Transform to build trust: creating stronger bonds between family members

This article is the last in a series of deep dives into the findings from PwC’s Nigeria Family Business Survey 2023, each focusing on one of three key stakeholder groups: employees, customers and family members.

According to Forbes, family businesses often have a competitive advantage over other businesses when it comes to the governance of the firm, as the governance is based on trust. Trust is seen as the glue that holds relationships together, and more so in family businesses.

On trust, PwC’s 2023 survey of Nigerian family businesses reveals the customer is still seen as king. 61% of Nigerian family enterprises believe that trust between family members is crucial, compared to 79% for customers and 73% for financial partners. This is unsurprising as customers are frequently prioritised because they are necessary for the survival of any business. Globally, family members however remain the highest trusting stakeholder group to family businesses at 74%, compared with 46% for employees and 51% for customers. This is to be expected, given that trust is typically highest among relatives. Less than 10% of Nigerian family businesses report that disagreement among family members is one of the biggest challenges to building trust with stakeholders, compared to 22% globally. Indeed, family businesses that have lasted several generations in Nigeria are few. The tell tale sign for why they do not last often points back to a low level of trust amongst family business members, more so when there are several branches from polygamous relationships or even entitled family members.

Our survey depicts that over two fifths of family businesses admit that trust is low between certain types of family members.

Family members outside the business have a 27% lower degree of trust in family members working in the business, which may be because they do not understand what is going on and how it works. In Nigeria, trust level between Next Generation family members and the current generation is 21%, compared to 43% globally.The next generation family members may have fresh ideas, initiatives, and technology to take the business ahead, while the elder generation may be sceptical, causing distrust. Distrust is highest at 54% between family owners and non-family management. This may be due to both parties’ lack of transparency.

On corporate governance policies, only 58% of Nigerian family businesses have some sort of governance policy in place within the business compared to 81% globally.

This is a rather wide margin and suggests that Nigerian family businesses need to adopt corporate governance policies. For example, only 9% of family businesses in Nigeria have a family constitution or protocol in place, compared with 30% globally. This could easily give rise to conflict as establishing a family constitution is a good first step to integrating good governance within family businesses. The benefits to be derived from having a family constitution include achieving greater success, reducing conflict, eliminating ambiguities and improving succession planning. In Nigeria, less than 10% of family businesses have a shared family capital strategy compared to 20% globally. According to a recent PwC report, a shared family capital strategy is essential to family businesses for the following reasons:

Organisation and Optimisation: A shared family capital strategy provides clear visibility into an accurate and comprehensive inventory of shared family capital, and enables family businesses to optimise their shared family capital allocation and effectively oversee consolidated income or sources of capital.
Family Harmony: It encourages family discourse around the uses of shared family capital and ensures that lack of alignment is addressed with appropriate policies and governance.

Future Proofing: Having a shared family capital strategy prepares family businesses for unexpected circumstances or opportunities, and enables more holistic, long-term decision making for how shared assets are managed. It also supports the ability to evolve capital allocation to meet the needs of changing and growing families.

Only 6% of family businesses in Nigeria have a family employment policy in place, in comparison with 27% of global family businesses. A family employment policy is key to establishing rules and conflict resolution mechanisms. Speaking of conflict resolution, it is interesting to note that only 6% of Nigerian businesses have some sort of process in place, compared with 19% of family businesses globally. The lack of effective conflict resolution mechanisms can be detrimental and in some cases, businesses might not be able to bounce back so it is imperative that Nigerian family businesses start to adopt the appropriate and effective conflict resolution mechanisms required to keep their businesses afloat.

Somewhat encouraging is the fact that the majority (70%) of Nigerian family businesses say that the family that owns the business has a clear set of family values which is in line with the global average. This indicates that the family members have a unified vision for the business. In addition, 52% of family businesses in Nigeria have the family values and mission for the company articulated in written form. However, it is not enough to have a clear set of values, Nigerian family businesses should also go the extra mile to adopt corporate governance measures.

When running a family business, honesty and open dialogue are paramount. For instance, the company may suffer if succession planning is not addressed honestly. Communication between family members is less frequent than globally as 58% of Nigerian family businesses regularly communicate about the business compared to 65% globally. Nigerian family businesses need to ensure that communication is constantly ongoing about the state of the business, as real problems can arise if family members feel that they are not being heard, or if messages get misinterpreted.

In order to thrive, family businesses need to adopt the following to further transform their businesses and create stronger bonds:

Conflict resolution mechanisms: Although family members are part of the same kin, conflict between family members is still inevitable especially because each member has a stake in the business. It is therefore important that conflict resolution mechanisms are put into place so that conflict can be resolved in an effective manner without being detrimental to the business. A conflict resolution plan and procedure should be put in place. The plan should include the people who are responsible for conflict resolution and the methods or procedures by which the conflict should be resolved.

Read also: How to plan, secure, preserve generational wealth with Trusts

Corporate governance mechanisms: Corporate governance serves as the fundamental genetic code of every business, encompassing a comprehensive set of rules, regulations, and best practices that businesses are obligated to adhere to. It constitutes a professional framework that establishes the guiding principles and structures essential for the smooth and ethical operation of a company. By adhering to these principles, family businesses can foster transparency, accountability, and integrity in their operations, thereby enhancing stakeholder confidence and ensuring sustainable growth.

Constant communication: The mitigation of most misunderstandings and conflicts within a family business hinges upon the establishment of robust communication channels. Effective and continuous communication serves as the cornerstone of any successful business, and it is of utmost importance that family businesses prioritise this critical aspect at all times. By fostering open, transparent, and regular communication among family members and other stakeholders, businesses can significantly reduce the likelihood of disputes and enhance collaboration, trust, and mutual understanding.

Conclusion

Most difficulties that afflict family companies are the consequence of a lack of efficient communication. It is critical that family businesses practise open and honest communication among themselves. Family enterprises must have strong corporate governance rules which encompass all parts of the firm. Many assume corporate governance is only for huge companies, yet all firms need it. Conflict resolution processes are also critical to a company’s performance and survival. Conflict is unavoidable, but when it is not dealt with appropriately, it may lead to major misunderstandings and, worse, the destruction of relationships between the family and the business itself.

Esiri Agbeyi, Partner, Private & Family Business Leader, PwC Nigeria and Ejike Okonkwo, Associate, People & Organisation Tax, PwC Nigeria