Transform to build trust: Keeping family members united

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

When family trust breaks down, a family business will inevitably suffer. History is filled with stories of high-profile family business disputes. So, it’s not surprising that 87% of respondents to PwC’s Africa Family Business Survey, which polled 172 African family business leaders in 12 countries, say that trust between family members is essential. The good news is that over three-quarters (77%) of those surveyed say they are extremely confident they are trusted by family members. A further 21% say trust levels are high among family members. Only a small minority (2%) say that trust levels are low. But that’s not the whole story. As the second chart below shows, stubborn trust gaps remain.

Family values

The relationships between family members, both those involved in the business and those who are not, can affect the management of the company in ways that simply don’t exist in non-family businesses. Succession planning, for example, can take a toll if it is not managed transparently. Explaining to a son or daughter that they are not doing their job well is tough. Not surprisingly, a significant share—over a quarter—of respondents report a trust gap between the current generation and the next. There is a similar trust gap between family members who work in the business and those who don’t.

When trust is low, conflicts occur: 35% (39% Kenya, 36% Nigeria and 42% South Africa) of respondents say that disagreements happen from time to time, and 7% (9% Kenya, 0% Nigeria and 9% South Africa) say it happens regularly. Such conflicts have a spill-over effect on trust across the wider business: 18% of respondents (27% Kenya, 9% Nigeria and 18% South Africa) say family disagreements are the biggest challenge when building trust with all stakeholders.

Lack of clarity and poor communication can also lead to conflict. More formal governance structures, however, will help build and maintain high levels of trust among family members and allow leaders to deliver on the three core aspects of a family business: family, business and wealth. Having corporate and family governance structures in place also helps with transparency. The family members know what will be discussed in which forum and where they will be able to voice their concerns. Also, where they will be able to share family related matters or sometimes the elephants in the room. Having no or limited structure creates uncertainty and allows for assumptions being made.

Family businesses often cite the fact that they are not constrained by the reporting requirements that regular corporations face. They can, for example, take a longer-term view without outside investors breathing down their necks. But to thrive and minimise conflict, they will have to become more like non-family businesses when it comes to strategy and communications. This is especially true when delineating the potential roles family members take on in the company, whether as owners, board members or other kinds of roles.

In light of these challenges, we will investigate ways families can build trust using a model developed by Sandra J. Sucher, a Harvard Business School professor of management and the author, with Shalene Gupta, of The Power of Trust. The model describes four pillars of trust: competence (is the company good at what it does?), motive (whose interests is the company serving?), means (is the company using fair means to achieve its goals?) and impact (what is the tangible impact the company has, as opposed to the impact it claims to have?).

By examining the relationships and challenges that families face through the lens of these pillars, it’s possible to identify key actions that leaders can take to ensure that trust remains high, and that the family legacy is preserved, even as the business and the family grow through the generations.

Competence: Clearly defining roles and qualifications reduces friction.

Running a family business means having the many difficult conversations that any business leader must have about operations and performance—only with relatives, and often ones who are leaders-in-waiting. That is not easy. It’s not a given that all family members will have the same expectations about their roles in the business or will agree on strategy. As the chart above shows, not all family members enjoy the same trust levels. What’s more, 41% of respondents (48% Kenya, 42% Nigeria and 39% South Africa) say that not all family members share similar views and priorities about the business’s direction.

At PwC’s NextGen Leader Academy, held in Boston in August 2022, the room was filled with highly qualified and capable young family business leaders, with an average age of 33. All held leadership positions in their family businesses, managing hundreds of people. But the majority said they were still in the dark about where the business was heading, and about what role they should play. A respect for their elders, combined with a certain degree of fear for the future, was holding them back from having essential conversations about their long-term roles. When we asked how many people are on the company’s board of directors aged under 40, the respondents said 45% (42% Kenya, 40% Nigeria and 42% South Africa). No wonder they are not aware of the business strategy and direction.

A solid majority of family business leaders report good communication within the family— 66% (48% Kenya, 55% Nigeria and 73% South Africa) say relevant information is shared in a transparent and timely way, and 67% (58% Kenya, 58% Nigeria and 79% South Africa) say family members regularly communicate with stakeholders about the business. But this still means that around a third are not communicating as well as they should—and it’s the younger generation of family members who often feel left out or constrained as a result.

The fact is, the world is changing rapidly for businesses, regardless of the mode of ownership. Forty percent of CEOs in PwC’s 2023 Global CEO Survey said that their companies will not be fit for purpose in a decade if they continue on their current track. The imperative to transform is urgent, and leaders need to be clear about what that means for the business.

Room for improvement: Only 21% (21% Kenya, 6% Nigeria and 33% South Africa) of respondents say they have a family employment policy.

Actions that build trust: Formally agree on education and business-experience pathways for family members. Set milestones, and review them regularly with next gen family members. This is not a nice-to-have, but a business imperative if you want to successfully hand over the business to the next gen.

