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GOVERNANCE STRUCTURE AND SUSTAINABILITY OF
FAMILY BUSINESSES IN ANAMBRA STATE
1KEKEOCHA, M. E. (Ph.D.)
2 ONWUZULIGBO, L.T.(Ph.D.)
3AND NNABUIFE, K. E. (Ph.D.)
3,
Department of Business Administration,
Nnamdi Azikiwe University, Awka
and [email protected],
Abstract
This study examined the governance structure and sustainability of the family business in
Anambra State of Nigeria. The broad objective of the study is to examine the relationship
that exists between governance structure and sustainability of family businesses in Small
and Medium family businesses in Anambra State. The population of the study is made up
of nine hundred and fifty-seven (957) while the sample size was 278 which comprises
owner-managers and senior staff of the registered small and Medium Scale Enterprises
in Anambra State. The sampling procedure adopted was the systematic sampling method.
Data were collected using a structured questionnaire. Two hypotheses were tested at a
5% level of significance, using Pearson product-moment correlation. Findings showed
that there is a relationship between composition of Board members and longevity of
family business. Based on the findings, the study recommends that family businesses
should adopt an active catalyst type of board and professional management teams with
capacity to develop strategic plans, strategically position the business and balance the
competing interests of the stakeholders and the business for sustainability of the business.
Keyword: Board Composition, Ownership structure, Sustainability, long-term health,
Longevity Family Business JEL Classification: M12, M19
INTRODUCTION
A family business is the backbone of major economies and significantly contributes to
their gross domestic product (GDP), employment creation, and economic development in
general. Globally, family business constitutes the majority of existing businesses and in
such businesses, families own a significant share of the business and as a result, they
influence important business decisions (Family business review, 2009). It was estimated
that the total economic impact of family businesses on the global gross domestic product
(GDP) is over 70% (Anderson, 2018). In the United States, for example, family
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businesses account for 64% of the country’s GDP, generating 62% of the country’s
employment. In India, the gross output of family-owned businesses accounts for 90% of
Indian Industrial output, 79% of organized private employment, and 27% of overall
employment, superseded only by the government and public sector undertaking of
companies in which the government own the majority of shares (Institute of Family
Business, 2011). In addition, it has been reported that European family business turnover
is around 1 trillion Euros, which is about 60% of all European Companies creating over 5
million jobs (about 50% of the continent’s overall employment) (Osunde, 2016,
Anderson & Onwuka, 2018).
Family businesses control a significant position in Africa’s economy, they are the social
and economic lifeline of most developed and developing nations and their successes
contribute to the healthy development of any nation (Oshinowo, Ahamefula, Lawal &
Ishola 2017). Though they are many across the continent, only a handful enjoy longevity.
The longevity of a family business requires governance of the relationship between
family members and family business and decisions that increase the financial, economic,
and human capital of the family business.
The survival rate of most African family businesses beyond the founder is extremely low.
The Family Firm Institute of Boston (USA) estimates that 30% of the family-owned
businesses survive to the second generation while 12% make it to the third generation,
with a mere 3% of all the family businesses will still be active by the fourth generation
(Visser & Chiloane-Tsoka, 2014). For instance, the late Nigerian business mogul,
Moshood Kashimawo Abiola, who at one point was believed to be one of the wealthiest
men in Africa, successfully built one of the Nigerian biggest business empires consisting
of airlines, a chain of newspapers, extensive real estate, fisheries, and other retail outlets,
after his death, in 1998, his businesses crumbled and none of them is in existence today
(Mfonobong, 2014).
Sarbah and Xiao (2013) see family business as an important component of every
economy which play a critical role in promoting the growth of most countries’ economy.
Governance is widely recognized as a key determinant in family business success or
failure. It is defined broadly as the mechanisms used to ensure that the action of
organizational stakeholders is consistent with the goals of the dominant coalition
(Aguilera & Jackson, 2003).
Governance structure describes the rules, processes, and institutions that enable family
business decision-making and implementation of policies concerning the oversight and
management of a family business. The system of the family business is an integrated,
interdependent, and coherent architecture composed of the specific governance structure
of each of its entities (Raphael & Belen, 2013). The family is often characterized by
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multiple generations and multiple family branches, which overtime present great
challenges to maintaining family cohesion and norms (Sarbah & Xiao, 2015). They
further explained that a customized governance system, tailored to the context of the
specific family can help to ensure sustainability and prosperity of the family business.
This enables the family to achieve harmony, manage the succession of ownership,
control, and mitigate family conflict.
Anderson (2018), avers that the survival of family businesses has always been a cause of
concern for family business experts. Considerable effort and resources have over time
been invested in the development of solutions and frameworks that will boost the survival
rate of family businesses. Despite the significant contributions of family businesses,
about 70 percent of family businesses either fail at an early phase or are not transitioned
into a second-generation phase (Gulzer & Wang, 2010).
Again, most of the owners of family businesses in developing countries rely on their
personal knowledge and experiences in running their family businesses and investment
decisions are carried out without recourse to professionals in those fields IFB (2011). In
instances where there is a semblance of a governing body, it is comprised of family
members and close relatives, who do not necessarily possess the technical ability to make
informed decisions or formulate the right strategies to position the family business
towards excellence.
