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Therefore Family Businesses Are The Primary Contributors To The Economic And ...

Therefore family businesses are the primary contributors to the economic and social well being of all capitalist societies, it is their lack of prolonged existence that is the problem. It is estimated that, internationally, only 30% of family businesses survive to the second generation, while fewer than 14% make it beyond the third generation.Smaller family businesses are in particular vulnerable; they usually survive only five to ten years (Venter, E, et al 2005). Other commentators agree with this statistic, Aronoff (1999) observed that 30% of family businesses made it to the second generation, 10-15% make it to the third generation and 3-5% make it to the fourth generation (Aronoff, C 1999).

Family business failure is statistically predictable, and is universal condition, that is embedded in the national culture. The Americans discuss this as shirtsleeves to shirtsleeves in three generations the Chinese have a proverb, rice paddy to rice paddy in three generations and the Irish have a proverb, clogs to clogs in three generations. This is rarely caused by financial practices, family businesses most often fail because of poor long-term succession planning, there have been several studies that come to the same conclusion (Grote J 2003).

According to numerous authors and consultants, the single most important reason for this high failure rate is their inability to manage the complex and highly emotional process of ownership and management succession from one generation to the next (Venter, E, et al 2005). The average life span of a family business is 24 years, which corresponds to the number of years that the founder is in charge of the business. Following this moment in time, the business may continue to exist, but can lose its family personality. It is often stated that a family business goes to the dogs in three generations, an observation that is expressed in some countries; for example, in Mexico the statement is father-entrepreneur, son-playboy, and grandson-beggar (Davis, J 1997).

Research has reviewed the acceptance of failure, and has revealed statistics that agree with the proverbs. In 1998, when Family Business Review compiled a balance sheet of 10 years of scientific study on family business, succession and interpersonal family dynamics appeared to be the most frequently occurring reasons for family business failures (Dyer & Sánchez, 1998).
It is accepted in the majority of societies globally that family businesses are doomed to failure. The majority of these businesses fail in line with the time span of the founder, which then questions the lack of succession planning by the organisation.


3.6 Succession Planning

The succession of a family business is one issue that necessitates scrutiny from the perspectives of family, management, and ownership systems in order to identify all the different stakeholders.

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