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Five Signs That Your Family Business Needs A Board

Five Signs That Your Family Business Needs A Board

Family businesses are a cornerstone of the African economy. According to the African Development Bank, small and medium enterprises (SMEs), many of which are family-owned, contribute up to 45% of total employment and as much as 33% of the GDP in some African countries.

However, as these businesses grow, the need for structured governance increases. Establishing a board of directors is a pivotal step in scaling operations, managing transitions, and ensuring the long-term sustainability of the business.

Here are five signs that indicate your family business might need to adopt this formal structure, and key questions to consider:

1. Growth and complexity are increasing: As a family business expands, operations and strategic decisions become more complex. This might include managing increased product lines, scaling to new geographical markets, or adapting to digital transformations — an area where many African businesses are currently focusing. When last have you asked and answered the following:

– Are current decision-making processes too slow or ineffective given our rate of growth?

– Do we have the necessary skills internally to manage our expanding operations, or do we need external expertise?

2. Planning for succession is on the horizon: In Africa, the continuity of family businesses across generations is often fraught with challenges. A study by PwC revealed that only 2% of family businesses in Africa survive to the third generation. Effective succession planning facilitated by a board can help improve these statistics by ensuring leadership transitions are smooth and strategic. Consider the following:

– Have we identified potential future leaders within and outside the family?

– What steps have we taken to prepare these individuals for leadership roles?

3. Professional management is needed: Incorporating professional management is crucial, particularly when family members leading the business may lack formal business training. This shift can be instrumental in fostering professionalism and introducing robust business practices. Reflect on these questions:

– How do we currently integrate professional standards within our family business operations?

– What resistance might we face in bringing external professionals into management, and how can we address these concerns?

4. Decision-making has become cumbersome: A common issue in family businesses is the centralisation of decision-making, which can lead to inefficiencies and missed opportunities. This is particularly pertinent in fast-growing markets like many in Africa, where agility and responsiveness are critical for success. Key questions to consider include:

– Are there recent instances where decision latency has impacted our business negatively?

– What mechanisms do we have in place to ensure timely and effective decision-making?

5. Access to new networks and skills would support growth: The right board can extend a company’s reach into new networks, bring in critical skills, and facilitate entry into markets that were previously inaccessible. In Africa, where many markets are still developing and highly dynamic, such access can be transformative. Key questions to consider with regards to this include:

– What specific skills and networks are we currently lacking that a board could provide?

– How could new partnerships or market opportunities drive our next phase of growth?

Establishing a board of directors in a family business can play a transformative role in ensuring its growth, sustainability and competitiveness. This move helps in professionalising the operations and assists in leveraging the business dynamics typical to African markets. For businesspeople, observing these signs, the introduction of a board might well be a strategic necessity rather than an optional step. This proactive measure could ensure that the business survives and thrives across generations.

*The views expressed in this column are of the columnist and do not necessarily represent the views of The Asian Weekly, its management or staff.*

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