Statement of the Problem
The literature on family business is replete with the assertions of the values and benefits
of a family business in every economy. It also abounds with the findings that show a
very high mortality rate of family business compared to corporations. It is sadly noted
that even the few that survive and grow fail to sustain such growth up to the second and
third generations of the family.
Trends of Corporate collapse is a global phenomenon seen in 1991, Bank for Credit and
Commerce and Maxwell Communications in (UK), 2001 World Com., Enron and Arthur
Anderson (USA), 2007-2008 Subprime Mortgage Collapse leading to Global Financial
Crisis, 2008-2012, Lehman Brothers Collapse 2016, Wells Fargo Accounts Fraud
Scandal and others, sparked reforms in the Global Corporate Governance Practices seen
in 1992 Cadbury Report (UK), 2001 International Financial Reporting (IASB) 2002, and
Sarbanes/Oxley Act USA to help stem the trend.
The reforms of corporate governance practices to a reasonable extent succeeded in
reducing the incidence of corporate collapse. What agitates the mind is whether a
reforming corporate governance practice of family business will improve their
sustainability. United States of America is reported to have at least 5.5 million family
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businesses that contribute 57% to the GDP and employ 63% of the workforce, but nearly
70% of them fail to survive up to second and third generations of the family. This piece
of information contains good and bad news. The contribution to the GDP and the
percentage of workforce absorbed is good news, but the mortality rate is bad news. This
bad news generates uncertainty and discontinuity possibly deriving from faulty oversight
and control functions. A high mortality rate suggests unhealthy oversight practices. The
questions are; can’t unhealthy or faulty oversight practices be corrected to improve the
long-term health and longevity of family business?
Objective of the Study
The broad objective of the study is to examine the relationship that exists between
governance structure and sustainability of family businesses in Anambra State.
Specifically, the study seeks to:
1. Explore the extent of the relationship that exists between Board Composition on
the Longevity of the family business.
2. Determine the degree of relationship that exists between Ownership Structure
and the long-term health of the family business.
Research Questions
The following research questions were considered very germane to the study and as such,
they were raised to guide the objectives of the study.
1. What is the extent of the relationship that exists between board composition and
longevity of family business?
2. What is the degree of the relationship that exists between ownership structure and
the long-term health of the family business?
Research Hypotheses
Ho1: There is no significant relationship that exists between board composition and
longevity of family business.
H1. There is a significant relationship that exists between board composition and
longevity of the family business.
Ho2: There is no significant relationship that exists between ownership structure and
the long-term health of the family business.
H2 There is a significant relationship between ownership structure and the long-term
health of the family business.
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LITERATURE REVIEW
Corporate Governance
Cadbury Report (1992), defined corporate governance as a system by which firms are
directed and controlled. All firms, large, medium, or small are managed when ownership
and management are separated as going concerned for goal attainment. Corporate
Governance, therefore, provides leadership, control, and oversight functions to ensure
shareholder and other moderating stakeholder interests are protected. As a system of
leadership and control, a mechanism for harmonizing and aligning the conflicting
interests of enterprise stakeholders to establish transparency and accountability in the
quest for goal attainment, Onwuzuligbo and Osisioma (2018).
According to Das (2013), there are two major principles of corporate governance that are
applicable at all times and in all places:
1) Corporate governance must be competent to drive forward the firm without undue
constraint due to government interference, fear of litigation, or fear of
displacement.
2) The freedom to use managerial power must be exercised within the framework of
effective accountability.
Corporate Governance structure comprises Owner/Shareholders, Board of Directors, Top
Management, Creditors, Employees, Government and Host Society. Aswatthrppa (2007),
Onwuzuluigbo and Osisioma (2018).
However, on the contrary, Adjasi (2007), states that since the employees of family
businesses include family members and hence there is no separation of ownership and
control which mitigates the need for corporate governance in their operations. Family
businesses need to understand that as the business grows, finding appropriate experienced
management talent within the business may become difficult which eventually results in
looking outward towards the society for the talent. An experienced management helps in
developing written documents and policies on corporate governance that act as a guide to
all family members on the management of the business. Gradually, there might be a need
to separate management from the control of the business which can be done through the
appointment of the Board of directors, who would not only ensure the survival of the
family business but also ensure its prosperity.
Sarbah and Xiao (2015), emphasized that implementation of a good governance system
would help to resolve conflicts within the family business, thus allowing the family
members to focus on other key issues of the business. This would lead to an open
decision-making and implementation of procedures that would ensure fairness and
eventually improve the reputation of the company. Good corporate governance within a
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family business, therefore, ensures the sustainable economic growth of the business by
enhancing the performance of a business and increasing access to outside capital.
Kour and Singh (2018), states that family can add various resources to the businesses that
may be financial, labour, intellectual, cultural, etc, in nature thus providing an edge over
its competitors. Furthermore, families bring characteristics such as long-term
relationships and trust to the business resulting to ease in communication, faster decision-
making, creativity, innovation, and flexibility.
