Why Nigerian family businesses fail

When it looked like his two sons-in-law were going to become redundant and there was a threatening possibility that they would not be able to take good care of his daughters and grandchildren, an American grandfather called the young men, counseled the first to start making soap; the second, he encouraged to start making candles.

This timely family discussion has blossomed into the business behemoth now known as Procter & Gamble, with tentacles all over the world, producing more than 300 Fast Moving Consumer Products including detergents, soaps and toothpaste. This business has become so successful that, the soap opera genre, the popular television entertainment, derived its name from the fact that soap maker, Proctor & Gamble, sponsored many of their early episodes. I once read a thriller many years ago, and so may not be very faithful in the recall of the details, but here is how it goes: A Swiss patriarch who had a global vision for his business and for his family, sent one son to Canada, to become a Member of Parliament, and another to London, to become an investment banker. He retained the third one in Switzerland to run the family pharmaceutical company. With determined efforts, the pharmaceutical company became highly successful. While the investment banker dreamt up new businesses, the manager of the cash-cow pharmaceutical business provided the funding, and the Member of Parliament in Canada gave necessary legal and political coverage wherever needed. In the end, they grew a global conglomerate. This is a classic display of vision and ability to work it out. Few Nigerian businessmen have such a vision, and when they do, they lack the know-how or follow-through.

Of a truth, not all Nigerian family businesses fail. There is a highly visible and successful family bank in contemporary Nigeria, whose Managing Director is the son of the founder. The bank decided to be even more successful simply because it was being derisively referred to as a family bank; and the founder rightfully deserves the ‘Sure Banker’ accolade with which his friends and admirers fondly describe him. To be sure, many Nigerian family businesses fail when still being managed by the founders: Some of the reasons for failure at this time may be that the founder’s vision does not go beyond fending for his family, or a simple lack of the knowledge of modern business methods necessary for building enduring businesses. Others have too many financial commitments — like too many wives, too many children, and too many social obligations — upon themselves, and it is usually the financial resources that could have been used to consolidate the company that is used to meet those private, personal commitments. Even there is no difference between the exchequer of the company and that of the founder. Most importantly, many of the business founders do not realise that they must establish a dynasty, or the sense of a dynasty, so that there could be a sense of commitment amongst their descendants, and thus ensure a long life for the business. The children usually become a disparate, un-coordinated mob.

But when the business is successfully passed down to the descendants, many factors work against its existence beyond a few years after the demise of their benefactor. Sometimes, the beneficiaries are not emotionally or technically prepared for the demands of the business; the founder may have failed to expose his children to the business, its method and its contacts. Many times, the business founders fail to build enduring structures for their businesses. So when they die, the children have no straws to hold on to; they start guessing, and with time, the whole thing collapses. But the biggest whammy is that the dead patriarchs usually leave what looks like a zoo of many wives, many children, and other dependents of different ages, spanning many generations, and with varied temperaments, caprices and values. This leads to so much unnecessary distractions and squabbles. The responsibilities of taking care of the younger members of the family who are either in school or learning some trade immediately (and rightly) falls on the resources of the company. Unemployed wives also begin to make demands on the estate. This genuine demands on the estate affects cash flow requirements of the company for future reinvestment or new investments.

Some of the beneficiaries, who have the opportunity to operate the companies, may be dishonest, incompetent or inept, and may therefore run the business aground. Others may divert part of the commonwealth to their private use. Even professional managers, who may be more competent, end up pilfering the sources of the unsuspecting beneficiaries. Sometimes, yet other children fail to appreciate that those who work with the company have a right to a livelihood, good and adequate remuneration for services. Look at the Queen of England, who, as a bona fide member of the Royal Family, is entitled to be queen. The moment she became Queen, only she enjoys the perks and privileges of the office of the Queen of England; while she ensures that other members of the Royal Family get their dues, she will not share her remuneration, unless she wishes to. She works for the money. That is the stuff that dynasties are made of. If you read Jane Austen’s book, ‘Pride and Prejudice,’ you will see how the Old English people solved the problem of inheritance and grew their family businesses into trans-nationals: The first son gets the entire inheritance, the second goes to the military, the third goes into ministry. Anyone after that number is encouraged to be a sailor, or otherwise, just travel the world! The girls? They marry into great wealth.

Because many of the business founders die intestate, leaving no Wills or even directives, about the future direction of the company, you get a series of conflicting and contradicting claims on the estate. While some of the children see the business as an ongoing concern or an asset that could bring future returns, others merely see it as an inventory of items to be disposed of for immediate gratifications. Where some of the children that are more astute with the protocols, observances and methods of the modern business environment begin to discuss in usually more arcane and complex terminologies, the others would think that somebody is putting them on.

There used to be a legendary Nigerian business mogul whose name was Henry Fajemirokun. These days, no one hears about his equally legendary Henry Stephens Group which included more than 20 companies in his lifetime. If you visit the previously venerated headquarters of the Group in Lagos, you will observe that the premises has been farmed out to Indian businessmen and others, and the only trace of the Henry Stephens Group is a half-portrait of the ‘Great Fajem’ sitting lonely on the floor, unattended to. But luckily, ‘Fajem’ was wise enough to partner foreign firms like Rank Xerox and Johnson Wax: Those companies have endured because they have structures, and will not succumb to family pressures and intrigues. They operate under best business practices, observances and protocols, unlike a sole-proprietorship enterprise that operates only under the whims of the individual proprietor. The verdict here is that Nigerian family businesses will succeed only if they are driven by a focused long-term vision, with well-established and firmly upheld structures.

Source: Punch