Family-owned businesses make up a large percentage of Kenyan enterprises. The definition of a family-owned business is not dependent on size. This means it can range from micro-enterprises to large corporations.
What makes it a family-owned business is the familial relationships. There is no globally accepted definition of family-owned businesses, however, one publication defines it as any business that is owned, managed or controlled by two or more family members. The defining line is that the majority ownership or control is with two or more family members.
Here are some examples of family-owned businesses. A business owned by spouses, parents and children, siblings, cousins or in-laws.
An enterprise whose ownership is with two or more family members is considered a family business even if there are other non-family owners. This means that a large number of listed companies in Kenya may be classified as family-owned businesses if one family holds a significant shareholding in the company.
A business managed by two or more members of the same family may be considered a family-owned company. This especially happens in the case of long-term management contracts. I know an example where a certain family was awarded management rights over a tourist lodge inside one of the national parks. The tourist lodge is considered a family business.
It is critical to understand the nature of your business as family-owned businesses are unique because of the familial relationship such that the business and the family relationship run simultaneously.
Many experts have concluded that the success of a family-owned business is guided by a number of key indicators. One is that the relationship between the family members must be well governed. This is what is termed as family governance. If the family is able to get their relationship right at home, then the business relationship will also be very strong. Family governance is done by a series of family governance tools and policies which provide guidance and direction.
These tools have been successful in managing the family relationship. A good example is a family mediation policy which is a policy that prevents family members from going to court litigation in the event of a dispute. What is killing many family-owned businesses could be unnecessary litigation.
A second critical indicator is business governance. This includes setting up proper structures and systems, organisational structure, defined roles and responsibilities amongst others. Having the right business governance will ensure that succession is seamless as business governance supports good succession planning.
Experts advise that both family and business governance ought to happen concurrently. Bad family relationships can spill over and affect the business negatively. Yet, on the other hand, a dispute within the business can spill over and affect family relationships negatively. There is, therefore, a need to create structure both within the family and the business to prevent and manage conflicts.
While publications provide very good recommendations, there is no standard benchmark as such. As families vary in terms of culture and values, so too do family-owned businesses. Therefore, the recommended structures in family and business governance also vary. The best thing is to speak with an expert to create a tailor-made structure for your family and business.
Ms Mputhia is the founder of C Mputhia Advocates |Â [email protected]
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