Legal Insights and Articles

Corporate Governance Challenges in Family-Owned Businesses in Zimbabwe

By Trevor M. Ndebele

Family-owned businesses (FOBs) are a vital pillar of the global economy, playing a significant role in employment and GDP. In Zimbabwe, these businesses often fall within the Small to Medium Enterprises (SMEs) category and face common corporate governance challenges that hinder most local SMEs.

Structure of FOBs in Zimbabwe

Regardless of their size, many FOBs in Zimbabwe use a structure reminiscent of micro-enterprises or sole proprietorships, even when they are incorporated. Typically, these FOBs are characterized by:

• Founder/Owner Control: Founding family members usually hold key management positions, with the founder often serving as the CEO or managing director.

• Centralized Decision-Making: Decisions are predominantly made by the founder or a small group of family members, resulting in a highly centralized power structure.

• Informal Organizational Structure: Many family businesses operate with informal structures, lacking clearly defined roles and responsibilities.

• Succession Challenges: Inadequate succession planning often leads to difficulties when the founder steps down or passes away.

• Limited External Influence: These businesses typically have minimal involvement from non-family members in management or ownership. Even if there is a board of directors, it is usually comprised of family members or individuals connected to the family, limiting the board's influence and effectiveness.

Corporate Governance Challenges Faced by FOBs

As a result of their structural characteristics, FOBs often meet governance challenges that threaten their sustainability. These challenges include:

• Poor Succession Planning: Ensuring a smooth leadership transition is a significant challenge. Many FOBs struggle to identify and prepare the next generation of leaders due to the centralized decision-making authority vested in the founder or head of the family. This often hinders the identification and development of future leaders, leading to business disruptions when the founder is gone.

• Conflict of Interest: Balancing family and business interests can be difficult, leading to conflicts, especially when family members hold key management positions.

• Professionalization: Transitioning from a family-run to a professionally managed business can be challenging. There is often resistance to hiring non-family executives and setting up formal governance structures.

• Transparency and Accountability: Maintaining transparency and accountability can be challenging, particularly in smaller FOBs where informal management practices are common.

To mitigate the corporate governance challenges outlined, family-owned businesses can adopt several proactive strategies. Firstly, establishing clear succession planning is critical for ensuring a smooth leadership transition. By identifying and nurturing potential leaders early, and involving non-family members in the process, these businesses can prepare for the future. Implementing formal governance structures and processes, including establishing a board with external members, can help balance family and business interests while enhancing transparency and accountability. Professionalizing the business by hiring qualified non-family executives and setting clearly defined roles and responsibilities can further support sustainable growth. Regularly reviewing and adapting these practices in line with best governance standards will enable family-owned businesses to navigate challenges effectively and thrive in the long term.

At Gula-Ndebele and Partners we understand the unique dynamics and challenges faced by family-owned businesses. Our experienced team provides tailored legal support to ensure the long-term success and harmony of your family enterprise. We offer comprehensive services that include drafting and reviewing family business agreements, succession planning, dispute resolution, and regulatory compliance. Our goal is to safeguard your family legacy by facilitating smooth transitions, mitigating conflicts, and fostering a solid legal foundation for your family business. Contact us to find out how we can assist your family business.

You can contact Trevor directly at trevor@gula-ndebeleandpartners.com or +263777303781.

Disclaimer:
The articles on the Gula-Ndebele & Partners website are for general informational purposes only and do not constitute legal advice. For specific legal guidance tailored to your situation, please consult our qualified lawyers directly.

Corporate Governance for Small and Medium-Sized Enterprises (SMEs) in Zimbabwe

By Trevor M Ndebele

What is Corporate Governance?

Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It involves balancing the interests of a company's many stakeholders, including shareholders, management, customers, suppliers, financiers, government, and the community. For large businesses, corporate governance establishes frameworks and controls to encourage management to act in the best interests of shareholders and other stakeholders. In contrast, for SMEs, which are often family-owned, corporate governance focuses on improving business efficiency and performance rather than monitoring management actions.

What Are SMEs in Zimbabwe?

