Comparative analysis of the intersection between corporate governance and corporate social responsibility in multi-generational family businesses in Nigeria

• Jurisdiction: South Africa
• Published date: 16 August 2019
• Citation: (2018) 5(1) Journal of Comparative Law in Africa 135
• Pages: 135-185
• Author: Odiaka, N.O.
• Date: 16 August 2019

135

COMPARATIVE ANALYSIS OF THE

INTERSECTION BETWEEN CORPORATE

GOVERNANCE AND CORPORATE SOCIAL

RESPONSIBILITY IN MULTI-GENERATIONAL

FAMILY BUSINESSES IN NIGERIA

Ngozi Oluchukwu Odiaka*

Abstract

Multigenerational family businesses control a significant portion of the African

economy. While these family businesses are common across the continent, only a few

of them enjoy longevity and continuity, a situation traceable to the absence or lack of

strict observance of the principles of corporate governance. This paper examines the

role of corporate governance and corporate social responsibility in family businesses

in Nigeria. Drawing from other jurisdictions like South Africa, it argues that the

failures of most family businesses in Nigeria, particularly after the death of their

owners, is due, mainly, to the inability of stakeholders to manage these businesses in

line with the principles of best corporate practices. It further argues that the prospects

of African family businesses surviving their founders depend on their adoption of

sound managerial and investment practices. Recommendations are subsequently

proffered.

Key words: Family, multi-generational business, corporate, governance

Les entreprises familiales multigénérationnelles contrôlent une partie importante de

l’économie africaine. Bien que ces entreprises familiales soient courantes à travers

le continent, seules quelques-unes d’entre elles jouissent d’une certaine longévité et

continuité, une situation due à l’absence ou au non-respect str ict des principes de la

gouvernance d’entreprise. Cet article examine le rôle de la gouvernance d’entreprise

et de la responsabilité sociale des entreprises dans les entreprises familiales au

Nigeria. S’appuyant sur l’exemple d’autres juridictions comme l’Afrique du Sud,

il soutient que les échecs de la plupart des entreprises familiales au Nigeria, en

particulier après la mort de leurs propriétaires, sont principalement dus à l’incapacité

des parties prenantes à gérer ces entreprises conformément aux bonnes pratiques de

gestion. Il soutient en outre que les capacités des entreprises familiales africaines à

survivre à leurs fondateurs dépendent de leur capacité à adopter des pratiques de

gestion et d’investissement saines. Des recommandations sont ensuite présentées.

* Lecturer, Department of Private and Business Law, College of Law, Afe-Babalola University,

Ado-Ekiti, Ekiti State, Nigeria. Email: ngodiaka@yahoo.com olodiaka@gmail.com. This work was

undertaken while the author was a research fellow in November 2016 at the Centre for Comparative

Law in Africa (CCLA) under the Olu Akinkugbe Business Law in Africa Fellowship administered by

the CCLA, Faculty of Law, University of Cape Town. The author gratefully acknowledges the Olu

Akinkugbe Fellowship and the Centre for Comparative Law in Africa.

(2018) 5(1) Journal of Comparative Law in Africa 135

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136 JOURNAL OF COMPARATIVE LAW IN AFRICA VOL 5, NO 1, 2018

INTRODUCTION

The family business is the most common form of business organisation

in the world and its influence as well as its numbers can be expected to

increase substantially in the near future.1 One of the key foundations

of the global business community which has contributed to the growth

and success of the global economy is the creation and growth of trans-

generational businesses belonging to families.2 While it may be argued

that ‘family business’ resists easy definition as almost all researchers agree

on the necessity of having a clear definition,3 legal, governmental and

fiscal structure of the familial corporate entity are not of a universal

nature. This is supported by the preamble of a 2004 list of world f amily

business profile magazine. It was clearly stated thus:

Compiling such a list is a shift challenge by any measure. Between shifting

disclosure regulations and varying currency exchange rates, pinning down

precise numbers and owners is … challenging. Many Asian and European

companies operate behind intricate holding-company structures that

make ownership and even management difficult to define.4

The notion of family being equated with a family business is a largely

unpredictable concept with divergent definitions across countr ies and

religious affiliations.5 In the ancient development in Europe, the concept

of extended family was similar in terms of social and economic behavior

with jurisdictions like India, Africa, East Asia and the like. This concept

however, has little or no similarities with the nuclear family setting in the

contemporary western jurisdiction. Furthermore, the high rate of divorce

in the west has complicated the possibility of trans-generational transfer

of family businesses.6 Apart from the number of different definitions that

exist, some definition categories are either too restrictive or too inclusive,

whilst others cannot be applied to empirical data.7 It may, however, be safe

to say scholars do not have a unanimous view of what constitutes family

1 G Maas, S Van der Merwe and E Venter, ‘Family Business in South Africa: A Practical

Governance Guide’ (2005) Stellenbosch Content Solution, 52.

