United States, Ford Motor Company was created by Henry Ford in 1903 and is now owned by the Ford family in the United States, Tata and Sons Ltd is controlled by the Tata family in India, and LG Electronics is owned by the Koo family in South Korea.
Family-owned businesses in Nigeria can also create proper structures and cultures to ensure multigenerational growth and business continuation. By making a concerted effort to develop competences into your company’s leadership positions, succession planning can assist you achieve this. As a result, succession planning can be implemented in Nigerian organizations as a key instrument for achieving multigenerational growth. In addition, organizations should have a clear corporate governance framework in place and implement effective internal control mechanisms.
Please keep in mind that by putting in place a succession plan early enough, firm founders and owners can help ensure a smooth transition and avoid any negative consequences of their departure. Because succession planning is an important element of running business, it can jeopardize business continuity if it is ignored, regardless of how secure the company’s future looks to be.
Consequently, from a professional standpoint, the key to ensuring intergenerational growth is to create the necessary conditions in terms of corporate culture, governance, accountability, record keeping, and information management to ensure your family business’s survival and multigenerational expansion. The starting point for this entire awareness is to evaluate and allude to whether or not the business will continue to exist following the founder’s departure or exit.
With the exit of the founders or when they are no longer involved, some business owners or founders want to simply liquidate the assets and dissolve the business, but others wish for the company to continue. If the owners/founders decide to keep the company going, having a business succession plan is one of the most significant decisions they can make. It will assist in the identification, training, and mentoring of business succession.
As a result, succession planning should be incorporated into the family business strategic plan to ensure a high percentage of survival. Despite the fact that some SMEs take an informal approach, it is usually unsuccessful and undesirable for multigenerational business growth. You must groom your offspring and ensure that they are competent to take over from you, the founder, if you want them to continue your firm.
Successors must have been appropriately groomed through mentorship and training to have adequate skill and expertise to continue on the family business for a business succession plan to operate. If a succession plan is in place, it should be evaluated at least once a year to guarantee current managers’ suitability and competency for key positions, as well as to ensure that all parts of business management have been considered.
Please keep in mind that not having a business succession plan can jeopardize your family’s business continuity. As a result, I strongly advise you to employ a professional to help you attain or streamline this crucial part of intergenerational business success. You must address it now, before it is too late, if it is currently missing or unstructured.