Crash test for family businesses in Tunisia

Global experience clearly demonstrates that the heritage built by the founders declines or even disappears in the case of family business groups, which are currently being run under the leadership of the third generation of the founder’s family.

However, on the contrary, in the case of business tycoon Haj Youssef Bayahi, who passed away in October 2007, the scenario was different. As he managed to see his three heirs – Yahia Bayahi, Tahar Bayahi and Taieb Bayahi – taking up the family group, which he had started, to the next rewarding level. However, a few months before the death of the founder, his successors had concluded, in partnership with the Poulina group, the purchase of the state’s shares in the Magasin Général, the leader in mass distribution in Tunisia.

Therefore, Bayahi will probably not posthumously disappointed by his progeny because, in the past ten years, they have managed to make their family group one of the most dynamic entities in the country.

The Bayahis are therefore happy people. Not only because the family business continued to grow, unlike other groups, since receiving the baton from their father, but because the heirs had the wisdom to start preparing to hand the reins over to the third generation at an early stage. “Even though we are not 90, or even 70,” jokes Taieb Bayahi, the youngest of the three brothers.

Nevertheless, wise and informed and scalded by the resounding failures experienced by other entrepreneurial families while handing over, the Bayahis preferred to start their passage from the second to the third generation very early.

However, this, unfortunately, is not the case for many businesses and family groups. Determined to avoid repeated failures in this essential element of the Tunisian entrepreneurial fabric, the Arab Institute of Business Leaders (IACE) decided to take up this thorny issue – which has serious consequences for the Tunisian economy – and to dedicate to it the fifth edition of its Governance Forum that was held last month.

“For us in Tunisia, the transmission of family businesses is a topical question and its intensity grows over generations,” says Youssef Kortobi, president of the Tunisian Center for Corporate Governance (CTGE), reporting to the Arab Institute of Business Leaders.

Rejuvenation and reinvention

“A business is something that is born, grows up and then dies, unless everyone sufficiently anticipates its rejuvenation and reinvention well in time,” says Philippe Haspeslagh, President of Family Business Network, Belgium. This very delicate moment can be likened to the crash-test to which automobiles are subjected before being certified.

Haspeslagh, himself an heir and a major shareholder in a family business, complains: “Often, it is too late. Even though studies have shown a negative correlation between the age of the leader and the performance of the company. A company is born under the first generation, grows under the second and is threatened under the third. And if there is discord, things can fall apart rapidly.”

A majority of the family businesses in Tunisia emerged after independence and especially during the 1970s. These Tunisian companies are now between the second and the third generation, says Ahmed Bouzguenda, president of a managerial think tank. Therefore, they are at a stage in their lifecycles where the risk of disappearing is the highest. This is despite the fact that even if a company is part of a big group, it can shelter it to a small extent.

“In economies such as Tunisia, the success of family groups is possible because they can attract talent, obtain the best financing and manage political relations far better than a single company, a single master and also because the internal market is often protected,” said Haspeslagh. But, he adds: “Tunisian groups themselves will have to reinvent.”

Reinventing, a far cry

The vast majority of businesses and family groups are unfortunately far from reinventing themselves. This is what emerged from the study conducted by IACE and BDO (an international network of auditing and consulting firms) and presented by Majdi Hassen, director of a managerial think tank, and Mohamed Derbel, a partner in an accounting firm. “Businesses and family groups are, in fact, not at all or ill-prepared to face this crucial moment of their life: that is, the transmission.”

And this is for a variety of reasons. First of all, the 31 leaders, including 13 business leaders and family groups, interviewed acknowledged that ‘transmission’ is a sensitive subject that we do not speak about at all or if we do, it’s with difficulty. Secondly, once this obstacle has been overcome, it turns out that ‘major stumbling blocks’ (difficulty in choosing between family candidates, absence of a motivated successor, conflicts in management etc.) hinder the transmission.

Thirdly, 72 percent of companies are insufficiently prepared for this operation because they have no plan (39 percent) or only an informal one (33 percent). Fourthly, even when brothers and sisters begin to discuss this thorny issue, only 56 percent share the same vision of how the transmission should proceed.

