How To Save Crumbling Family Businesses In Kenya

Family businesses control a significant portion of the global economy.  In Spain, for example, about 75% of the businesses are family-owned and contribute to 65% of the country’s GNP on average, according to the IFC family business handbook.

According to Forbes, some of the leading family businesses in Africa include: REMGRO founded 1941, Pick n Pay founded 1966, Dantata organization founded 1910, Bakhresa Group Tanzania founded 1963 and BIDCO Oil Refineries Kenya founded 1970.

Empirical studies show that most family businesses have a very short life span beyond their founder’s stage and 95% of family businesses do not survive the third generation of ownership. For example, the late Nigerian business mogul Moshood Kashimawo Abiola, who at one point was believed to be one of the wealthiest men in Africa, successfully built one of Nigeria’s biggest business empires consisting of an airline, a chain of newspapers, extensive real estate, fisheries and retail. After his death in 1998, his businesses crumbled.

Nine out of 10 businesses in Kenya are family-owned. Most of them are small, table-top enterprises with family members as the only employees. Available data shows that they contribute about 60% of employment in Kenya, which is huge. Unfortunately, if a family owned business survives the problems associated with early deaths of Kenyan start-ups, they tend to die with the founder.

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Many businesspeople prefer to bequeath their estates to their children expecting them to flawlessly pass on the baton to their grandchildren and great grandchildren, believing that only their bloodline will protect their vision.

One of the most notable family businesses in Kenya is the Tuskys supermarkets chain. Sibling rivalry, internal fraud, aggressive debt-fuelled expansion and fierce competition are some of the reasons blamed for Tuskys downward spiral.

The Tuskys fierce sibling boiled up to the third generation when the grandkids of the founder hounded out chief executive Dan Githua in full glare of television cameras, the same year Yusuf Mugweru took his brother Stephen Mukuha to court for slapping him.

Why do family business collapse upon the demise of its founders?

They lack internal structures of governance and control impacts on the day to day operations of the business. Most businesses are managed by relatives and kin of the founder.

Most family businesses have no clear succession planning to ensure continuity in the case of demise of the founder. It has also been observed that most family businesses still rely on traditional management practices that are not immune to fraud, inefficiency and incompetence.

Here are some remedies…

There is need to enact a family constitution to steer the company. A family constitution is an evergreen document that is formulated to help surviving members grow the company to longevity. It should outline issues such as visions, mission, company directors, shareholders, authority and responsibility of the CEO and policies regarding share transfers and succession.

Internal governance structures are necessary. These institutions determine and regulate the conduct of business and relationship among the directors and shareholders. Family businesses should enlist the services of a corporate secretary or a practicing certified secretary to manage the compliance, meetings procedures and share transfers among other corporate compliance issues.

Family businesses should ensure adoption of information technology. Many family companies still rely on paper records. Automation of all procedures ensure there is traceable trail during succession planning and transition.

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Enhanced compliance to the Companies Act and other corporate laws allows growth of the business and smooth succession to new generation in future.

There is need for clear roles between the management and the siblings who are shareholders. For instance, the CEO should be allowed to steer the strategic plans of the company without interference by siblings.

Formal Human resource policies that will guide employment of siblings, remuneration package and discipline among other functions should be initiated. There is also need to constitute family advisory units, forums and reconciliation boards that will be essential where there is divergent views and opinions regarding the management of the business.

 [ MOHAMED ABDULLAHI ABDI is a public policy economist and a certified secretary.]

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