Governance Structure
Governance Structure provides power sharing in the management of an enterprise. When
this is ignored, it is a time bomb - a disaster in the making. According to Ross and Kami
(1973), whenever and wherever power is not shared, it is concentrated. The
concentration of power in one or few individuals bears out the truism ‘power corrupts and
absolute power corrupts absolutely. Ross and Kami (1973), warned that it is always ‘bad
news’ to concentrate power in the organization.
Power sharing ensures that chief executive officers do not double as chairman of Board,
that shareholders and other stakeholders participate in management through the Board of
Directors who perform oversight and control function. Das (2013) insists that the Board
of Directors has been recognized as the heart of corporate governance.
As family businesses become more complex, it is necessary to create formal mechanisms
for coordinating, planning and organization of the family business. This mechanism is
required to balance the powers of Board members and their primary duty of enhancing
the prosperity and sustainability of family firms. Brenes, Marmgal and Bernado (2011),
point out that allowance for governance structure helps family businesses to successfully
execute their competitive strategy while enhancing control mechanisms of the family
firm. An effective system of corporate governance provides the framework within which
the board and management address their key responsibilities.
The business Roundtable (2016), posits that effective corporate governance requires a
clear understanding of the respective roles of the board, management and shareholders;
their relationships with each other and their relationship with corporate stakeholders.
Kayinsola and Akorede (2018), states that the Nigerian Code of Corporate governance
(2018) is aimed at institutionalizing corporate governance practices, thereby raising the
standard of corporate governance in Nigerian Companies. It is expected that adherence
to the principles of the code will rebuild trust and confidence in the country thereby
creating an enabling environment for sustainability of business operations.
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Good corporate governance does not only drive corporate transparency and
accountability, it encourages foreign investment and boost business prosperity (Financial
Reporting Council of Nigeria (FRCN) (2018). Governance role involves control and
decision-making, monitoring, providing advice, creating external legitimacy for the
company, disciplining, networking and providing access to capital. The six major
components of family business governance structure identified by Rapheal and Belein,
(2013) include; ownership structure, control mechanisms, the composition of the board of
directors, executive compensation, dividend policy and succession plan.
Board of Directors (BOD)
Das (2013) noted that it is the duty of the Board of Directors to govern the firm. The
Board normally appointed by the shareholders is therefore responsible and accountable to
them.
The Board of Directors (BOD) of companies are usually a group of professionals who
have excelled in their various fields and can bring a reasonable degree of relevant
experience to the business. They are responsible for developing business strategies that
will ensure the sustainability and growth of such business (Anderson, 2019).
There are two aspects that need to be kept in mind, as regards to Board of Directors of
family business; one is the structure of the Board and the second is the role and duties.
The Board of Directors of Nigerian family business are sometimes composed primarily of
family members, who sometimes lack the requisite relevant experience to perform an
expected role
Kour and Singh (2018), state that the composition of the Board of Directors involves
those that are capable of taking independent/unbiased decisions and be responsible for
providing transparent data, taking decisions in the best interest of the shareholders. The
key issues in Board Composition include;
a) The proportion of directors internal versus external members
b) Size of Board in relation to the size of the firm.
c) Diversity of experience, skills and background. Dass (2013).
Board Structure
The Business Roundtable (2016), identified an effective approach to how the
companies’ Board can be structured. They are as follows: size, composition,
Diversity, Tenure, characteristics, and experiences. These approaches are briefly
explained below;
Size: The nature, size and complexity of the company as well as its stage of
development, determines the appropriate board size. The board size can be
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grouped into larger and smaller sizes. Larger boards often bring the benefit of a
broader skill, background and experience, while smaller boards may be more
cohesive and may be able to address issues and challenges more quickly.
Composition. The composition of a board should reflect members who have
diverse backgrounds, skills, experiences and expertise to enable them to perform
its oversight function effectively.
Diversity: Diversity provides a framework for identifying appropriately diverse
candidates that allow women, minorities and others with diverse backgrounds and
experience as candidates for an open Board seats.
Tenure: Directors who have served for a number of years bring into the family
business experience, continuity, institutional knowledge and insight into the
company’s business and industry.
Characteristics. This refers to the director’s integrity, strong character, sound
judgement, an objective mind and the ability to represent the interest of all
shareholders rather than the interest of the particular constituencies.
Experience. Directors with relevant business and leadership experience can
provide the board with a useful perspective on business strategy, significant risks
and an understanding of the challenges facing the business.
Independence. This refers to any relationship that may impair, or appear to
impair, the director’s ability to exercise independent judgment. An independent
director should not have such a relationship,
Ownership Structure.
Viriri and Muzividzi,.(2013), inferred that in order to be able to ensure good performance
of family businesses and to ensure the sustainability of the family businesses, ownership
should be integrally separated from the other dimensions in the governance structure
within the business. In addition to this, family relationships have to be managed, picking
and promoting the right members from outside the family and demonstrating even-
handedness in training, promotion, compensation and benefits. The formation of a proper
structure provides the basis for establishing clear lines of authority and responsibility.