In Zimbabwe, Small and Medium Enterprises (SMEs) are classified under the Small and Medium Enterprises Act [Chapter 24:12]. The classification is based on the number of employees, annual turnover, and asset values (excluding immovable property).

·         Micro Enterprises: Made up of one or two individuals, these businesses operate within specific economic sectors. They are small in scale and often informal.

·         Small Enterprises: Employ up to 50 people, with an annual turnover below $240,000 and asset values below $100,000. They are more structured compared to micro-enterprises and can be formal or informal.

·         Medium-Sized Enterprises: Employ between 75 and 100 people, with an annual turnover between $240,000 and $1 million, and asset values between $100,000 and $5 million. They are usually formal and operate with more established business practices.

What is Good Corporate Governance?

Good corporate governance means implementing effective processes, customs, structures, policies, and systems that determine how a company is administered or controlled. It ensures sustainability, profitability, and accountability to stakeholders. Good governance is vital for building trust and maintaining the integrity of a business, contributing to its stability, growth, and development.

Benefits of Good Corporate Governance to SMEs

Good corporate governance is essential for the success and sustainability of all corporate entities, including SMEs. Benefits to SMEs include:

1. Enhanced Accountability and Transparency: Ensures SMEs operate transparently and are accountable to stakeholders.

2. Improved Access to Capital: Attracts investors and financial institutions by being viewed as lower-risk investments.

3. Risk Management: Helps identify, assess, and mitigate risks.

4. Sustainable Growth: Promotes ethical behaviour and decision-making.

5. Operational Efficiency: Streamlines processes and decision-making.

6. Attracting Talent: Attracts high-quality employees who value a transparent work environment.

Governance Challenges Facing SMEs in Zimbabwe

Despite their economic importance and potential, many SMEs in Zimbabwe struggle to remain viable primarily as they face several governance challenges including:

·         Lack of Governance Knowledge: Owners/managers often lack knowledge to develop proper governance policies.

·         Poor Financial Management: Inadequate record-keeping and financial planning can hinder growth.

·         Blurred Lines Between Ownership and Management: Lack of separation between personal and business finances can lead to mismanagement.

·         Lack of Formal Registration: Many micro-enterprises operate informally, affecting access to funding.

Conclusion

Zimbabwe’s legislative and SME framework theoretically provides a conducive environment for SME growth and sustainability. The Small and Medium Enterprises Act (Chapter 24:12) aims to promote and develop micro-, small, and medium enterprises across both formal and informal sectors. The Act also establishes the Micro-, Small and Medium Enterprises Advisory Council and provides for the formulation and implementation of schemes to assist SMEs, including the creation of a dedicated fund to finance these initiatives. By adhering to regulatory standards and embracing good corporate governance practices, SMEs could have access to some of the schemes and funding dedicated to their development. They could then reach their full potential and significantly improve their chances of building sustainable businesses.

How can we help your SME?

At Gula-Ndebele and Partners, we help SMEs evaluate their governance needs and develop good corporate governance practices tailored to meet their needs. We offer experienced guidance to help you through every step of the process, ensuring that your SME is secure. Contact us today to learn more about how our SME Corporate Governance Toolkit can benefit your business.

You can contact Trevor directly at trevor@gula-ndebeleandpartners.com or +263777303781.

Disclaimer:
The articles on the Gula-Ndebele & Partners website are for general informational purposes only and do not constitute legal advice. For specific legal guidance tailored to your situation, please consult our qualified lawyers directly.

Navigating Business Ventures With Family Members

By Trevor M. Ndebele

 Family business ventures can take many forms, from farming and mining to retail and real estate development. Families often enter these ventures to pool resources, leverage shared skills, and create a legacy that benefits future generations. Such ventures allow families to combine their financial strength, expertise, and trust to pursue opportunities that might be challenging individually. Additionally, family businesses often reflect shared values and long-term goals, fostering a sense of unity and purpose. Whether it’s a farming project to capitalize on Zimbabwe’s agricultural potential or a retail venture to meet local demand, family business ventures offer a unique blend of personal commitment and collective ambition, making them a powerful vehicle for growth and prosperity.

