Building enterprises that last

“Your son is managing this business well, but his siblings will also want to come into the business. Or not. He is responsible for driving value for not only you as the original founder, but your spouse, other children, employees, customers, suppliers, bankers and the dreaded taxman. How do you create the oversight entity to ensure that all these stakeholders’ interests are well managed, without constraining your son’s entrepreneurial spirit?”

There are two personal headaches that a founding entrepreneur has to deal with once the business has successfully taken off. One is what to do with the children who want to run the business actively but are not mature enough yet to take the leadership reins.

Read: Me-too business: The benefits and risks you need to consider

The other headache is what to do with the ones who do not want to be in the business, but expect to benefit financially from the family jewels. 

To wet their beak as it were in the form of dividends or have expenses such as school fees for their own children, medical bills or rent paid by the business.

A third less common, but equally big headache is what to do with the ones who are not actively in the business, but their spouses are employed by the business. Are such employed spouses in a special category of employees called the “untouchables”? Can they be hired with nothing but a high school certificate of completion when the rest of the employees are required to have a university degree?

For the founder, the business may often be treated as another child, a non-biological extension of himself. Differentiating family from the business is an imperative foundation from which to begin thinking about what happens when the founder becomes old, becomes sick or simply becomes a member of graveyard baptist.

The first step, especially where there is more than one child, is to design a family constitution. This is a document that forms the basis for what a family upholds in the form of values and create a coordinated intergenerational plan.

It sets up family governance structures such as a family council which is separate and distinct from the business governance structures. Membership of, and appointment to, the family council is defined and the role of the council is articulated. The family constitution can also serve as a guide as to who can be employed by the business either as an intern or full time employee and the basic educational and work qualifications needed for such employment.

The second step would be to set up a board of directors. The board can either be a statutory board, meaning it is formed under the Companies Act and the directors have legal liability over the company’s actions or an advisory board, where the directors have no legal liability. 

Appointment to either board would be framed such that specific skills are sought so as to infuse the board with professionalism as well as a depth of knowledge and experience.

Both boards can and should be made up of family members and independent directors. The family constitution would define which family member could sit on such boards particularly where the shareholding of the business is held centrally in a trust or by the founder.

The benefit of having these documents is that they then begin to create boundaries as to where family bloodlines end and where business begins, particularly since the latter has highly vested non-family related stakeholders such as suppliers, customers, employees, bankers and in today’s Kenya, the greatest stakeholder of them all called the revenue authority. 

A feuding family runs the danger of such conflict spilling over and adversely affecting the business. By laying the groundwork of cohesion and, more importantly, recognising the importance of such cohesion in the sustainability of your business you can ensure all your hard work as a founder doesn’t get buried with you six feet under.