Why Many Family Businesses In Nigeria Collapse – PwC

PricewaterhouseCoopers Nigeria has said that the absence of governance structure in family businesses in Nigeria is a critical factor leading to their collapse after the death of their founder.

The Lead, Family Business Services of PwC Nigeria, Esiri Agbeyi, said this on CNBC programme ‘understanding family business trends in Nigeria.’

He disclosed that some family businesses have shutdown especially with the Covid-19 pandemic that affected the global community.

The PwC had released a recent report revealing that only 15 per cent of family businesses have established succession plan and conflict resolution mechanisms.

Agbeyi said PwC reached the conclusion after it surveyed family businesses across 87 territories while about 2,800 of them are in Nigeria.

It also disclosed in its report that Nigerian family businesses had a challenging but rewarding year, adding that the challenges identified were around the impact of the Covid-19 pandemic and foreign exchange issues.

According to Agbeyi, over 80 per cent of employment in the country is driven by Small and Medium Enterprises which mostly are family businesses and some of them die with the entrepreneurs.

But the issue of succession and putting the right governance structure in place has been a big issue leading to their collapse, according to PwC.

Agbeyi said having the right governance structure would help family businesses survive amidst family disputes.

She said, “You see situations where you see the founder dies and then in the absence of a will you see so much chaos around trying to make sure that those assets are ministered into an estate and then sometimes.

“And what we think is important is the right governance structure. So our survey tried to ask about some of the governance procedures and policies in place and the figures were dramatically low in important areas.”

She said just over a quarter revealed that they have a family constitution or protocol, while only 15 per cent have established conflict resolution mechanisms.

“Why it is surprising is because when you ask all the family business owners, succession is top of mind to them. They do want to transfer the businesses to the next generation but the ‘how’ is the issue,” said the family business lead.

She added, ” Governance is different in companies as it is different from families and at the family their might be similarities between families and businesses.

“At the corporate level, the corporate documents that are necessary to have and dictate how the business would run would include things like the organisation’s charter or the structure, the articles of association.

“Important also is need to begin to address the role of shareholders and managing members of the company through shareholder agreement and all important document in place to just put structure to whatever is being done at the corporate level and to also define clearly the roles between owners of the business and managers of the business.

“But we think that it is important that we now begin to think strategically for those who are still alive and for those who have struggled to begin to think of new products that can engineer new growth for the next decade.”

On how the pandemic has reshaped family businesses, she said the family businesses surveyed are looking at introducing new products and services.

“I guess that makes sense to diversify income streams and I guess that would also play out in a larger national scale to ensure that our forex reserves are a bit more balanced,” Agbeyi concluded.