By Jackson Okoth
It is a bright sunny morning in the leafy suburbs of Nairobi’s Westland area and 60-year-old Timothy Kamau is seated at his palatial 10th floor executive suite offices, staring lazily at the heavy traffic on the highway below.
Although he knows it is time for him to climb down from the family business, now in its third generation, Kamau has not made up his mind of who among his three sons will take over this thriving exotic family-owned furniture business. Indecision on a crucial matter such as this is not confined to Kamau’s furniture business but is replicated across the country.
Experts are calling on Kenyan firms, especially small and medium sized enterprises, to have a succession plan. This is to ensure minimal disruptions when the owner dies or wrangles erupt among family members. A list of some of the most successful family-run business enterprises include Bidco oil refineries that is run by a second generation of the Vimal Shah family, the multi-million shilling Philip Ndegwa’s banking and insurance empire and Nakumatt supermarket chain.
Those that have been embroiled in bitter wrangles and court battles include the late Gerishon Kirima’s real estate business and Tuskys supermarket where sibling rivalry is boiling to the surface.
Former Cabinet Minister Kenneth Matiba’s business, which has run into trouble since his health deteriorated, is a classical case of a family business that has failed to move to the next generation.
Ownership wrangles
“Many business owners ignore the idea that they will one day exit the business. But for their enterprises to survive, this attitude has to change,” said Kwame Ahadzi, Bank of Africa Managing Director.
He made these remarks recently during a Bank of Africa clinic organised for owners of small and medium-sized enterprises who had gathered at the Hilton Hotel to discuss succession planning for family businesses in Kenya.
Cases of poor succession planning leading to business collapse especially where the founder dies have become fairly common.
The situation becomes even more complicated where polygamy is a factor as siblings wrangle over control of assets, severely disrupting or even killing the business.
“The issue of who owns what shares in the family business or even how decisions are made is often forgotten. This can be source of problems in the future. There is need to clearly define who does what to reduce any conflict,” said David Muturi, Chief Executive Officer, Kenya Institute of Management (KIM).
In most family businesses, there are no clear criteria on how profits should be shared. Problems usually occur when this company begins to make money with some family members suddenly realising that they are doing more than the rest and therefore deserve a bigger share. “Top leadership in the family business also assume that they know what all the rest feel and want. In some instances, candid feedback from a son to a father or wife to a husband in a family business can also be taken by the father or husband as a personal assault by son or wife,” said Muturi.
Excessive perks
Muturi advises that at all times, family issues must not be mixed with business matters. One way of sorting out this communication mess is to appoint a non-family member as an impartial advisor or executive director. This is especially so in situations where a family business has outgrown the original owner’s personal capability.A number of family businesses assume that they are immune to conflict and do not therefore bother to put in place a conflict resolution mechanism.
In a family-owned business, there is usually an assumption that whatever remuneration is given to family members is adequate. This explains why mostly sons, steal from the business, do irregular deals or conspire with workers if they are not adequately remunerated for their contribution to the family business.
“It is not advisable to detain family members in a family business with small pay or excessive perks above their contributions,” said Muturi. Most business owners not think about succession because what comes to their mind is death instead of retiring from the business.
“Most owners defer the succession process or assume that whoever they have in mind also wants to take over when they leave,” said Muturi. Those who plan for succession base it on gender-for instance the eldest son in the family is the natural heir regardless of their training, skills or strength. While this arrangement appears to work when family land is passed on to the next generation, running a business requires skill and talent. “There is need to have a pool of possible successors for contingency purposes. Other options such as management buyouts, selling the business or listing on the stock exchange are other alternatives worth considering,” said Muturi.
