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17.05.2016
The Importance of Wealth Management Strategies in Preserving Family Business Wealth in Africa Bimpe Nkontchou
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large part of Africa’s current economic upsurge is driven by family businesses. “If I can strengthen family businesses and increase their resilience, my work becomes part of ensuring that the current investment boom and the worldwide interest in the African continent will be
sustained.” Over half of global GDP is created by family businesses. The Rothschilds and Rockefellers of this world have successfully transferred their wealth across the ages, thanks to carefully devised strategies. In Africa, we have yet to see very few family businesses out there survive more than three generations. A family business is defined as any organisation in which members of a family hold controlling shares and which does not separate ownership from management. Most of Africa’s economies are relatively young and compared to the US or European economies, have seen few family businesses that stretch across centuries. Family businesses in Africa need clear planning and structured thinking in order to preserve their wealth. It is important that investments and assets are held in structures that enable transparent and realistic succession planning. Although Africa has up until recently been a continent associated with only war and poverty, the continent is undergoing a transformation as a fast growing emerging market. A growing number of African entrepreneurs are successfully creating and acquiring wealth through enterprise and hard work. According to a recent New World Wealth report, the number of people in Africa with assets worth US$ 1 million or more has grown by 145 per cent since 2000. An approximate 161,000 High Net Worth Individuals were living in Africa at the end of 2014, with combined wealth holdings of US$ 660 billion. Avoiding the Pitfalls of Wealth Transfer to the Next Generation The creator of wealth, the first-generation entrepreneur often has a hands-on approach and is in full control of the business. A pitfall for a person of such stature may be to communicate insufficiently about the family’s wealth, about how much or how little is earned. If an unaware second generation is not brought up in the same values that created the business in the first place, chances are they will spend more than they create and dilute the wealth. By the time the third generation steps up and if no formal structures have been
put in place, conflict, envy, and a wide range of opinions may scatter the wealth. Succession Planning in a Family Business For many families, succession planning is the proverbial “elephant in the room”. Despite recognising the importance of preparing the next generation to hold the reins of the family business or assets, the leaders of the family (also referred to as ‘patriarchs) often do not give succession planning the attention it deserves. The consequences of not focusing on succession planning, despite its importance, can be profound. This is even more pronounced in a family owned business, as a leadership void (after the passing of the patriarch) can lead to discord and can significantly undermine the growth or performance of the family business. Poorly planned succession is the biggest setback suffered by family owned business. We have seen this to be the case in Nigeria in the past four or five decades; the business conglomerates which had made their mark on the Nigerian business scene in the 70s, 80s and 90s (such as Chief MKO Abiola’s ‘Concord’ group of companies, Ekenedilichukwu transport, Ibru fisheries, Sir Mobolaji Bank-Anthony’s undertakers etc) and which were built from humble beginnings, are now defunct or moribund, through a lack of planning (on various fronts) for handing over the leadership and management to the next generation. For the astute founder/ entrepreneur, the goal should be the introduction of a family governance policy or structure with rules and limits clarified – and sanctions imposed on family members who violate agreements. The entrepreneur and his family need a clear, fixed, purposeful strategy that determines how the legacy is passed on. Who can work in the business or join the management, and why? What are family members’ roles and parameters? “If you are care-less about anything, chances are you lose it.” One of the reasons given, in the Nigerian context, for the failure of the patriarch to prepare an acceptable successor in the event of his or her exit is that to do so would be to acknowledge one’s mortality. Our cultural beliefs and values view the subject of making a Will or planning for what happens to the family assets in one’s ‘absence’ as taboo. Also, another cultural belief is that the first male child is automatically assumed to be the ‘heir apparent’ and the patriarch sees no reason to deliberate on that child’s competence or availability or to even contemplate that perhaps the eldest son may not be the right person to lead the business (and perhaps a younger or female child would do a better job if given the opportunity). Therefore, it is inevitable, if the family business is to survive the patriarch and hopefully fulfil his vision to leave a lasting legacy that the patriarch must act proactively by
crafting a succession plan. Such a plan must have the interest of the family business at heart, as the patriarch must be objective in choosing the best person to succeed him, as it will be to no one’s benefit if he chooses an incompetent family member, who runs the family business down. Since the laws of nature dictate that everyone will eventually die, the patriarch must be encouraged to put a succession plan in place, which could either be by making a Will, or by incorporating a succession plan into a family constitution or governance document, which all family members are obligated to adhere to. Succession Planning for Family Wealth As Africans, especially Nigerians, create increasing amounts of wealth from their business activities on the continent, they recognise their own environment as high risk and the need for wealth management strategies aimed at protecting surplus assets from political risk, inflation and foreign exchange fluctuations. Such strategies may include the need to have investment portfolios in other countries which are regarded as ‘safe havens’, to establish long term savings for that ‘rainy day’ or for retirement. Also, a sound wealth management strategy must include careful structuring of investments and assets (whether at home or abroad), to ensure smooth transfer to the next generation. Where the family assets are in several countries and of different types (e.g. real estate in various countries, stocks & shares, money market instruments, savings, life insurance policies, pension funds and even artwork), it is considered best practice to utilise corporate structures which will survive the death of the patriarch, to effectively transfer ownership to the next generation, whilst potentially allowing professional managers to assist with the growth and preservation of such assets. The use of corporate structures like companies, trusts and foundations registered in tax neutral jurisdictions (commonly referred to as ‘offshore’) has been heavily criticised as bearing the hallmark