Nkem, Okuboyejo and Ndamsa, (2016) posit that maintaining family control or influence
while raising fresh capital for the business and satisfying family’s needs is an equation
that must be addressed, since it’s a major source of potential conflict, particularly in the
transition of power from one generation to the next. They further explained that enduring
family businesses regulate ownership issues, through carefully designed shareholder
agreements, that usually last for 15 to 20 years. They also explained that many family
businesses pay relatively low dividends because reinvesting profit is a good way to
expand without diluting ownership by issuing new stock or assuming big debt (Nkem et,
al, 2016).
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Sustainability
Business sustainability has been defined as the adoption of business strategies and
activities that meet the needs of the enterprise and its stakeholders today, while
protecting, sustaining and enhancing the human and natural resources that will be needed
by future generations, by the International Institute for Sustenance Development in
conjunction with Deloitte and World Business Council for Development, (1992). The
definition corresponds to the Bruntland Commission which says, it is that which meets
the needs of the present without compromising the ability of future generations to meet
their own needs.
Family business perceived as corporate organizations are legal entities that all things
being equal ordinarily would continue in operation as going concerned, which translate to
operating indefinitely, Onwuzuligbo (2014). The research report of American Institute of
Chartered Public Accountant (AICPA), Canadian Institute of Management Accountant
(CICA), and Chartered Institute of Management Accountant (CIMA) (2010) indicates as
follows;
a) Business sustainability is about ensuring that organizations implement strategies
that contribute to long-term success. Organizations that act in a sustainable
manner not only help maintain the wellbeing of the planet and people, they also
create a business that will survive and thrive in the long run.
b) Leading companies recognize that successful sustainability performance translates
to bottom-line business performance.
c) Those investors are attracted to firms that act in a sustainable manner with a focus
on long-term profitability and competitive advantage.
d) Long-term business success will require that sustainable practices be deeply
embedded in the DNA of companies.
Sustainability of family business is the management and coordination of environmental,
social and financial demands and concerns, to ensure responsible, ethical and on-going
success (Wigmore, 2013) cited in Nkem, et.al (2016). Sustainability practices are critical
for the family business as they relate directly to the continuity of the business and
relationship with important stakeholders (Esra, Hanging. Burcu, Ozlem & Sevil, 2017).
Business sustainability represents resilience over time, businesses that can survive shocks
because they are ultimately connected to healthy economic, social and environmental
system and business that creates economic value and contribute to a healthy ecosystem
and strong communities (Ungerer & Mienie, 2018).
The World Commission on Environment and Development defines business
sustainability as meeting current needs without compromising the next generation’s
ability to meet its needs. Ward (2012), emphasized that each family business should have
a plan for sustaining the business through a future generations that will serve both needs
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of the business and the needs of the family, thus, setting both the family and the business
into the right parts. Conducting family business with meaningful regard for
environmental, health, safety and other sustainability issues relevant to business
operations ensures the long-term success of the business.
Family Business
Family businesses form the pillars of most economies across the globe. These businesses
are a major contributors to wealth creation and employment creation. Most successful
multinationals have commenced their operations as a family business and have
successfully grown to multinational brands. A family business refers to a business,
company, enterprise, or firm where the voting majority is in the hands of the controlling
family. The family is instrumental in making all the important decisions for the business
and the majority of the top hierarchy are the family members. It is handed over from one
generation to another, however, the role of the family may change over a period of time.
Longevity and Long-term Health of Family Business
Business Longevity
Hamza, Galadinchi and Abu (2018), defined business longevity as the sustained existence
of companies even after the death of the founder. They further explained that business
firm longevity is the continuity of the firm beyond the career span of its founders. This,
therefore, means that the longevity of a business firm is one of the areas that classified
the sustainability of an enterprise. So, for any business to sustain itself, it must be
continuous, stable and durable.
Bert, Meuleman, Debrunye and Wright (2016), identified five factors that contribute to
business longevity to include; innovative capability, organizational system, resources, the
culture of the organization and strategy. The innovative capability of the organization
results in inventing a new and better method to survive the climate that is frequently
changing. To attain longevity, creativeness, flexibility, innovativeness are very important
in achieving survival (Teece, 2010). The organizational system consists of a
communication system, a quality management system, and production system.
Organizational culture is the usual practices and routines in the organization which define
their culture. The Strategy links to plan in order to gain a competitive advantage over
competing businesses which results in organizational excellence that is vital for business
longevity. Finally, resource allocation comprises of money and human resources to
strategic plans in the business. It helps to improve the sustainability of various projects.
Long-term Health of Family Business
Many family firms manage for the long-run and have a long-term orientation (LTO) for
their business. Long-term orientation is defined as the tendency of a firm to prioritize
important parts of their business that arise only after an extended period of time
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(Lumpkin & Brigham, 2011). LTO is apparent in firms with a clear organizational
mindset and can be observed in the firm’s strategic decision-making. Long-term
orientation comprises three dimensions – futurity, continuity and perseverance (Lumpkin
& Brigham, 2011). Futurity involves evaluating the long-term consequences of decisions
and actions with the belief that planning and forecasting for the future are valuable to the
firms. Continuity – refers to the importance of decisions and actions that are long
lasting. It is a key component of long-term orientation because it emphasizes the
constancy needed to pursue an ending mission and the value of preserving a reputation
for the longevity of a business. Perseverance – Concerns the belief that efforts made
today will be valuable in the future because of their importance in generating long-term
rewards. (Brigham, Lumpkin, Payne & Zachary, 2014).
