When you say “Remgro” or “the Rupert family” in South Africa, no further explanation is required. The name carries institutional weight – shorthand for generational wealth, disciplined capital allocation, and a family enterprise that has not merely survived succession but mastered it.
That kind of endurance is rare.
Globally, family-owned businesses generate more than 70% of GDP and account for roughly 60% of employment. In countries such as India, family firms contribute close to 79% of national output. In Spain and Mexico, the figure is near 70%. Italy and the United Kingdom derive about two-thirds of GDP from family enterprises, while even in the United States – home to vast public corporations – family businesses account for more than half of economic output.
South Africa reflects the same structural importance. Family-owned enterprises make up an estimated 70% of local businesses, employ about 60% of the workforce, and contribute between 20% and 30% of GDP. Yet despite their dominance, only about 15% of family businesses globally survive into the fourth generation.
Business Partners Limited, in collaboration with Galileo Advice, convened a session in Cape Town to examine what separates the 15% from the rest.
Theo Vorster (pictured), the chairman and co-founder of Galileo Capital, challenged the notion that family businesses are inherently fragile. Drawing on global research, he argued that the model itself is robust.
“Family businesses is a sound business model. It outperforms non-family businesses over various periods of time.”
The weakness, he suggests, lies not in the structure but in how families handle predictable generational pressures. In his address, he identified six recurring reasons family enterprises fail.
The family grows faster than the business
The first challenge is demographic arithmetic. Over time, ownership fragments while the business’s earning power does not necessarily keep pace.
“Let’s start off with the biggest challenge […] a family grows faster [than a business] … three, four, five generations later, family gets bigger.”
What begins as a tight group of owner-operators evolves into multiple branches, some of whom have never worked in the business.
“You’re starting to get family members that are not involved in the business … family members that are poor shareholders, or owners, or beneficiaries of a trust. They’re not in the business anymore. They’ve got a different perspective on it.”
The compounding effect is unforgiving.
“First generation. Successful. One family. Let’s assume everybody’s got three kids… by the second generation, there’s four families, then 13, then 40… you cannot slice and dice continuously. You have to decide how this is going to work.”
Without early decisions about ownership eligibility, participation rights, and benefit structures, the mathematics alone can destabilise the enterprise.
Business interest versus family interest
As families expand, so do perspectives. Some members view the company as a vocation; others see it as an investment.
“Unfortunately, at some point this idea of business interest versus family interest becomes a real reality, and that becomes a reality the bigger the family business gets, and the more removed family members become from the business.”
Vorster describes the familiar dynamic among siblings.
“If you’ve got three siblings and one is involved, the other two are not involved. Those other two start to take a different view. They start to view it as an investment, not as a family business, as an investor in a family business…”
The fault line typically surfaces around dividends.
“It becomes a magic issue… simply because people have got different interests. The beneficiary says, ‘But, guys, what about our dividend?’ And the members that are involved say, ‘No, we want to reinvest in the business.’”
Some families pre-empt the conflict by codifying policy.
“Some of the family business we are involved in, the constitution… said specifically that dividends will not be paid every year.”
Absent a deliberate balance between active and non-active shareholders, resentment can “really start to draw the family apart” – and by extension, weaken the company.
Inadequate financial planning
Founders often assume that if the business prospers, the family will be secure. Vorster considers this a dangerous myth.
“Inadequate financial planning. Remember… if it’s a family business, it means the business will be transferred to the next generation. There’s no capital event, you are not going to sell the business, not necessarily going to get an outside funder.”
Unlike an entrepreneur planning an exit, a multigenerational family enterprise may never realise a liquidity event. That absence can create retirement crises.
“We are now involved in a family business where the second generation is in their 50s. Great business, running magic, but they haven’t got one single cent to retire on. And all of a sudden, the view was always, ‘You look after the business, the business will look after you.’”
When the next generation interrogates that assumption, tensions surface.
