UNIVERSITY OF SOUTH AFRICA (UNISA)
College of Economic and Management Sciences
⋄
ASSIGNMENT 5
Semester 1 – 2026
⋄
Module Code: MNE3704
Module Name: Management of Family Businesses
Assignment No.: Assignment 5
Due Date: 28 April 2026
Semester: Semester 1, 2026
Submitted in partial fulfilment of the requirements for MNE3704
at the University of South Africa.
,UNISA | MNE3704 Assignment 5 – Semester 1 2026
Question 1: Governance, Shareholder Loyalty, and Orderly Leadership Trans-
fer at NES
A family business that depends entirely on its founder for governance is not a business institu-
tion; it is a personal enterprise sustained by one person’s energy, relationships, and judgment.
When that person steps back, everything built around them is at risk. Nkosi Engineering So-
lutions (NES) is at precisely this juncture. At 62, Mr Themba Nkosi continues to control all
strategic, financial, and people decisions, maintains personal custody of key client relation-
ships, and has not named a successor, despite both adult children being capable and actively
involved (Poza, 2010). The discussion that follows addresses how a CEO in his position can
build governance structures that outlast the founder, cultivate shareholder loyalty among
family owners, and create the conditions for a smooth leadership transfer.
1.1 Building an Institution of Governance Beyond the Founder
Building governance beyond the founder means creating structures, processes, and norms that
guide the business independently of any single individual’s authority (IFC, 2023). This is
more than installing a board; it is a shift in organisational identity from a founder-led firm to
a governed institution (Tagiuri and Davis, 1996).
The first step is formalising a board of directors with independent members. At present, NES
operates through informal management meetings that Mr Nkosi chairs. This means there is
no body capable of holding the CEO to account, no forum for independent strategic over-
sight, and no mechanism for managing succession objectively (Heidrick and Struggles, 2024).
Appointing two or three independent directors with relevant industry expertise would imme-
diately create a counterweight to sole founder authority. These directors can guide strategy,
monitor executive performance, and oversee succession, all without the emotional weight that
family members inevitably carry.
The second step is establishing a family council alongside the board. The family council and
the board serve different purposes and should not be conflated (McKinsey, 2026). The board
governs the business; the family council manages the relationship between family members
and the business. At NES, where sibling tension is already emerging over succession expec-
tations, a family council provides a regular forum for communication, clarification of roles,
and collective decision-making on matters that affect all family shareholders. It also prevents
personal disputes from spilling into board meetings or disrupting operations.
Page 1 of 29
, UNISA | MNE3704 Assignment 5 – Semester 1 2026
The third structural requirement is a written family constitution. This document sets out the
family’s shared values, the rules governing family involvement in the business, dividend policy,
entry and exit criteria for family shareholders, and succession principles (Gersick et al., 1997).
Without it, every contested decision defaults to the founder’s personal authority, which is
exactly what NES currently experiences. A constitution transfers legitimacy from the person
to the process.
Implementation Insight
South African Context: The King IV Report on Corporate Governance (2016)
encourages family-owned companies to adopt governance structures appropriate to
their size and complexity. For NES, with 120 employees and long-term mining and
energy sector contracts, the reputational and contractual risks of governance failure are
material. Clients and financiers in these sectors typically conduct supplier governance
assessments, meaning that documented governance structures directly affect NES’s
contract eligibility and business continuity.
Finally, Mr Nkosi must begin delegating decision-making authority in a structured, phased
way. Research on founder-CEO transitions finds that founders who retain personal control
over key client and supplier relationships create what practitioners call “key person risk”: the
business cannot function without them (McKinsey, 2026). Mr Nkosi should systematically
introduce Anele and Sibusiso to his major client relationships, co-attend supplier negotiations,
and allow both children to represent the firm externally. This builds institutional relationship
capital rather than personal relationship capital.
1.2 Promoting Shareholder Loyalty Among Family Owners
Family shareholder loyalty is not automatic. It has to be earned and continuously maintained
through fair treatment, transparency, and a genuine sense of shared ownership (Poza, 2010).
At NES, dividend payments via the family trust are irregular, which is a practical source of
shareholder dissatisfaction. Irregular distributions signal to minority shareholders that their
economic interests are secondary to the founder’s discretion.
