How Effective Succession Planning Can Maximize Business Success – Corporate Governance

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While many businesses in Africa are family run, not enough are considering their next generation succession plans, says John Félicité, Director – Ocorian Mauritius.

In Africa, many businesses are family owned and controlled by the founders. At the same time, a new generation of entrepreneurs is emerging on the continent, eager to take up the business torch. This bodes well for a continent with a young and growing population.

However, for the momentum to be maintained, business owners in Africa must act now to help secure a more prosperous future. The dominant philosophy tends to be ‘living in the present’, but a better one might be ‘looking into the future’.

Many companies in Africa have very few plans to hedge against “key person” risk, i.e. what happens if a key person in the company dies or becomes incapacitated ( which is a serious possibility given that many companies are controlled by those of their senility).

What is missing is an effective succession plan. Estate planning involves establishing effective agreements, trusts and structures that allow for the smooth transfer of assets. Forming informal or more formal family offices with teams of accounting, legal, and investment professionals also helps create accountability and responsibility. It helps the family work together to achieve common goals. This should go hand in hand with good communication strategies.

In most African businesses, the idea of ​​a succession plan is never addressed in business setups. According to a study conducted by PWC South Africa in 2016, the top potential failure of family businesses was succession planning, with only 17% of family businesses having a succession plan in place, compared to 13% in the 2014/15 survey.

The absence of a succession plan has been seen to negatively affect most African businesses, especially those that are family businesses. Change happens quickly and businesses may not have a second chance to adapt if key personnel leave. At worst, companies go bankrupt for lack of a succession plan.

This is particularly relevant when 65% of African business families prioritize growth, according to a recent PWC Family Survey report. Successful families need to see their business interests grow by 10% every two or three years. This is essential to protect the interests of the family – easier to do in an emerging market environment than in a developed market. A succession plan offers a solution to facilitate the growth of the family business and create and maintain a legacy that can grow from generation to generation.

Bringing the “new generation” into family discussions earlier will create harmony and lay the foundation for a safe transition of responsibilities. This ability to use the family business as a relay to other interests is increasingly common.

Sustainability is another major concern of family businesses in Africa. In our experience, many of our family business clients are very aware of the impact of their investments on the environment and their local communities. For them, they are as concerned about ESG (environmental, social and governance) as they are about ROI. This is truly an area where we see families coming together using appropriate governance structures to guide family interests.

Taking over a family business is not easy and is especially difficult if the successor does not have the respect of the existing workforce. Evidence of experience gained outside the family business will help gain credibility and respect. Authenticity is key, along with credibility of competence and a great deal of humility in the knowledge that the workforce is what drives the business.

Many of the “new generation” are educated in the US or the EU, and are truly hybrids of two worlds combining age-old tradition and reverence with modern technical know-how. Eager to be understood and respected by their elders for their knowledge and experience, they bring new energy to change old regimes and modernize African countries. If this can be harnessed with effective succession planning strategies, then many African businesses will be poised for success.

How to set up a succession plan

Ocorian has the succession planning expertise to help family businesses put the right structures in place to protect the value of the businesses they have created and ensure a smooth transition to the next generation.

We specialize in assisting C-suites in making decisions that will add real value to their business while mitigating risk. We work with many successful entrepreneurs and family offices in Africa to support their expansion and help them with corporate governance issues.

Our global footprint means we understand the interconnected nature of business activities around the world. This distinct perspective can play a key role in helping companies grow, and even launch, their presence in Africa.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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