“The younger generation is saying, ‘Guys, you’re going to retire. Why haven’t you made any plans? Who’s going to fund the retirement? Do you want us to fund it? You should have made plans.’ And they said, ‘No, no. But grandpa always said, look after the business, the business will look after you.’”
Without explicit retirement, exit, and intergenerational funding plans, families are forced into reactive decisions under pressure.
Liquidity pressure and poor estate planning
Even profitable businesses can fail if sudden cash demands overwhelm them. Vorster identifies estate planning failures and liquidity strain as acute risks.
“Be careful. There’s no [capital event] that’s going to happen… poor estate planning, and then the liquidity pressure, with too many dependents on the business.”
Over time, payroll can swell with loosely defined roles.
“How many times have you seen that people work in the business at great salaries, but nobody can really define what their role is… that is something you have to be careful of.”
The financial burden becomes visible during generational transition.
“Why? Because it leads to pressure in the business, and that pressure usually comes to the fore as the older generation gets older, and as they slowly move towards the exit. All of a sudden, things that weren’t said get said. Why? Because people are dependent on the business, and we’ve seen that plenty of times.”
Add unstructured estates, overdrafts callable at death or fragmented ownership, and a healthy company can be forced into defensive asset sales.
Poor succession planning: ‘We thought we had more time’
Succession remains the most mishandled element. Vorster references global studies of failed transitions.
“If you look at some of the studies worldwide, one of the key reasons why businesses failed with succession planning… The one sentence that always came to the fore is: ‘We thought we had more time.’”
He stresses that succession is not an event.
“Succession plan is something you have to start with a lot earlier, it’s a process. It’s never an effect. It’s a process. And unfortunately, that process sometimes takes a lot longer, but it needs clarity.”
When clarity is absent, confusion prevails.
“Then there’s no rule book. Nobody knows where they are. Everybody’s surprised. Nobody’s planning for the exit, neither the older nor the younger generation… one year becomes five years, five years 10 years, and all of a sudden, where’s the plan? What’s the roadmap?”
He is blunt about founders who claim no successor exists.
“[They] come to me and say, ‘Look, there’s nobody in the family that can take over this business.’ 99% of the time is absolute hogwash. It’s a nice excuse to stay in charge.”
Delay, rather than incapacity, is often the real issue.
No constitution, no compass
Underlying many of these failures is the absence of a shared governance framework. Vorster emphasises the role of a family constitution – not as a legal technicality, but as a structured communication platform.
“Then there’s no rule book. Nobody knows where they are… What’s the roadmap? And what we find, what is key with having some kind of compass or roadmap or framework is… it creates a platform for communication, to talk about [it].”
“It creates a platform to discuss these things and to put some kind of structure in place.”
He points to long-lived Japanese enterprises as evidence of what structured continuity can achieve.
“Some of the oldest family businesses in Japan date back 5, 6, 7, 100 years. The oldest family constitution is 400 years old, written 400 years ago… and they’re still going. Why? Because everybody knows where they fit in.”
Without such a framework, families either fracture openly or drift into decline.
“If it’s done correctly, it survives, and then it survives for longer. If it’s done incorrectly, it’s got very small chance of surviving.”
A robust constitution typically codifies ownership rules, dividend policy, leadership criteria and exit mechanisms – guiding decisions “in the best interest of the family business, not for individuals”.
Stewardship, not entitlement
Vorster reframes ownership as custodianship.
“You don’t own a family business; you borrow it from your grandchildren.”
He argues that the family business model is not inherently fragile. It is structurally powerful, provided families anticipate predictable internal risks:
- Families expanding faster than sustainable earnings
- Divergent interests between active and passive members
- Retirement and estate plans built on assumption
- Liquidity strain and dependency
- Succession postponed until crisis
- And the absence of a clear, shared rule book
Each of these, he insists, can be anticipated and deliberately managed – if the family is willing to confront uncomfortable questions early, and to commit those answers to a living constitution that guides both the business and the relationships that sustain it.