Brigham, et.al (2014), also argued that family firms because of their desires to pass on a
healthy business to later generations, tend to have a long-term orientation. That is, they
work to ensure ending robustness of the enterprise and build a relationship with
stakeholders that help to create a positive future for the firm. One of the characteristics of
the family business is the inseparability of the family and business objectives. These
characteristics enable the family business owners to adopt a long-term perspective to
enhance the firm’s performance.
Theoretical Framework
This study is anchored on Agency theory postulated by Jensen and Mackling (1976). The
theory focused on the governance structure of family businesses. Agency theory is
applied to understand the relationship that exists between the Principal (owner) and
Agent (manager). The agent represents the principal in a particular business transaction
and is expected to represent the best interests of the principal without regard to self-
interest. The theory suggests that given the chance, agents will behave in a self-interested
manner, a behaviour that may conflict with the principal’s interest. As such, principals
will enact structural mechanisms that monitor the agent in order to curb the opportunistic
behavior and better align the parties’ interests.
The separation of ownership and management results in potential agency costs. Agency
costs arise as the principal would tend to monitor and control the behavior of the agents.
The capacity for managers to act according to their self-interest is because they are able
to influence strategic and investment decisions as they have more information available
and are better aware of the context of the company.
Duller (2013), Poza and Daugherty (2016) state that all corporate governance instruments
serve to decrease agency costs by harmonizing the interests of the principal and agent
through an appropriate incentive structure. The relevance of this theory in this work is
through the adoption and establishment of appropriate governance structure, the
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divergent interests of the shareholders, board of directors and the managers will be
properly aligned for the achievement of short-term goal of the managers and long-term
performance of the family business.
Empirical Review
Several researchers and practitioners have explored the relationship between governance
structure and sustainability of family businesses. This has generated both positive and
negative arguments in the literature. Some of these studies conducted from different parts
of the world including Nigeria are reviewed below.
Ruramayi (2018), examined the effect of governance structure on the sustainability of
family-owned businesses drawn from the manufacturing and professional services’ sector
in Botswana and Local Enterprises Authority. A sample of 144 family-owned businesses
was used adopting a cross-sectional survey in the collection of data. Data were analyzed
using correlation and regression analysis, utilizing Pearson correlation test and Levine’s
independent sample test to measure the relationship between independent and dependent
variables. The research findings support the notion that the presence of governance
structure and decision-making strategy has a positive effect on the sustainability of family
businesses.
Nkem, Sena and Ndamsa (2017), examined the Factors affecting the sustainably of
family businesses in small and medium Enterprises in Cameroon. A survey-based
approach was used through the purposing sampling technique where some thirty (30)
family businesses were studied using questionnaires and interviews. Both quantitative
and qualitative research methods were used and the data were analyzed with the aid of
SPSS 17 software programs. Descriptive statistics were used to summarize the sampled
opinions of the respondents. The result shows that most of the family business initiators
do not consider the sustainability of the business before they die and do not prepare for
succession.
Raphael and Belen (2013), investigated Primer governance of the family business in New
York. The study described the different family foundation structures, the potential
advantages of hiring a non-family administration and the need for family foundations to
choose between diversification performances and concentration in their grant-making
strategy. The study explores in detail the relationship between family enterprise
governance and economics. The use of a wedge between voting rights and cash flow
rights adversely affects the prosperity of longevity of the family business.
Visser and Chiloane-Tsoka (2014), carried an exploratory study into the family business
in South Africa. The aim of the study is to explore family business enterprises in South
Africa. The method used for the study is classified as content analysis. Secondary data
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were sourced through textbooks, journals reports, electronic media and other publications
while primary data were derived through units of observations from experts in the
entrepreneurial and business disciplines. The findings reveal that family businesses are
faced with challenges such as market conditions, government policy regulations and
infrastructure. Other challenging areas include management and governance structures,
succession planning, cash flow and cost control, family business relationship and skilled
labour.
Oduah, Jabeen and Dixon, (2018), investigated determinants linked to family business
sustainability in the United Arab Emirates (UAE). The purpose of the research is to
identify and prioritize the various success factors linked to the sustainability of large and
medium-sized family businesses. Data were collected using an interview-based survey
conducted on twelve medium and large-sized family businesses in the UAE. The data
collected were interpreted and a priority vector was assigned. The findings revealed that
large family businesses are aware of transition failure and have long-term planning for
their future generations in place. On the other hand, medium-sized family businesses are
less aware of transition failure and have limited long-term planning, they are more
concerned with short-term returns. However, they need to give more importance to
family values and family capital.
Nicolas, Dominique and Paulette (2012), investigated family business and longevity of
second, third, or even fourth generation in French Family Businesses and how they
conducted sustainable development policies. An interview method was used to interview
17 different family business owners and members of six French family Business on the
longevity of their company. The findings indicate that three factors identified by the
family members are associated with the longevity of their company. The three factors
were valid in all six companies, alongside specific factors. These common factors among
them are that longevity of the family business is associated with two distinct processes
which contribute to two abilities: The ability to manage governance of the relationship
between family members and family business and the ability to manage conflicts and
contradictions between these two spheres.
