How Kenyan family businesses can overcome succession feuds

Over the past few years, the Kenyan media has been awash with stories of siblings fighting for the control of family-owned companies or share the wealth generated from such businesses, highlighting the need for professional and tested means of avoiding or resolving such disputes and addressing the unique challenges. 

It is for this reason that Joseph Okelo, the director of Makini Schools, teamed up with colleagues who are running family businesses to establish the Association of Family Business Enterprises (AFBE) early last year. 

The association is set to hold its inaugural Family Business Conference next Thursday at Nairobi’s Radisson Blu Hotel where hot topics such as managing family conflicts, cross-generational perspective on leadership and succession planning, governance and financial security have been lined up for discussion.

The Business Daily spoke to Mr Okello on the association, its objectives and the up-coming conference. Excerpts.

What defines a family business?

This is a term used in reference to any business in which the family has a majority shareholding. But it could also refer to a business in which a family has direct influence over key decisions — including a plan, whether written or unwritten, to have another family member take over the business at some point.

What fraction of the Kenyan economy is controlled by family businesses?

About 80 per cent of the economy. Statistics show that globally family businesses account for between 60 and 80 per cent of a country’s GDP and about 40 to 50 per cent of its labour force.

Why did you find it necessary to start the association?

Again, statistics show that family businesses are very vulnerable and that up to 80 per cent of those handed over to the next generation collapse or fail. What is more shocking is that by the time a family business gets to the third generation its survival level stands at a lowly 20 per cent.

Our decision to start this association was driven by the great potential that there is in local family business to grow and become key drivers of the Kenyan economy.

Makini School, being itself a family business, found it fit to help establish a network of like-minded people who can support one another, find solutions to the sector’s most outstanding challenges and improve the survival rate.

Similar associations exist in many developed economies and it is our conviction that local entrepreneurs can benefit from it.

The association should help us to strengthen family businesses irrespective of what sector they operate, protect them and ensure long-term survival of the work that was done by the vision bearer. We aim to encourage members to make their businesses more professional too.

What can members expect from the association?

Basically be part of a large network of like-minded people with whom they can share experiences and ideas. We will also approach knowledge partners who can help us navigate difficult situations such as creating and managing trusts, writing a will and improving governance.

The association will also do advocacy on matters concerning family business by organising forums where people can talk about problems they are facing in the family business as well as share personal experiences they think they are unique to them.

Succession plans remain one of the greatest challenges facing family businesses, what happens when founders of businesses do not want to let go?

We have some very impressive family businesses but when you stay in a position for too long or when you are the only one with ideas you become an impediment to the long-term success of the business.

Then how can a family business ensure a smooth transition of power and responsibilities?

Just because it is a family business does not mean that the rest of the members have the ability to run it. Ensuring a smooth transition sometimes involves getting outside help. Bringing in professionals and putting up structures can help the next generation scale up the business.

At what point should a family business professionalise its operations?

Studies have shown that any family businesses with the ambition to become really big must bring in professionals. Essentially, a business should bring in people with the right skills and knowledge when expanding its operations.

When outsiders take over the operations of the business it gives the family members a chance to play other roles like overseeing governance and supervising management.

Once families professionalise the business they stay away from it and let outsiders run the show. And as long as their vision is captured they should not have a problem letting others run the show.

They still own the business but they are completely detached and do not take day-to-day or even strategic decisions.

After professionalising a family business then how do you go about dealing with family interference?

Running a family business is complicated because there is the business on the one hand and family on the other. But these are two separate entities that are intertwined. Established family businesses have a constitution that spells out each member’s role and rules that govern the operations.

Some family businesses have gone ahead to establish trusts to help manage the business and wealth, what happens when a trust does not work and what options do they have?

There are different types of trusts- but a trust is only as good as its trustees and how it was set up.

If I am in the family business and still is the head of that trust I will probably do things that are to my interest or the interest of my immediate family. If a family opts for a trust, they should get an independent trustee. Trusts are not bad, it is just how they are set up that matters.

Is the association planning to recruit membership from other parts of the country and what goals have you set for 2016?

We hope to visit three or four other towns outside Nairobi by the end of the year and to set up centres out there. We are working closely with the Chamber of Commerce, and Strathmore Business School on this.

We currently have about 60 members, but the numbers are growing every day. We want to attract people who want to make family businesses successful.