ADVOCATE COLUMN 4th WEEK MARCH 2014
I was recently asked to submit some comments on how local businesses benefit the communities in which they are located. While this is a conversation in itself it also raised a couple of interesting side issues. The first of which is how is a local business defined. This is a similar dilemma as faced when trying to pigeonhole any commercial enterprise into a specific subset, for example what is a Maori business. In the case of local business I imagine there is quite a range of activities along a continuum from the small corner dairy through to a large multinational corporation that could under some definitions be a local business.
The second point raised was that many of us probably associate local businesses with family businesses. Virtually three quarters of all New Zealand businesses are considered to be family businesses and they employ 80 percent of the workforce. These businesses contribute significantly to the GDP but they are possibly not as productive as the 25% of New Zealand businesses which are non-family but account for 35 percent of GDP.
These businesses will generally have a long-term perspective that is beneficial to the local community and economy but they do have some unique characteristics. For example they have difficulties in creating an enterprise that is sustainable over a very long period of time. Most have an average life cycle of about 25 years. Less than a third pass to a second generation and less than 20 percent going to the third. This means that there can be a loss in potential productivity and employment opportunity that could have been avoided with some succession planning. Often no thought to this planning is undertaken until the business is relatively mature by which time it may actually be too late to implement an effective exit strategy.
Families being families’, disputes will arise often in relation to remuneration, division of labour and performance. This why good governance is essential because it can help with conflict resolution and decision making. The independent nature of directors is useful in resolving issues that could otherwise threaten family unity. More importantly they provide the formal framework to develop and implement a strategy to ensure that the business that the family has worked so hard in for many years can continue to benefit the community and economy in which it is located long after its founders have decided to take advantage of other pursuits that their community has to offer.
