The Impact of Planning on Good Governance Practices in South African Greek Family Businesses

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ABSTRACT

The importance of family businesses in South Africa in general, as well as the considerable influence of Greek family control in the South African economy is often underestimated. Against the background of continued calls for improved corporate governance in South Africa this study investigates the relationship between planning and good governance in family-businesses. More specifically the study identifies the factors that influence good governance in Greek family businesses in South Africa. The empirical results suggest that strategic planning and the use of outside advice are particularly influential in ensuring good corporate governance in Greek family businesses in South Africa.

INTRODUCTION

Never in the history of South African has the entrepreneurial spirit been more alive. Since the opening of the international doors South Africa has experienced strong economic and entrepreneurial growth internally as well as explosive growth of trans-national entrepreneurship. Much of this entrepreneurial growth has been driven by growth in the family business component of the South African economy (Venter, 2002; Maas, 1999a).

In this respect, some authors suggest that up to 80% of South African businesses and up to 60% of companies listed on the JSE securities Exchange are family businesses (Ackerman, 2001: 325; Dickinson, 2000: 3; Meyer, 1994:1). Internationally, the most conservative estimates put the proportion of all worldwide business enterprises owned or managed by families at between 65% and 90% (Zimmerer and Scaborough 2002: 19; Sharma, Chrisman andChua,2000: 233; Van der Merwe, 1999).

An important factor that underlines the importance of family businesses is their exceptional ability to generate wealth. Joint research between the United States, Britain and South Africa has revealed that successful family businesses generated jobs and wealth on a much larger scale than any other type of business (Hugo, 1996: 7). For instance, family businesses listed in the industrial sector of the JSE Securities Exchange during the period 1987-1992 recorded a rate of return of 36%, compared to the rate of return of 27% recorded by non-family businesses (Venter, 2002: 33). Expressed differently, family businesses create as much as 30 cents more for every Rand than that generated by non-family-owned businesses (Venter, 2002: 33; Maas, 1999a;b; John, 1994:26).

Given the dominance of family businesses in so many national economies all over the world, their poor survival rate is a continuing source of concern (Sharma, 1997). As little as three out of ten family businesses survive into the second generation (Beckhard and Dyer, 1983), and less than 15% survive into the third generation (Morris, Williams, Alien and Avila, 1997). A major factor in the poor survival rate of family businesses is poor governance (Neuebauer and Lank, 1998; Ward, 1995).

The insistence of many stakeholders in the South African economy for good governance has led to the "King Reports" (King, 2002, 2001), the prominence of which has placed governance issues firmly in the public domain (Vaida, 2005). Of more importance is the fact that several authors have suggested (Neuebauer and Lank, 1998; Ward, 1995) and empirically proven (Neuebauer and Lank, 1998) a direct link between the prosperity and survival of all business entities over the long term and good governance. As recently as 2004, the R6.3 billion loss recorded by Spoornet has been attributed to poor corporate governance (Transnet to face as finance chief quits, Business Day, 2004).

Within the small business sector in general and the family business sector in particular, the link between longevity and good governance is complicated by two additional factors. The first is the failure to realise that the specific operating characteristics of a family business can be a source of persistent business problems, missed opportunities, and unnecessary risks, that could and should be avoided. …

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