Nick, Mike and Louise, (2013), explored Family business survival and the role of Board
compositions in the UK. They utilized a unique data set of over 700,000 private family
and non-family firms in the UK. The findings revealed that family firms are significantly
less likely to fail than non-family firms. The study identified the Board characteristics
associated with survival/failure in all firms and determine that it is these characteristics
that are important in explaining the lower failure problem of family businesses.
Hamza, Galadanchi and Abu-Baka (2018), assessed the factor that supports the longevity
of business enterprises in Malaysia. The High rate of mortality of business enterprises
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196
has been a frequent development following major economic events. Many companies
since then are currently planning, and strategizing towards survival and finally to survive
for at least a century and remain in business. The research adopted a model in the
literature review on business sustainability and longevity. The result indicates that many
factors are connected with the longevity of business enterprises but among the most
important factors are innovative capability, organizational system, resources,
organizational culture and strategy associated with the longevity of business enterprises
around the world.
METHODOLOGY
Research Design
The study adopted descriptive survey research because of the way the study is structured
and how data was elicited for the study. In this case, registered Small and Medium Scale
Enterprises (SMEs) located in three Industrial zones of Anambra State namely, Awka,
Nnewi and Onitsha were selected and were considered to be an adequate representation
of the population.
The population of the study is made up of nine hundred and fifty-seven (957) proprietors
of different categories of business registered under small and medium scale enterprises in
Anambra state. From the Directory of Industry domiciled in the Ministry of Commerce
and Industry, State Secretariat Complex Awka, Anambra State, where the categories of
businesses were identified. The zonal breakdown is as follows: from Awka and the
environs; 251 were identified, Nnewi 401 and Onitsha and its environ 305. Taro Yamena
statistical formula for determining the samples size of a finite population was used to
determine the sample size at 278, while Bowley’s proportion formula; Nh = n(nh)N. Nh
= Units to be distributed to each group, nh = Number of respondents in each group, n =
total sample size were used for a number of units to be distributed to each group; were
and N = Total population. Applying the above formula; sample size multiply by the
Number of respondents in each group divided by the Total population; the distribution for
Awka 73, Nnewi 116 and Onitsha 89. Total 278.
The study utilized data from primary source which is a questionnaire. The sampling
technique used in selecting the units of observation is the systematic sampling method.
This attribute enables the technique to spread the sample evenly across the population of
interest. An item structured instrument designed to reflect the modified five (5) points
Likert scale of Very great extent, Great extent, Moderate extent, Minor extent and No
extent, were used to elicit information from the respondents.
The instrument used for data collection was validated using face and content measures.
The reliability of the instrument was ascertained using Cronbach Alpha Reliability. The
reliability coefficients for the two research questions were 0.82 and 0.83 respectively thus
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT RESEARCH
197
showing an average coefficient of 0.83 meaning that, the instrument is 83 percent
consistent and reliable. A total of 278 copies of the questionnaire were distributed,
returned in good-faith and analyzed. The summary statistics of percentages and Pearson
Product Moment Correlation Co-efficient was employed in data analysis using 5% level
of significance to test the hypotheses of the study.
Presentation of Result
Analysis of Personal data
Table 1: Demographic Respondents on Gender
Frequency Percent Valid
Percent
Cumulative
Percent
Valid
Male 201 72.3 72.3 72.3
Female 77 27.7 27.7 100.0
Total 278 100.0 100.0
Source: Research computation using SPSS 23
Table 1 shows that there are more males in family businesses in Anambra State than there
are females with about 72% being males while 27.7% represent the female folk in small
scale enterprises.
Table 2: Ages of Respondents
Frequency Percent Valid
Percent
Cumulative
Percent
Valid
Less Than 30 29 10.4 10.4 10.4
31-40 51 18.3 18.3 28.8
41-50 99 35.6 35.6 64.4
51-60 77 27.7 27.7 92.1
61 and above 22 7.9 7.9 100.0
Total 278 100.0 100.0
Source: Research computation using SPSS 23
Table 2 shows the different ages of respondents from less than 30 years at 10.4% totaling
29 respondents, 31 to 40 years showed 35.6% representing 99 respondents, 77
respondents which shows 27.7% falls into the 51-60 years’ correspondents, while 61
years and above showed 7.9% representing 22 respondents of the total population under
study.
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Table 3: Educational Qualification of correspondents
Frequenc
y
Percent Valid
Percent
Cumulative
Percent
Valid
FSLC 5 1.8 1.8 1.8
W.A.E.C/G.C.E 95 34.2 34.2 36.0
HND/B.Sc. 110 39.6 39.6 75.5
Masters Degree 47 16.9 16.9 92.4
Doctorate Degree 3 1.1 1.1 93.5
Professional
Certificate 18 6.5 6.5 100.0
Total 278 100.0 100.0
Source: Research computation using SPSS 23
Table 3 shows that 1.8% of the respondents have First School Leaving Certificate,
34.2% have School Certificate, 39.6% have HND/B.Sc., 16.9% have Master’s Degree,
and 1.1% have Doctorate Degree while 6.5% have Professional Certificate, thus showing
that the sample consists of fairly literate people.
