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The case for family businesses

Most foreigners who have an interest in South Africa or know something about it know that the country has a quality financial services sector (including banks). What they may not know is something about the role in the development of the economy of entrepreneurs, of family businesses and of the retailing sector.

South African retailers as businesses are in a class of their own in Africa. That is why once it became possible with the ending of apartheid they have expanded all over Africa on a significant and successful scale. However, their internal competition in South Africa itself is intense. I am referring mainly to the likes of Woolworths, Shoprite Checkers, Pick n Pay and Pepkor, etc. And it could not be more so just at the moment with their being a strong consumer awareness of cost as a result of a large unemployed population, an emerging middle class, inflation, and a simple awareness on the part of consumers that they each offer quality in certain areas. Wal-Mart’s entry to the market, in association with South African Massmart, clearly intensifies the competition. Moreover the businesses themselves are aspiring to dominate the same market. Woolworths, for example, which was more up-market, is aiming to capture some of the lower income customers and Shoprite Checkers is set to expand its market share of the top income segment. What makes for a very interesting situation is that they are all listed public companies and their performances in terms of market share and profit are highly measurable.

Just recently, who is doing well and why has been the subject of much debate. Pick n Pay has not had a good year and as a consequence has taken a beating from analysts, with suggestions that its indifferent performance is partly the result of its ownership structure. It is a business created by a very remarkable man, Raymond Ackerman, whose wife Wendy and family are all involved in the business.

Partly to respond to this criticism, and because he is a man of ideas, Gareth Ackerman the eldest son and now chairman of the company last week contributed an article to Business Day on the concept of the family business. It is entitled “SA needs more businesses run by families, not fewer”. As I know the Ackermans, and respect them deeply, and also have great sympathy for family businesses – particularly of the SME-type – I’d like to comment.

Gareth’s main response is to the argument that Pick n Pay has not “changed because we are a family business and this is the reason we have been overtaken”. On the contrary, he claims that the company has adjusted to the times. But what is important is that, not-withstanding that it is today a very large business with 700 stores throughout South Africa and 8 southern African countries employing almost 50,000 people, it has not lost its culture in the process – a culture which Raymond Ackerman brought to Pick n Pay in the belief that family control was the surest way in which it could ensure the maintenance of the values and principles that have informed the business since 1967. Gareth goes on to argue that most of the world’s businesses are family-owned. “Family control allows companies the space for innovation, risk-taking and entrepreneurship, which is not always available to institutional investors driven by the need for immediate returns”, he writes. Moreover, it is a source of great pride to him that the Ackerman family remains “invested in Pick n Pay”.

What he says is borne out by the IFC. In a major research report, the IFC points out those family-owned companies outperform their non-family counterparts in terms of sales, profits, and other growth measures. And this was found to be the case right across Europe. The IFC concluded that this is a result of the “inherent strengths” that family businesses have compared to their counterparts. Some of these strengths are: commitment – the family, as the business owner, shows the highest dedication in seeing the business grow, be prosperous and get passed on to the next generation. Knowledge continuity – families and business make it a priority to pass their accumulated knowledge, experience, and skills to the next generation. Reliability and pride – because family businesses have their name and reputation associated with the products and/or services, they strive to increase the quality of the output and to maintain a good relationship with their partners (customers, suppliers, employees, community, etc.). Of course, family businesses have their weaknesses but the strengths clearly predominate.

Something often overlooked is what it takes to start-up a family business, with its vision but also its risks, sacrifices, anxieties and grinding hard work. Anton Rupert going from farm to farm in his old Chev car selling shares in his tobacco company to farmers; Raymond Ackerman’s battle to scrape together the down payment for what was to become a major company employing around 50,000 people; or Christo Wiese and Renier van Rooyen dreaming of putting together what became Pepkor. Sol Kerzner and Otto Stehlik’s hotel empires started with a single idea. The point may be illustrated dozens of times over.

There are also other considerations which belong in this debate. Family-owned or run businesses demonstrate a much greater awareness of social and community needs than institutionally-invested businesses. This may be illustrated by how the Oppenheimers, the Hertzoffs, the Albert Wessels of Toyota fame, the Cullinans, the Backs, the Hirschs, the Venters, and numerous smaller companies have and are managed. The cultural and philanthropic contributions of Jewish family-owned businesses within the Jewish community in South Africa is enormous. Research done by Kathleen Desai in a dissertation for the Gordon Institute of Business on the critical successor attributes in Indian family-owned businesses in South Africa tells a similar story. As does a PhD dissertation submitted to Rhodes University by Christian Odendorff who deals with Greek family businesses in South Africa. Harry Oppenheimer’s generation were quick to see the virtues of an idea and to support it, something which carried over to also small businesses in their local contexts. As I know from my business this has drastically declined. But the reasons for this are a separate topic.

The case for family businesses may also be made from a negative point of view. Farming is a business, and has dramatically declined in South Africa precisely because it is no longer seen as a family-run and controlled business. The sons and daughters of farmers don’t want to be farmers – whether this be because of a perceived lack of government support, or vulnerability to crime or land issues, the fact is that the natural succession which used to happen no longer applies – with drastically serious consequences for South Africa’s future food security.

Denis Worrall is the chairman of Omega Investment Research. He can be contacted at: [email protected]


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