Why Many Family Businesses In Cameroon Do Not Survive Their Founders (Part 3)

Why Commercial Banks Want Public Debates On Plan Of Succession In The Management Of Family Businesses

 What The Banks Are Currently Doing In The Absence Of Plan Of Succession In The Management Of Most Family Businesses

 An increasing number of commercial banks in Cameroon think that there should be public debates on the issue of succession in the management of Family Businesses in the country.   Debates that should also serve as the sensitization of the public, for people to know that information on the plan of succession in Family Businesses is vital to commercial banks, in treating loan applications. It should be noted that the information on plan of succession in Family Businesses is only needed by banks in case of applications for big loans. If an enterprise, that is a client of a bank, makes a request for a small loan or an overdraft, the information on succession in the Family Business will not be necessary.

In 2023, the United Bank of Africa, UBA, organized an interesting online debate on the Financing of Small and Medium Size Enterprises, SMEs, with focus on the Plan of Succession in SMEs and companies that are Family Businesses, As A Factor Of Eligibility For Bank Credits (Loans). The online debate, which was the first ever in Cameroon on this important subject, was moderated by a banking expert, Olivier Djaba.  An increasing number of commercial banks in the country have since been expressing the need for such for a debate , but perhaps in the form of town hall meetings that will  be more open  or accessible to the public than online debate.

A Family Business

It should be pointed out that when economists talk of Family Business, they do not mean a business that was set up by a family. Rather, the understanding is that when a man sets up an enterprise or a business, he has it in mind that it is not only for him.  Rather the business is as well for his wife or wives, and children. It is same thing when a woman sets up an enterprise or a business.   She knows it is for her and her family.  The enterprise or business is thus a Family Business, while the man or woman who created it, is known as the Founder of the business.

Talking about an increasing number of commercial banks that want a public debate on  the plan of succession in the management of Family Businesses in Cameroon, it should be  noted that  there are currently a total of 19 commercial banks in Cameroon . They include: Afriland First Bank,  Union Bank  Of Cameroon, United Bank for Arica, BICEC, BANGE Bannk, Access Bank, Banque Atlantique Cameroun,  CCA –Bank, La Regionale Bank,  Ecobank Cameroun, Societe Generale Cameroun, Commercial Bank Cameroun, CITI bank, National Financial Credit Bank, among others,  As aforementioned, an increasing number of these banks  share UBA’s idea  on  the need for a public debate on  succession plan in the management of Family Businesses in Cameroon.

What The Banks Are Looking For

As the banking expert, Olivier Djaba,  explained,  when an enterprise that is a Family Business, applies to a bank for a big loan, the bank will want to know if the enterprise has been structured in a way, that gives it the capacity to be able to survive in the absence of the Founder.  “The bank for example will want to know if the enterprise has been structured in a way that it can survive its Founder. The bank will want to know if the enterprise can function normally, if the Founder is sick or bed ridden for two, three months. The bank will want to know if the enterprise has been structured in a way that it can continue to function normally if the Founder is involved in an accident that renders him incapacitated for a period of time. An above all, the  bank will  want  to know  if the enterprise is structured in a way that  it can survive if the Founder suddenly dies in an accident, or if he Founder just happen to pass away, as all human beings are mortals“, the banking expert explained.

But the banking expert stated that the situation in Cameroon is still such that, most Founders of Family Businesses are reluctant or uncomfortable to talk about the plan of succession in the management of  their enterprises, because the general  tendency is for a Founder to  mix up succession in the management of the business, with succession in the family (next – of – kin). He said while hoping for an eventual change of mentality through public sensitization, what  commercial banks  in  general do to get an idea, as to whether an enterprise  that  is a Family Business is structured in a way that it can survive its Founder , is to observe a number of things and also ask some indirect ‘technical questions’.

Technical Questions Banks Examine In Treating The Loan Application Of A Family Business

The observations or questions will be like: Who besides the Founder carries out bank transactions for the Family Business? Have he or she a procuration, and who is he or she to the Founder of the Family Business? That is, is he or she just an employee or a member of the family?  Also, are the checks of the enterprise signed by one person or by a number of persons?  Who is the person, or who are those persons, that sign the checks? If the checks of the enterprise are signed by one person, what will happen if the person suddenly falls into a coma or becomes incapacitated?

So when a commercial bank a times refuses to grant a big loan to a Family Businesses, especially a business that is doing well, the managements of the enterprise would definitely ask questions as to why such a negative decision. But perhaps the bank had in examining the loan application, looked at the above questions, and the answers they got were not assuring.

What Is The Interest Of Commercial Banks?

The answer to the question as to why commercial banks are very much interested in the plan of succession in the management of Family Businesses is simple. The money that commercial banks give out as loans to enterprises, are the savings of other customers of the banks. So a commercial bank wants to have some assurance, that if it grants a big loan to an SME that Is a Family Business, the enterprise will not as is common in Cameroon,  crash or disappear tomorrow if the Founder happens to become incapacitated or passes away.