The starting point for building loyalty is a transparent dividend policy, documented in the
family constitution and approved by the board. Shareholders who understand when and how
distributions will be made, and why distributions may vary with business performance, are far
less likely to develop resentment or exit the ownership structure prematurely (Williams Parker,
Page 2 of 29
College of Economic and Management Sciences
⋄
ASSIGNMENT 5
Semester 1 – 2026
⋄
Module Code: MNE3704
Module Name: Management of Family Businesses
Assignment No.: Assignment 5
Due Date: 28 April 2026
Semester: Semester 1, 2026
Submitted in partial fulfilment of the requirements for MNE3704
at the University of South Africa.
,UNISA | MNE3704 Assignment 5 – Semester 1 2026
Question 1: Governance, Shareholder Loyalty, and Orderly Leadership Trans-
fer at NES
A family business that depends entirely on its founder for governance is not a business institu-
tion; it is a personal enterprise sustained by one person’s energy, relationships, and judgment.
When that person steps back, everything built around them is at risk. Nkosi Engineering So-
lutions (NES) is at precisely this juncture. At 62, Mr Themba Nkosi continues to control all
strategic, financial, and people decisions, maintains personal custody of key client relation-
ships, and has not named a successor, despite both adult children being capable and actively
involved (Poza, 2010). The discussion that follows addresses how a CEO in his position can
build governance structures that outlast the founder, cultivate shareholder loyalty among
family owners, and create the conditions for a smooth leadership transfer.
1.1 Building an Institution of Governance Beyond the Founder
Building governance beyond the founder means creating structures, processes, and norms that
guide the business independently of any single individual’s authority (IFC, 2023). This is
more than installing a board; it is a shift in organisational identity from a founder-led firm to
a governed institution (Tagiuri and Davis, 1996).
The first step is formalising a board of directors with independent members. At present, NES
operates through informal management meetings that Mr Nkosi chairs. This means there is
no body capable of holding the CEO to account, no forum for independent strategic over-
sight, and no mechanism for managing succession objectively (Heidrick and Struggles, 2024).
Appointing two or three independent directors with relevant industry expertise would imme-
diately create a counterweight to sole founder authority. These directors can guide strategy,
monitor executive performance, and oversee succession, all without the emotional weight that
family members inevitably carry.
The second step is establishing a family council alongside the board. The family council and
the board serve different purposes and should not be conflated (McKinsey, 2026). The board
governs the business; the family council manages the relationship between family members
and the business. At NES, where sibling tension is already emerging over succession expec-
tations, a family council provides a regular forum for communication, clarification of roles,
and collective decision-making on matters that affect all family shareholders. It also prevents
personal disputes from spilling into board meetings or disrupting operations.
Page 1 of 29
, UNISA | MNE3704 Assignment 5 – Semester 1 2026
The third structural requirement is a written family constitution. This document sets out the
family’s shared values, the rules governing family involvement in the business, dividend policy,
entry and exit criteria for family shareholders, and succession principles (Gersick et al., 1997).
Without it, every contested decision defaults to the founder’s personal authority, which is
exactly what NES currently experiences. A constitution transfers legitimacy from the person
to the process.
Implementation Insight
South African Context: The King IV Report on Corporate Governance (2016)
encourages family-owned companies to adopt governance structures appropriate to
their size and complexity. For NES, with 120 employees and long-term mining and
energy sector contracts, the reputational and contractual risks of governance failure are
material. Clients and financiers in these sectors typically conduct supplier governance
assessments, meaning that documented governance structures directly affect NES’s
contract eligibility and business continuity.
Finally, Mr Nkosi must begin delegating decision-making authority in a structured, phased
way. Research on founder-CEO transitions finds that founders who retain personal control
over key client and supplier relationships create what practitioners call “key person risk”: the
business cannot function without them (McKinsey, 2026). Mr Nkosi should systematically
introduce Anele and Sibusiso to his major client relationships, co-attend supplier negotiations,
and allow both children to represent the firm externally. This builds institutional relationship
capital rather than personal relationship capital.
1.2 Promoting Shareholder Loyalty Among Family Owners
Family shareholder loyalty is not automatic. It has to be earned and continuously maintained
through fair treatment, transparency, and a genuine sense of shared ownership (Poza, 2010).
At NES, dividend payments via the family trust are irregular, which is a practical source of
shareholder dissatisfaction. Irregular distributions signal to minority shareholders that their
economic interests are secondary to the founder’s discretion.
The starting point for building loyalty is a transparent dividend policy, documented in the
family constitution and approved by the board. Shareholders who understand when and how
distributions will be made, and why distributions may vary with business performance, are far
less likely to develop resentment or exit the ownership structure prematurely (Williams Parker,
Page 2 of 29