of illicit wealth. Whilst this has proven to be true in some cases, from the startling revelations of the names of some world leaders, bank robbers and ‘shady’ business moguls, there are a lot of mass affluent people and respectable professionals, who are modestly wealthy and who have (on the advice of their lawyers, bankers and tax advisors) made legitimate use of offshore companies as part of their succession planning. The impact of the Panama papers on the wealth management and financial services sector, is the subject of a separate article, but suffice to say that the much needed policies of increased transparency and accountability championed by the OECD countries and also by the US (through the rigorous FATCA regime) started to clean up the industry in the past 10 years. Banks and company administrators are compelled to carry out due diligence and ‘know your client’ checks to ascertain the source of a client’s wealth, otherwise there will be hefty fines to pay. Whilst the legitimacy of the offshore structures is not in doubt (in spite of the ‘hue and cry’), there is a moral argument for restricting the use of such structures only to wealthy people who are not intent on using it for either tax evasion or for concealing criminal property. The entrepreneur who has worked hard to build his humble family business into an international conglomerate and who is tax compliant in every way, is entitled to use any legitimate structure to hold his wealth in the interest of sound succession planning and for the sake of being tax efficient where the law permits. Family leaders in Nigeria today, need to address the lack of succession planning and to adapt a family governance structure that would ensure that the next generation share a common vision to build a lasting legacy. Bimpe Nkontchou is Managing Principal at W8 Advisory, a London-based wealth management and succession planning advisory firm that focuses on wealth amongst African families.
Lawyer Seeks Buhari’s Intervention over His Client’s Continuous Harassment by Police Akinwale Akintunde A lawyer, Robert Emukpoeruo, has sought President Muhammadu Buhari's intervention following his client's alleged arrest and detention by the police after he reported a case of N100 million fraud. Emukpoeruo said his client, Mr. Uyiekpen Idugboe, a Director of Stephen Idugboe and Sons Co. Ltd, was arrested, detained and denied access to his lawyer at the police headquarters, Abuja, unless he disclosed the source of his evidence. He alleged that the police had refused to search the house or office of the main suspect in the matter, and had refused to carry on with the
investigation. Idugboe, he claimed, reported the fraud to the Intelligence Response Team (IRT) of the office of the Inspector-General of Police (IGP), Louis Edet House, Abuja. He stated that Idugboe told the police that the company's land measuring approximately 6, 637.073 square meters at Elf Road, Warri, Delta State was sold to a firm for N250,000,000. But that, "with intent to defraud," some Directors of the company falsely represented to other directors of the company that the property was sold for N150,000,000, "less the various agency and concocted fees which was removed from the sale price."
According to his client, the sum of over N100,000,000 was passed through various bank accounts to conceal it from the other Directors and shareholders. He added that the actual purchase price of N250m was concealed in the accounts of an estate surveyor and valuer. An unauthorised fresh Stephen Idugboe & Sons Co. Ltd account was then opened "into which N137,000,000 was paid to give the impression that this was the purchase price of the property." Emukpoeruo said the investigation of his client’s complaint was stopped by the police and he was detained "for over 48 hours" unless he revealed the source of the evidence of the fraud.
HURILAWS SEEKS AMENDMENT TO ELECTORAL ACT CONTINUED FROM PAGE 4 “The Electoral Act should be amended to streamline and strictly regulate the process of nomination of candidates during party primaries, including limiting the quantum of nomination fees payable by prospective candidates. This will reduce the spate of pre-election disputes/litigations, and curtail the undue monetisation of politics in Nigeria. “The Electoral Act and possibly the Constitution
should be amended to incorporate and recognise the use of the card reader during accreditation of voters, and for card reader reports to be recognised as part of admissible evidence in proof of electoral malpractices such as over-voting." Okeke also advised that previous judgments of the Court of Appeal and the Supreme Court on election matters should be made available to election
Tribunals members and Court of Appeal Justices to make for consistency in judicial pronouncements on electoral disputes. He also called on the Independent National Electoral Commission (INEC) to ensure that card readers deployed for elections were pre-tested, for effectiveness and user friendliness, including training its permanent and ad-hoc staff ahead of elections.
The police, he alleged, accused his client of hacking into a bank account to get the evidence of the fraud, even though "there was no statement whatsoever from the bank that it suffered any cyber attack or crime at all." "As the investigation of our client's complain was inexplicably stopped, Chris Okolo contacted the Intelligent Monitoring Unit of the Inspector General of Police in Abuja and lied that our client hacked into his account to get the evidence of the fraud and conspiracy in respect of the N100m." Strangely, the person handling Chris Okolo's petition is one Assistant Commissioner of Police ACP Mr. Ben Nebolisa Okolo of the Inspector General of Police's IMU in Abuja." "Our client, who reported a crime of over N100m, was released on bail of N200m each from two sureties, totalling N400m while the suspects against whom serious allegations of theft of over N100m were made sauntered in and out of the station in a Police Escort Vehicle." Emukpoeruo urged the president "to intervene in this matter to ensure the identification and punishment of the police officer(s) behind the shielding of suspects and the harassment of victims, so as to serve as a deterrent and deepen the fight against corruption."