Motive: Write a ‘constitution’ establishing what the family wants to achieve and how.

A constitution is a family mission statement—essentially its license to operate—that goes beyond providing details on the dividends family members can expect. It can cover everything from sustainability to community relations and financial goals. It should also include actions that specifically relate to what the company stands for. In our survey, 70% (61% Kenya, 64% Nigeria and 76% South Africa) of respondents say the family that owns the business has a clear sense of agreed values and purpose for the company. But only 44% (30% Kenya, 52% Nigeria and 52% South Africa) say those values and purpose are written down, and only 27% (33% Kenya, 7% Nigeria and 39% South Africa) say they’re communicated with family members. Assuming that different generations share the same values is unwise.

A written mission statement, created with input from both those who work in the business and those who don’t, helps manage expectations and can reinforce the family business’ innate advantage when it comes to a long-term view of financial returns—the so-called patient-capital approach. By contrast, when values and purpose are left to interpretation, disagreements are bound to occur. 

There is a correlation between trust and communication. Our survey shows that respondents who have higher levels of trust report fewer conflicts.

Room for improvement: Only 43% (45% Kenya, 39% Nigeria and 64% South Africa) of respondents say they have a shareholders’ agreement. Only 34% (30% Kenya, 24% Nigeria and 52% South Africa) have a dividends policy, and only 23% (24% Kenya, 9% Nigeria and 39% South Africa) have a family constitution.

Actions that build trust: Ensure that the shared vision of the family stays up to date and is supported by all family members. Bring together all generations, as well as non–family members of senior management teams, at least twice a decade to review and revise the family constitution and protocols in the face of changing circumstances and mindsets.

Means: A formal governance structure improves clarity and communication.

A governance structure describes the ecosystem in which family members navigate their relationship with the business, the community, and their own roles and responsibilities. If that structure is not clear, then conflicts will be harder to resolve. Harmony and support between family members are an essential part of the socio-emotional wealth of a family, which cannot be taken for granted, especially as the family grows from one generation to the next. This is true not just for those who work in the business, but also for those with roles in philanthropic activities, as well as for passive investors: they are all part of the human capital of a family business.

A governance structure will include ways to manage dissent. Challenging a company’s leaders can surface new ideas, so a certain amount of conflict can be healthy. But what is the right level of tension? It needs to be high enough to trigger change or innovation but not so high that it causes a rift or poor decision-making. A formal conflict-resolution mechanism is essential for dealing with such rifts, yet only 21% (21% Kenya, 6% Nigeria and 27% South Africa) of respondents in this year’s survey say they have one in place, an improvement of nine percentage points over the previous survey, conducted in 2021 (12% Kenya, 6% Nigeria and 12% South Africa).

Board composition is another area where family businesses are falling behind in their governance. Only 11% (12% Kenya, 9% Nigeria and 6% South Africa) of those surveyed report having diverse boards, defined as including two or more women, one board member under the age of 40, one non–family member and one from a different sector background. This shortcoming can be addressed explicitly in a family constitution that sets guidelines for board representation. But only 23% (24% Kenya, 9% Nigeria and 39% South Africa) of respondents to the survey say they even have a family constitution or protocols in place. Those protocols should include provisions for smooth and timely succession, for example.

Room for improvement: More than a third (39% Kenya, 41% Nigeria and 27% South Africa) of those surveyed say their board consists solely of family members; 33% (58% Kenya, 10% Nigeria and 45% South Africa) say that they have no women on their board.

Actions that build trust: Consider organising regular family meetings during which family values and challenges—including diversity, equity and inclusion—are debated across generations.

Impact: Transparent reporting on non-financial goals shows commitment to deliver.

A recurring theme of this year’s survey is that, although family businesses say they have clear values and purpose, they are often failing to effectively codify those values and communicate them both inside and outside of the family.

Still, most family businesses want to be seen as leaders on issues that build trust in their communities and beyond. Three quarters (76% Kenya, 70% Nigeria and 79% South Africa) say there is an opportunity for family businesses to lead the way in sustainable business practices, up from 63% (64% Kenya, 53% Nigeria and 68% South Africa) in 2021; 71% (76% Kenya, 76% Nigeria and 67% South Africa) say businesses need to deliver greater benefits for the planet and human society, up from 58% (58% Kenya, 69% Nigeria and 63% South Africa) in the previous survey.

Delivering on those aspirations requires defining what actions are needed and then taking them.

Room for improvement: Though 84% (73% Kenya, 85% Nigeria and 85% South Africa) of respondents say they have a clear purpose, only 35% (38% Kenya, 57% Nigeria and 29% South Africa) say it is regularly communicated externally.

Actions that build trust: Consider setting targets for, and reporting on, non-financial activities, including carbon usage and diversity, equity and inclusion initiatives; and document those priorities in the family constitution. Review the philanthropic activities of the organisation, and ensure that they are aligned with the family’s values.