Entering business ventures or joint partnerships with family members can be both rewarding and challenging. While the trust, shared values, and commitment that come with family ties can create a strong foundation for success, the emotional complexities and potential for conflict require careful planning and professional guidance. As commercial lawyers practicing in Zimbabwe, we have seen firsthand how family ventures can thrive—or falter—depending on how they are structured and managed.

Advantages of Family Business Ventures

Family business ventures offer unique benefits that can set them apart from other business arrangements:

Trust and Familiarity: Family members often share a deep level of trust and understanding, which can streamline decision-making and foster collaboration.

Shared Values and Goals: Aligning business strategies with shared family values and long-term objectives can create a unified vision for success.

Strong Commitment: Family members are typically more invested in the business’s success, often going above and beyond to ensure its growth.

Pooling Resources: Combining financial resources, skills, and expertise can provide a solid foundation for the venture.

Challenges of Family Business Ventures

Despite these advantages, family ventures are not without their challenges. Many fail due to unresolved issues, including:

Emotional Conflicts: Personal relationships can sometimes cloud judgment, leading to disputes that strain both the business and family ties.

Lack of Objectivity: Maintaining professionalism and objectivity can be difficult when dealing with family members.

Succession Issues: Without a clear plan, transitioning leadership to the next generation can become a source of conflict.

Limited Skill Sets: Relying solely on family members may limit the diversity of skills and perspectives needed for growth.

Keys to a Successful Family Venture

To navigate these challenges and carry out a thriving family venture, consider the following:

Clear Agreements: Draft comprehensive partnership or joint venture agreements that outline roles, responsibilities, profit-sharing, and dispute resolution mechanisms.

Regular Communication: Establish open and transparent communication channels to address issues promptly and maintain trust.

Professional Mediation: In case of disputes, seek professional mediation to resolve conflicts amicably and preserve family relationships.

Succession Planning: Develop a clear succession plan to ensure the venture’s continuity and avoid future conflicts.

How Gula-Ndebele & Partners Can Help

At Gula-Ndebele & Partners, we specialize in supporting families—both locally and in the diaspora—to navigate the complexities of joint ventures and projects. Our services include:

Legal Advisory: We provide expert advice on structuring and governing family businesses, ensuring compliance with local and international laws.

Agreement Drafting: We draft, and review partnership and joint venture agreements tailored to your specific needs, protecting the rights and interests of all parties.

Dispute Resolution: Our mediation and arbitration services help resolve conflicts amicably, preserving both business and family harmony.

Succession Planning: We assist in developing clear succession plans to ensure the long-term sustainability of your family venture.

Compliance and Risk Management: We help ensure family ventures navigate regulatory requirements and mitigate potential legal risks.

For families with members based outside Zimbabwe, we bridge the gap by offering tailored solutions that address cross-border legal challenges, ensuring your venture operates smoothly and successfully.

Conclusion

Family business ventures hold immense potential for growth and prosperity, but they require careful planning, clear agreements, and professional guidance to succeed. At Gula-Ndebele & Partners, we are committed to helping families navigate these complexities, ensuring their ventures thrive while preserving family harmony. Contact us to discuss how we can assist you and your family.

You can contact Trevor directly at trevor@gula-ndebeleandpartners.com or +263777303781.

Disclaimer:
The articles on the Gula-Ndebele & Partners website are for general informational purposes only and do not constitute legal advice. For specific legal guidance tailored to your situation, please consult our qualified lawyers directly.

Contracting for Small to Medium-Sized Businesses: Essential Insights from Gula-Ndebele and Partners

By Trevor M. Ndebele

The prosperity of any society depends on the health of the businesses operating in it, and the long-term health of a business depends on the success of the deals and transactions which it enters. The law of contract is the law of deals and transactions and is the legal framework within which all business activity is conducted. For someone involved in business, in whatever capacity, an understanding of the principles of contract law is not a luxury but a necessity.

While certain agreements like those for the sale of immovable property are required by law to be in writing, most verbal agreements are perfectly valid and legally enforceable. Although there is no difference in principle between an agreement in writing and an agreement in any other form, an agreement in writing has the great practical advantage of leaving no room for doubt about what the parties agreed and undertook to do. It is for this reason that it is advisable for a business to have a written agreement for any substantial commercial transactions. Once a transaction or deal has been fully negotiated and vetted by each party, it is best to reduce it to writing and have it signed by the parties. SMEs could benefit greatly from the advantages of having written contracts.  