Table 4: Types of Business of Respondents
Frequen
cy
Percent Valid
Percent
Cumulative
Percent
Valid
Trading 127 45.7 45.7 45.7
Manufacturing 63 22.7 22.7 68.3
Agriculture 59 21.2 21.2 89.6
Others 29 10.4 10.4 100.0
Total 278 100.0 100.0
Source: Research computation using SPSS 23
Table 4 shows that 45.7% of family businesses in Anambra State are into trading, 22.7%
are in manufacturing, 21.2% are in Agriculture while 10.4% engage in other family
businesses. This shows that the majority of the family businesses are dominated by
trading than manufacturing and transportation businesses.
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Table 5: Mode of Management of Respondents
Frequency Percent Valid
Percent
Cumulative
Percent
Valid
Owner
Manager 217 78.1 78.1 78.1
Paid Manager 61 21.9 21.9 100.0
Total 278 100.0 100.0
Source: Research computation using SPSS 23
Table 5 shows that 78.1% of the Family businesses are managed by Owner managers,
while 21.9% of the family businesses are managed by paid managers, which shows that
family businesses are mainly managed by owners.
Objective One: Effect of Board Composition on Longevity of the family business.
Table 6: Responses on Board Composition on Longevity of family business.
S/N Items of the Questionnaire VGE GE ME LE VLE Total Mean
1 We engage paid experts in our
Board who are not family
members. This helps our firm to
grow.
95 121 42 11 9 278 2.004
2 To some extent Board members
are chosen based on ability and an
experience, this helps to overcome
problems and grow our firm.
109 111 39 10 9 278 1.986
3 Our Board has more non-family
members to an extent than family
members. This helps balances our
decision and reduce sentiment.
114 120 30 10 4 278 1.917
4 Family members in Management
to a extent are made to be
accountable but they are paid
well. This made them to be
committed.
97 110 40 20 11 278 1.982
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5 Fairness, equal treatment, justice
to an extent guide the way family
and non-family members are
treated to avoid conflict of
interest.
108 119 31 10 10 278 2.144
Total 523 581 182 61 43 1390
Source: Field Survey, 2019.
Table 6, question one (1) reveals that the majority of the responses state very great extent,
great extent and moderate extent at 95, 121 and 42 respectively, which constitute 93% of
the entire population. While the remaining responses indicate the low extent and very low
extent at 11 and 9 both totaling 14.7%. The second question also showed 109, 111 and
39, which constitute over 93% of the entire population showed that engaging experts who
are non-family members and pay them for participating have a linkage effect on the
family business. While the remaining less than 15% responses were 23 and 17
respectively. The response on how the involvement of shareholders in the day-to-day
running of the firm reveal that 114, 120 and 30 were on the positive side with 94% of the
entire population. While the remaining less than 5% respondents said the low extent and
the very low extent to the tune of 10 and 4 respondents.
The fourth question also revealed that 97, 110 and 40 respondents which constitute 88%
of the entire population were positive, while 16 and 10 respondents respectively said the
low extent and very low extent representing 16% of the entire population. Finally, the
fifth question reveals 108, 119 and 31 to very great extent, great and moderate
respectively. The response constitutes 92% of the entire population. The remaining less
than 7% responses said the low extent and very low extent at 10 and 10 respectively.
Objective Two: Extent of Relationship between Ownership Structure on the long-term
health of family business.
Table 7: Responses on the extent of relationship between Ownership Structure and
long-term health of family business.
S/N Items of the Questionnaire VGE GE ME NE VLE Total Mean
1 Our family business is successful to
some extent for a long time because
we retain profit in the business to
grow our capital and ensure
stakeholders share fully in decisions
and benefits.
89 103 45 21 20 278 2.209
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2 Our business to some extent
operates with adequate accounting
records, our reports are based on
verifiable records regularly and
audited.
91 115 32 23 17 278 2.137
3 To some extent, Our firm insists
that all stakeholders share fully in
decision-making and benefits.
102 119 35 12 10 278 1.953
4 Power is equitably shared to some
extent among serving family
members and other shareholders.
105 117 30 16 10 278 1.953
5 Shares are transferable to some
extent within the family and all
shareholders have an equal chance
to hold any office based on merit.
This increases commitment.
98 121 29 20 10 278 1.953
Total 485 575 171 92 67 1390
Note: (VGE = Very great extent; GE= Great extent; ME = Moderate extent; LE = little
extent and VLE = Very little extent) Source: Field Survey, 2019
Table 7, question one (1) reveals that the majority of the responses state very great extent,
great extent and moderate extent at 89, 103 and 45 respectively which constitute 85% of
the entire population. While the remaining respondents indicate the low extent and very
low extent at 21 and 20 both totalling 14.7%. The second question with 91, 115 and 32,
constitute over 85.6% of the entire population were on the positive side indicate very
great extent, great extent and moderate extent which constitute over 85.6% of the entire
population. While the remaining less than 15% responds to less extent and very less
extent which is 23 and 17 respectively.