2 A Sabar and W Xiaro, ‘Good Corporate Governance Structure: A Must for Family Business’

Open Journal of Business and Management (2015) 40–57; M Nsehe, ‘The 10 Leading Family Businesses

in Africa’ viewed on 15 October 2016, from www.forbes.com/sites/mfonobongnsehe.

3 J Lee, ‘Family Firm Performance: Further Evidence’ Family Business Review (2006) XIX (2),

105.

4 ‘Family Business Magazine Organisation List’ viewed on 18 October 2016 from www.

griequity.com/resources/familybusiness/topglobal/html.

5 A Colli and M Rose, ‘Family Business’ viewed on 18 October 2016 from www.

oxfordhandbooks.com/view/oxfordhb.

6 Ibid.

7 RH Florence, ‘Family Business in the Dutch SME Sector’ (2002) Assen, the Netherlands,

Royal Van Gorcum.

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COMPARATIVE ANALYSIS OF THE INTERSECTION BETWEEN CORPORATE

GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY 137

business, either from a qualitative perspective or historical angle.8 As long

as there is no generally accepted family business definition, it is important

that each researcher clarifies his or her choice of a family business

definition, because the definition chosen influences the interpretation of

results. Family business is conceived as one where the ownership of the

business is within the sole management of the family and where two or

more members of the family determine its direction or its governance

roles and ownership.9

The concept of focused and pooled resources is an integral part of

the African social fabric.10 One of the basic features of a family-owned

business in developing economies, in juxtaposition with its counterpart

in developed countries, is its informal or partially formal or less

institutionalised system. However, unlike in developed economies, besides

the obvious lack of gover nment support which is a common disadvantage

in a developed society, family businesses in developing countries lack the

necessary expertise for their growth and development thereby making

it impossible for them to outlive their founders, since there are no

succession plans.11 Furthermore, this universality as regards succession

in an institutionalised system and the propensity to encourage unstable

systems has made this concept of critical relevance to organisational

theory.12 If the goal is long term continuity, then rather than depend

on existing relationships it is expedient to formalise the basic duties and

interrelationship subsisting in the business.13 The motive of the family

business is to pursue an formal or implicit vision of the business and to

hand it over to the next generation to manage and control it.14 But it

is unfortunate that most indigenous African enterprises very often die

with their founders.15 It is not an African dilemma but rather a universal

challenge, as histor y records several businesses that have failed from poor

8 WC Handler, ‘Methodological Issues and Consideration in Studying Family Business’ Family

Business Review (1989) 257–276; P Westhead and M Cowling, ‘Family Firm Research: The Need for

a Methodological Rethink’ Entrepreneurship theory and practice (1998) 31–56.

9 JA Davies, Presentation at the 9th Annual IFERA World Family Business Conference, Cyprus,

24–27 June 2009.

10 African Philanthropy Forum News Letter June 2016.

11 C Steven-Jennings, ‘Success and Sustainability in African Family Businesses’ viewed on 15

October 2016, from www.howwemadeitinafrica.com/success-and-sustainability-in-africa-family-

business.

12 O Grusky, ‘Corporate Sise, Bureaucratisation and Managerial Succession’ Amer ican Journal of

Sociology (1961) 355–359.

13 F Ajogwu, ‘Corporate Governance in Nigeria Law and Practice’ Centre for Commercial Law

Development, (2007) Lagos.

14 CM Daily and MJ Dollinger, ‘An Empirical Examination of Ownership Structure In Family

and Professionally Managed Firms’ Family Business Review (1992) 5 (2) 117–136.

15 F Maphosa, ‘Leadership Succession: A Recalcitrant Problem in the Indigenisation of Africa

Economies’ African e-journal project (1999) XXVI (II).

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