Advantages of Written Contracts for SMEs

Small to Medium-Sized Enterprises (SMEs) often face unique challenges in the business world, including the complexities of negotiating and enforcing contracts. Unlike larger business entities, SMEs cannot afford the risk that comes with the uncertainty of unwritten contracts. Some of the advantages of written contracts include:

1. Clarity and Precision: Contracts must clearly outline the rights, responsibilities, and expectations of each party. Ambiguities of unwritten contracts can lead to disputes and misunderstandings, which are particularly detrimental to smaller businesses with limited resources.

2. Negotiation and Customization: Unlike standardized contracts used by larger entities, SMEs can benefit from customized agreements tailored to their specific needs. This ensures that the contract addresses its unique business practices and requirements.

3. Risk Management: Contracts serve as a tool for managing risks by clearly defining what happens in various scenarios, such as breaches or unforeseen circumstances. For SMEs, this is vital for protecting their interests and ensuring business continuity.

4. Compliance: Ensuring that contracts comply with local laws and regulations is crucial. Non-compliance can lead to legal issues and financial penalties, which can be especially challenging for smaller businesses.

Benefits of Well-Drafted Contracts for SMEs

1. Legal Protection: A well-drafted contract provides legal protection by clearly specifying the terms and conditions agreed upon by both parties. This reduces the risk of disputes and provides a framework for resolution if they arise.

2. Professionalism: Having formal written agreements enhances the professionalism and credibility of SMEs. It demonstrates a commitment to conducting business transparently and ethically.

3. Financial Security: Clear payment terms and conditions help ensure timely payments, which are crucial for maintaining cash flow and financial stability.

4. Long-term Relationships: Contracts help build trust and foster long-term relationships with clients, suppliers, and partners by setting clear expectations and responsibilities.

Steps Involved in Contracting for SMEs

1. Drafting: The first step is to draft a contract that reflects the business agreement. This may involve using templates or seeking legal assistance to ensure all essential elements are included.

2. Negotiation: Both parties review and negotiate the terms of the contract to ensure mutual agreement and satisfaction. This may involve revisions and discussions to address specific concerns.

3. Review and Vetting: It is crucial to have the contract reviewed by legal professionals to ensure it complies with relevant laws and regulations and adequately protects the business's interests.

4. Signing: Once both parties agree on the terms, the contract is then signed. This can be done in person or electronically, depending on the agreement.

5. Implementation and Monitoring: After signing, the contract is implemented, and both parties must adhere to its terms. Regular monitoring and communication help ensure compliance and address any issues that may arise.

How Gula-Ndebele and Partners Can Assist

At Gula-Ndebele and Partners, we understand the importance of robust contracting for SMEs. Our team of experienced legal professionals is dedicated to assisting small and medium-sized businesses with their contracting needs in the following ways:

1. Customized Contract Drafting: We provide tailored contract drafting services to ensure your agreements reflect your unique business needs and objectives.

2. Negotiation Support: We offer expert assistance in negotiating terms that are fair and beneficial, helping you secure the best possible outcomes.

3. Legal Review and Vetting: We thoroughly review contracts to ensure compliance with local laws and regulations, protecting your business from potential legal pitfalls.

4. Dispute Resolution: If disputes arise, our skilled negotiators and litigators are here to help resolve them efficiently and effectively.

5. Ongoing Support: We offer continuous support to our clients, ensuring that contracts remain up-to-date and aligned with evolving business practices and legal requirements.

At Gula-Ndebele and Partners, we are committed to empowering SMEs by providing comprehensive legal support and guidance. Contact us today to learn more about how we can assist you with your contracting needs.

You can contact Trevor directly at trevor@gula-ndebeleandpartners.com or +263777303781.

Disclaimer:
The articles on the Gula-Ndebele & Partners website are for general informational purposes only and do not constitute legal advice. For specific legal guidance tailored to your situation, please consult our qualified lawyers directly.