The response on how stakeholders share fully in decision and benefits reveal that 102,
119 and 35 said very great extent, great extent and moderate extent respectively which
constitute 92.1%. While the remaining less than 8% of respondents said the low extent
and the very low extent to the tune of 12 and 10 correspondents.
The fourth questions also revealed that 105, 117 and 30 respondents said very great
extent, great extent and moderate extent respectively, while less than 10% of the
respondents said the low extent and the very low extent to the tune of 16 and 10
respectively. Finally, the fifth question also reveals 98, 121 and 29 for very great extent,
great extent and moderate extent respectively. The response constitutes 89.2% of the
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202
entire population. The remaining less than 11% of respondents said the low extent and
very low extent at 20 and 10 respectively.
Test of Hypotheses
Hypothesis 1
Ho1: Board Composition does not have any positive relationship with the Longevity of
family businesses.
H1: Board Composition has a positive relationship with the Longevity of family
businesses.
Pearson’s Correlation coefficient for Board Composition and Longevity of Family
business
Table 9: Correlations
Board
Composition
Longevity of family
Business
Board Composition
Pearson Correlation 1 .993**
Sig. (2-tailed) .000
N 278 278
Longevity of Family
Business
Pearson Correlation .993**
1
Sig. (2-tailed) .000
N 278 278
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Research computation using SPSS 23
The result from the Pearson Product Moment Correlation Coefficient as shown in table 9
revealed the relationship between Board Composition and Longevity of family business
at 0.993 with a significance value of 0.000 which is less than the 0.05 level of
significance. The result indicated that a positive relationship exists between variables
considered and that the relationship is statistically significant as shown by the p-value
which is lesser than the 5% level of significance. The result thus signifies that Board
Compositions have a significant relationship with the longevity of family business.
Hence, the study rejects the null hypothesis that states that Board Composition does not
have any positive effect on the Longevity of family business and accepts the alternative
hypothesis which states that Board Composition has a positive effect on the longevity of
family businesses.
Hypothesis 11
Ho2: Ownership structure does not have any positive relationship with the long-term
health of family businesses.
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H2: Ownership structure has a positive relationship with the long-term health of
family businesses.
Pearson’s Correlation coefficient for Ownership and Long-term health of Family business
Table 10: Correlations
Ownership
Structure
Long-tern Health of Family
Business
Ownership Structure
Pearson Correlation 1 .982**
Sig. (2-tailed) .000
N 278 278
Long-term health of
family Business
Pearson Correlation .982**
1
Sig. (2-tailed) .000
N 278 278
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Research computation using SPSS 23
The result from the Pearson Product Moment Correlation Coefficient as shown in table
10 revealed the relationship between Ownership Structure and Sustainability of family
business at 0.982 with a significance value of 0.000 which is less than the 0.05 level of
significance. The result indicated that a positive relationship exists between the key
variables considered and that the relationship is statistically significant as shown by the
p-value which is lesser than 5% level of significance. The result thus showed that
ownership structure has a significant relationship with the sustainability of family
business in Anambra state of Nigeria. Hence, the study rejects the null hypothesis that
states that Ownership structure does not have any positive and significant relationship
with the sustainability of family businesses and accepts the alternative hypothesis which
states that Ownership structure has a positive and significant relationship with the
sustainability of family businesses.
Discussion of Findings
Hypothesis one of the study evaluates the relationship between the composition of board
members and longevity of family business. The analysis revealed that there is a
significant positive relationship between Board Composition and Longevity of family
business. This signifies that the adoption of appropriate and effective Board
Compositions will enhance the longevity of family business. The implication is that the
success/failure of family business to a reasonable extent depends on the Composition of
Board members. The size, composition, characteristics, tenure and experiences of the
Board members influence the family business longevity positively or negatively in their
business operations. This agrees with the views of Nick, Mike and Louise, (2013, who
identified the board characteristic associated with survival/failure in all firms and
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT RESEARCH
204
determine that it is these characteristics that are important in explaining the success
/failure of family businesses.
The result of hypothesis two, ownership structure and long-term health of family business
also reveals that many of such family businesses are owner-manager thereby giving little
or no chance for outside involvement which may jeopardize the chances of success of the
business. This is in line with the view of Anderson (2018), who posits that most of the
owners of family businesses rely on their personal knowledge and experiences in running
the family business and investment decisions are carried out without recourse to
professionals in those fields.
Failure to engage professionally experienced hands in resolving intricate business
problems in a turbulent business environment is suicidal to family firms. This ‘Know it
all attitude of the owner-manager of family businesses is inimical to the organization's
long-term health.
Conclusions and recommendations
The study concludes that family businesses do not collapse but strive for the long-
term health and sustainability of their firms pay close attention to corporate governance
best practices appropriate to the family businesses.
This study recommends the following:
1) Family businesses should adopt active catalyst board and professional management
teams with the capacity to develop strategic plans, strategically position the business
and balance the interest of the stakeholders and devoted to the sustainability of their
businesses.
2) Family businesses should provide for the involvement of family members,
professionals shareholders, outsider experts, especially, those who have the required
skills and experiences to manage the operations of the business for the sustainability
of their business
3) Family business owners should adopt an ownership structure that will sustain the
interest and commitment of the family members.
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