By: Louise Le Riche

Traditionally, family-owned firms were handed on to the oldest son in the family. A more modern and realistic approach, however, is to hand over the control to the most suitably qualified person in the family or, in the absence of such a person, to the most suitable non-family member in the business.

The successful and smooth handover from one generation to the next is imperative for business survival and success. Most South African family businesses have not adopted a succession planning process in the past and the majority of current family businesses still don’t have formal plans. This is a big mistake and may cost them dearly.

Kobus Deetlefs of Deetlefs Wine Estate in Rawsonville realised the importance of succession planning when he took over the family business in 1992. While the farm is South Africa’s third oldest wine estate under the same family ownership, the business has a very modern and structured approach.

Deetlefs changed the way the family had been operating for the previous five generations after the first democratic elections in 1994. “When international markets opened up, we decided to structure the business in a different way to create opportunities to grow,” he explains.

He consulted other successful family businesses in the region and did a lot of research to come up with the perfect structure for Deetlefs. “We decided to focus on three areas, the wine business, which includes the estate, a bottling plant and laboratory, joint ventures with other businesses who share the same values and vision, and a luxury goods segment, which promotes our world famous Muscat d’ Alexandrie.

“We divided the business into an above-the-line portion, which comprises the family trust and a below-the-line portion, which forms the holding company. The family trust holds the emotional part of the business while the holding company, which really is the business, is run professionally. We have a board of trustees that is made up of non-family business experts and has very strict guidelines for the allocation of profit. It is calculated according to a formula and a certain percentage goes to the family trust, while the balance is used to generate growth.”

He believes that the two biggest challenges facing family businesses are that everybody wants to be managers and that emotions often rule over sensibility.

“A family business is a dynamic animal,” Deetlefs explains. “Through the generations there is a natural shift in what’s important and each generation brings its own entrepreneurial vision and value adding practices.”

This is the reason he decided to structure the business and impose a professional culture based on personal responsibility.

“We believe in employing the best person for the job, regardless if whether it is a family member or not. In business you don’t want to carry around extra passengers and you have to find somebody who is suitable for the position to be fair to both the family and employees.”

Starting the process

Diederichs agrees with this approach and reminds business owners that unlike a hundred years ago there are different succession options to consider today. You can stick to tradition and appoint a family member, adopt a more modern approach and appoint a non-family member, hire a caretaker manager if the successor is still too young or inexperienced or a professional manager. You can also consider selling all or part of the business.

He suggests that families start planning as early as possible and that future management and succession should be raised in non-threatening ways. “Succession should be discussed in a relaxed way and as part of normal business planning. Encourage family meetings and bonding among siblings and cousins so that they learn to trust each other and everybody is clear on the objectives and future goals.”