Succession planning and continuity of family owned businesses owned by previously disadvantaged individuals

Abstract

Family owned businesses in South Africa are a pivotal institution. These businesses compete in several sectors in the form of small, medium, and micro enterprises, and contribute significantly to the country’s Gross Domestic Product (GDP). They are also a key source of employment for masses in the country. Many of the South African businesses listed on the Johannesburg Stock Exchange today started out as family businesses, with some of the most notable being Anglo American and Ackermans. These businesses have been passed down several generations with some families still holding a stake to this very day. However, it is notable that most family businesses tend to struggle with succession planning and the transfer of ownership and power. Previous studies have revealed that in other parts of the world, 70% of family businesses fail or are sold before the second and third generation due to a failure in planning or the adequate execution of said plan. Consistently, this phenomenon is also common in South Africa, with several past and even ongoing high-profile succession battles over businesses and assets being observed. A common thread is that most of these battles, past and ongoing, are within the previously disadvantaged communities. The purpose of the study, therefore, was to investigate and draw insights into succession planning and continuity in family owned businesses founded by Previously Disadvantaged Individuals (PDIs). Data was collected through a semi-structured interviews with business owners with a business footprint across South Africa. The study found that a sizeable portion of small businesses did not have a succession plan in place when compared to the much larger enterprises. The study uncovered that some of the reasons these businesses did not have succession plans in place was to avoid conflict; some of the owners spent more time dealing with operational business issues, while others expressed a lack of adequate knowledge on succession planning. The study also confirmed that the existing cultural belief systems in the South African context could also to some degree, have an influence on the approach to succession planning. These influences often result in the succession process favouring male heirs over their female counterparts, and a majority of these 2 [OFFICIAL] succession plans have no structure – all of which makes the process less effective. However, other findings indicated that education, experience, and social background had a stronger influence on poor succession planning over some of the cultural elements. The study made recommendations for various strategies that business owners can employ to close the gaps in the succession planning process. These include the corporatisation of family businesses through governance, and the utilisation of legal documents like wills, trusts and binding agreements. The findings and recommendations derived from this study will contribute positively to family businesses, particularly on the building blocks to developing and implementing successful succession plans