And in most cases, Family Businesses in Cameroon do not survive their Founders, because the Founders did not put in place a solid, documented and legalized  plan of succession in the management of the businesses.  And so when such a Founder of a Family Business passes away, often a free for all fight erupts in the family, over the assets left behind by the late Founder of the Family Business.

Some people will argue that a bank needs not worry as long as a Family Business provides collateral security for a loan. That is true to an extent. But commercial banks in general   prefer a situation whereby loans are repaid, and not a situation where they have to get into the inconveniences of having to sell perhaps   pieces of land, buildings and so on, in a bid to recover  the money that was loaned out. There is also the fact that at times a building might have depreciated, or that due to reason or the other the financial value of a piece of land in an area might have dropped, as compared to the situation at the time the loan was granted.

It is worth stressing here that the interest of commercial banks is on the plan of succession in the management of a Family Business, and NOT on succession as a family head or the next – of –kin. It is not a bank’s business, as to who will be the next –of – kin to the Founder of a Family Business that is a customer of the bank.

Need For A Change Of Mentality

Banks will thus like to see a change in mentality, not only of the Founders of Family Businesses, but also of members of those families, TO MAKE A DIFFERENCE BETWEEN SUCCESSION IN THE MANAGEMENTOF A FAMILY BUSIESSS, AND SUCCESSION IN A Family AS FAMILY HEAD OR NEXT- OF – KIN. There is the need for a change of mentality, because the general tendency in the Cameroonian society is that once the Founder of a Family Business brings in a son, daughter, niece or nephew to train in the enterprise to eventually take over the management of the business, other members of the family immediately assume that the person will be the next – of – kin, which is not necessarily supposed to be so.

And then jealousy might spark off, and some members of the family, especially in a polygamous family, can start trouble. And this is why many Founders of  Family Businesses end up not bringing in some family members to train in the management of the businesses,  or  better still,  they do not take measures to  train the persons  to eventually take over the management of the enterprises.   But the problem is also because, most Founders of Family Businesses in our society, have a mentality that makes them to mix up succession in the management of Family Businesses, with succession as family heads or next – of – kin.

And then there is the issue that many next –of –kin tend to treat Family Businesses they takeover, as their private properties, and that often creates serious problems in the families. And that is also why when the Founder of a Family Business brings in a son, daughter, nephew or niece to train in the management of the enterprise, some other family members start looking at him or her suspiciously; as the person who will tomorrow claim ownership of the business, when   the Founder is no longer there.  And then trouble starts.

Successors In The Management Of Family Businesses Are Not Proprietors

But what banks are rightly saying is that Founders and family members of Family Businesses, have to change their mentality, and start reasoning in the sense that family members brought in to the enterprises, to be trained in the management of the businesses, so as to eventually takeover over the management of the enterprises, are not or must not necessarily be the next – of – kin. There should also be the understanding that grooming somebody to eventually take over the management of a Family Business, DOES NOT, make the person the future proprietor of the business.  The manager of an enterprise is an employee of the enterprise, and has to be on a salary even if he is the son or daughter of the Founder of the business. Even when the Founder of a Family Business passes away, the enterprise is supposed to remain the property of the family, and not the property of the next – of –kin.

So the mentality of the family members of Family Businesses in Cameroon, has to be shaped to consider that family members being groomed to eventually take over  Family Businesses are MANAGERS, and NOT AS PROPRIETORS, even if some of them end up also being next – of – kin. This means that the family members that take over the management of family enterprises are employees and not proprietors.  Rather the enterprises will remain as Family Businesses, that is, businesses belonging to the families of the Founders. If there is a change of mentality and things are seen this way, there will be little or no problem in a family, when the Founder of a Family Business brings in a member of the family to groom in the management of the business.

Make The Right Choice For The Interest Of The Family Business

It should be noted that the Founder of a Family Business must not only groom his son or daughter to eventually take over the management of the enterprise. The Founder can decide to instead bring in his nephew or niece to train on the business, to eventually take over the management of the enterprise. For the interest of the Family Business, it is wise for the Founder to look in the family, and select the person he thinks has a good character and the capacity to be a good manager of that business.

There are also enterprises that it is good to have managers with some specific educational background. For example, if a Family Business is a clinic, it will be wise for the Founder to look for a family member who does not only have a good character, but who is  of  the medial or public health domain, to groom as  manager.  It is the same thing for a Family Business that is for example, a Law firm. It will be wiser or better, for the Founder of the Family Business, to look for a family member of the legal profession, and with a good character, to groom as manager.  It is difficult to manage a specialized or professional structure without an educational background in that domain.