governance structure and sustainability of family

INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT RESEARCH

183

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

[email protected],

[email protected],

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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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


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


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


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.


198

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


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


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.


199

Table 5: Mode of Management of Respondents


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


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


200

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


201

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


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


N 278 278

**. Correlation is significant at the 0.01 level (2-tailed).


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.


203

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**


N 278 278

Long-term health of

family Business

Pearson Correlation .982**

1


N 278 278

**. Correlation is significant at the 0.01 level (2-tailed).


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


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.


205

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