Performance determinants of second generation black family businesses in South Africa.
Abstract Family business is the dominant form of business enterprise in the world. Included amoungst family businesses are some of the world’s largest and oldest businesses which operate in many countries and are common household names. In South Africa, the family business model is also the most widely used business model with most family businesses being small and medium enterprises (SMEs). These SMEs are responsible for up to 70% of employment in South Africa. The black race entered corporate business later than other races and is still underrepresented in entrepreneurship. But like all other cultures, black entrepreneurs and their heirs wish to grow their businesses into lasting legacies that provide financial security for their families. The family business model is sometimes seen as being cumbersome, constricted by slow growth, risk aversion and family strive leading to poor performance. Family businesses are often unable to prosper past the founders’ demise or retirement, and are viewed as unable to adapt and innovate to meet the challenges of business in the 21st century. However, there are a number of very large family businesses that are decades old and are prospering into the second and third generation which have adapted to become listed firms and are adept in changing business models to take advantage of changing business environments. This research looks at the black family businesses under second generation control in South Africa. It explores what performance or success means and the factors the families in business view as important in achieving such success. The main conclusions raised include that the family business is all about the family with the family culture and values, methods of decision making, communication and operations determining the way the business operates and whether it is successful. Success in business is viewed in social terms of the business being able to provide for the family needs regardless of the growing size of the extended family. The second generation labour under the burdens of responsibility and family loyalty which do not necessarily contribute to business success. They feel obligated to continue operating the business as the founder would have and find difficulty in incorporating new business processes and management styles that their formal education have taught them. Due to cultural preferences the role of management normally falls on male heirs and sometimes even shareholding in the business is only left to the male heirs. However, control over the enterprise is not determined along the shareholding percentages and is often about relationships within the family. Communication channels, openness to change, honesty and strength of family relationships contribute to success as all family contribute to governance of the family firm. The founders’ characteristics, business methods and how well he/she exposes the heirs to the business, influence the business and likelihood of success in the second generation. The attractiveness of corporate careers due to better education of the heirs does not impact on the heirs’ willingness to manage the family business and be responsible for provision for the family. Employment of family members further complicates business performance especially if the children are all owner/managers. Other predeterminants of success raised include changes in the business environment, financial management structures and human capital. Formal business education and modern business methods could assist with this. These findings should assist founders of business in setting positive family and business cultures early in the heirs’ lives that would enable the second generation to continue the business’ success and also highlight the need for communication, education and business exposure for the heirs. The second generation will also be able to reflect on the impact of family dynamics and the need to be proactive in managing these relationships in order to positively impact on the family firm’s success.
Family-owned business enterprises,Black Business enterprises,Small business .