The Bayahis have already gone a long way in this process. Having decided to ‘pass on the entire group to the third generation’, the seniors decided very early about assigning intermediate positions to the members of the first batch of the third generation – responsible for human resources, production or development of a company – as apprenticeships.

Notably, these juniors also sit on the Strategic Monitoring Committees of each of the group’s companies, in which they have an equal right to ask the management any question and thereby keep themselves informed.

Dialogue with the junior

At the same time, the elders have started a substantive dialogue with the juniors. “We wanted to start off on the right note and not make mistakes,” says Taieb Bayahi. From the first meeting, the third
generation representatives had to answer an extremely difficult question: Why do you want to be together? Even though, worst comes to worst, you have the means, each one of you, to take a small part of the group and leave.

To these questions, the young people unanimously replied that they wanted to stay together because together they could achieve many more important things, much faster, than separately.

The Bayahi family goes even further in preparing for the transmission, as the youngest members, now at the university, receive copies of the minutes of the company meetings to keep them abreast of the group’s developments and affairs.

To stack all odds in their favor in this delicate phase, the Bayahi group has, in addition to taking help from a coach, benefited from the experience of a foreign partner, very experienced in the process of transmission: the Auchan group, part of the supermarket chain Magasin Général. However, other families were caught off guard by the problem of transmission, sometimes because the founder of the family group died before settling his succession.

Two groups in particular had to face this challenge, with different outcomes: Mheni and Belkhiria groups. After the death of construction mogul Ali Mheni in 1991, his heirs fought for almost 18 years in the courts over their inheritance.

As the concerned parties could not bring themselves to any consensus, it was the court that was responsible for distributing among them the companies and the inheritance amassed by their father.

As a result, the large group gradually faded into oblivion as it splintered into several pieces.

Succession woes

Bechir Salem Belkhiria did not settle his succession when he died in November 1985, at the relatively young age of 55 years. His heirs also clashed for nearly a decade, not for the sharing of the inheritance, but for ‘who is the most able to lead’, recalls Moez Belkhiria, the current president and CEO.

“The founder died suddenly and since we were too young, the management of the company was handed over for ten years to the oldest,” says the head of Belkhiria Group, “who finds a positive aspect to this method – maintaining the unity of the family – and a negative – disagreements among shareholders about the leader’s ability.”

Since then, the heirs have understood that continuing their disagreements could be detrimental to the family business and that, to avoid this, it was necessary that the choice of the leader should be made on one sole criterion: ‘competence’. Once this question was settled, the heirs decided that an IPO would be the best way to achieve the desired solution and to ensure the longevity of the family group.

For Bouzguenda, the regulation of the transfer of businesses and family groups ‘goes beyond the choice of a successor’. It involves providing clear answers to crucial questions like: what do we want to transmit – only the property or management as well? When – during the lifetime of the founder or after his death? What will happen to the founder once the transmission is complete? And, most importantly, what is the employment policy regarding family members in the family business – can the heirs work in the family business or not? Whatever be the choice, “there are rules to put in place”, warns the top official of the IACE.

“If the heirs work in the family business, these rules aim to prevent other managers from being feeling demotivated. In case the family takes the opposite option, the difficulty lies in finding an approach allowing them to be close to the business without getting into the day-to-day management.”

Ongoing transmission

But the problem in Tunisia, says Fadhel Abdelkefi, a Tunisian financier and politician, is: “Substantially, the transmission between the first and the second generation was not done in good conditions. And even the businesses who went public did so without being convinced of the mechanisms of the public offering.”

For Abdelkefi, longtime director general of Tunisie Valeurs, which he has just rejoined as chairman of the board, after making a detour of 12 months to the government, as the Minister of Development, Investment and International Cooperation and Acting Finance, the ‘strongest proof’ of this is that, during an IPO, “we float up to 20 percent  [the number of shares that can be traded on the stock exchange] and we end up a few years later with only five percent. Because the family buys the titles afterwards”.

The obligation to organize intergenerational transmission that businesses and family groups necessarily have makes them vulnerable to a serious danger. It is for this reason that the Arab Institute of Business Leaders has decided to help them overcome these difficulties by continuing to work on this issue over the next three years.