Types of Family Businesses 1: James Bond?
For many weeks, I shared with you the personas of Mr. Thomas Mbanje, the prominent transport business owner and Ms. Olivia Simbajena; the market trader turned retail powerhouse. This week I'd like to start unpacking the different family and family business combinations and their leadership dynamics. As you may have seen in family businesses, a lot of various issues can affect the growth of the family business, and most importantly the continuity and survival of the business falls into understanding the pertinent as much as the underlying issues of the family that owns and controls the business. Before we talk about structuring the ownership of the business and governance, let us explore the different types of family businesses and the leadership of these family businesses.
As we have seen from the intimate stories of Mr. Mbanje and Ms. Simbajena, growing and maintaining a family business is not easy; at times, it can be a mammoth task. In some cases, while family business owners satisfy their customers in the market place, they often struggle to develop leaders from the next generation to then take over. This puts the customers, the business, and the family at risk. The reason it is a significant risk factor is that if the business fails or winds down without a solid plan, it causes losses to all stakeholders, some of which can be dire. For any family business and its founder, it is essential to cultivate next-generation family members who are competent, motivated, and entrepreneurial.
When we say next-generation, we are referring to any family member that is in the generation succeeding the current leadership or owner of the business. This would mean succession from founder to child/grandchild/heir. In many cases, we would be assuming this would be succession from founder to child. However, each family is unique, and a one size fits all approach may not apply. It is important to note that succession planning is particularly vital for African families going forward. This is because African Family Businesses tend to have a lower success rate than their global counterparts in terms of succession, with only 2% of family businesses surviving beyond generation one (the founder), compared to the global average of 33%. It's also interesting to note global counterparts have at times reached a successful average of 11th plus generational succession and sustenance.
One thing to note, as mentioned above, is that family businesses are not all the same. We may talk about them and refer to them as if they are all the same; however, each family and family business combination is unique, as you have seen with the Mbanje and Simbajena families.
It is interesting to note that there is very little data on African Family businesses; however, there are organizations such as African Family Firms (AFF) which are endeavoring to compile and create such data for reference. For the intents of this series of articles, we are going to use available data and study from counterparts in the Family Business Services industry to form a picture of some challenges that face African Family Businesses. One such study is that done over several years on 21 German wine-business families by Sabine Rau, Partner at Peter May Family Business Consulting. Sabine and her team found that Family and Family business combinations could be categorized into four basic types – "James Bond," "Eternus," "United," and "Steward." What they identified as unique about each type of family combination is that each makes different decisions, raises its next-generation differently, and ultimately engages in different succession processes bringing about unique outcomes. Understanding the four different types may help develop a next-generation leader and ensure the continuity of your family business. And further examinations of these types and exploring the African Family Businesses further may help us identify and grow our businesses better.
I'm going to take the four different types of families and explore them in the context of our African landscape. From this, we will see if we can identify these unique families within characters Mr. Mbanje or Ms. Simbajena, our communities, and possibly in ourselves as family business owners.
The first family business type we want to unpack is the:
James Bond Families
In the "James Bond" business families, it was found that an authoritarian family CEO cuts the family off from the business. "The family CEO runs the business like a non-family firm while (typically) his wife is responsible for raising and educating the children. The family patriarch towers above this type of business and keeps other family members out. He runs the business like a secret mission without involving the next generation. Because he does not talk about the business at home, the next generation is neither motivated nor prepared to take leadership roles when the time comes. The succession decision – when, how, and who – is made by the family CEO upon retirement, but by then, the next generation has usually embraced successful careers elsewhere and refuses to join the business. Not surprisingly, many of these family firms are sold when the family CEO retires, and the connection between the business and the family is lost."
In the African family business landscape, we have seen a lot of this type of family. Take, for example, Mr. Mbanje, our transport company protagonist. He is the family patriarch, making decisions for his family at times single-handedly. He believes that his hard work cannot be replicated, and he does not give the opportunity for it to be replicated. He hires and fires his staff with no thought out plan and resists family members getting involved in his business. At some point, he truly believes that maybe one of his children will take over his business. The problem with this is the lack of planning and involvement of the family. He has not invested in the training or education of his children to be in line with the business continuity.
In James Bond situations, you may find the patriarch feeling like he is protecting his territory from "vultures" or "scavengers," but the truth is that, if one person operates the family business, it is a running liability. We say liability because all power is centralized. The players or employees of the business have no clear way forward if their CEO was to be incapacitated or to die. Similarly so, the family has no recourse or knowledge on operations to be able to take over the business and manage it through a transition.
Although it is a natural expectation that the children of the CEO will take over, if they have been shielded and kept away from the business to the extent that they have grown up and set up successful careers and lives outside the business, it becomes an undesirable outcome if they are they demanded to take up a place in the said business. Moreso because they may have categorized the business as a no go area which belongs to the founder. This, at times, forces the founder to stay in the business longer than necessary and longer than they are realistically able, do that they continue to care for the business. In many cases, African businesses end up running into the ground due to mismanagement and lack of strategic planning, which may sometimes require Next Generation input and thinking. Coupled with long term chokehold control by one dominant voice, the business may be strangled by its own founder.
Another issue that is overlooked by our James Bond leader is that autonomy is not attractive to potential partners, investors, or money lenders. Autonomy is not part of good governance and leaves a lot to be desired to attract possible stakeholders who can take the business forward.
A family business does not necessarily have to have all members of the family involved in the decision making or operations of the business. However, as beneficiaries of the success or failure of the business, family members who benefit directly from the business must know the basic operations and happenings at the business. It's also crucial for the important task of succession planning to start being implemented early in the business. Identification of who and how the successor will be necessary early on so that, if the successor is a member of the family, they are carefully prepared and integrated into the family business and its governance structures.
Let's have a quick look at the Pros and cons of our James Bond family type on a table format for clarity:
With the help of trusted advisors, these family firms might avoid such endings. The engagement of advisors might initiate succession planning earlier, which will help with next-generation leadership development, and find ways in which the next generation can gain relevant work experience at other companies in the same or related sectors so they can be viable succession candidates once the time comes. Advisors may also help with structuring of the company governance and ownership structure in a way that the CEO will transitionally start seeing the benefits of collaboration and transition over dominance and overbearing leadership.