Why governance is key in family owned entities
Opinion
By
Moses Kemei
| Nov 12, 2019
Many private companies are run by families and passed down through the generations. One of the major risks that such companies face is that they rarely last for multiple generations.
The business model is often reliant on someone in the family checking that good senior management decisions are made.
What happens if a family member at the helm is not open to new ideas, lacks vision or is not vigilant in maintaining the highest standards of corporate governance?
In this situation, it is up to other family members to provide the necessary checks and balances and ensure the business is operated as the collective family desires.
Without this, it can be difficult to sustain the business over the generations.
READ MORE
Trade CS Miano says Buy Kenya-Build Kenya aims to promote local products
Want to build a strong brand? This is what you should do
Captains of industry raise concerns over proposed tax hikes
Kenya Power to install 35 electric vehicle chargers
Kenya records improvements in budget transparency, utilisation
Building costs rise as import levy shrinks cement output
Boeing set to deliver plan to regulators on upgrading safety
Thugge named top governor during Africa bank awards
Jubilee in record Sh1b dividend payout after posting 16pc profit
South Sudan can unlock its economic potential with the help of investors
The best way to keep the family business model working efficiently is by implementing a suitable board structure where family members are restricted.
The remaining board members should be fully independent. This will help the organisation make balanced decisions.
Following the best practice of corporate governance engenders the trust of investors and debtors in the group.
Whether a company is private or public, the smooth running of the business ultimately depends on the quality of the team and the processes in place. It is not a case of one being better than the other.
While there are disadvantages to being a family-owned business, the owners of such a company frequently offer the value that senior executives at a public company do not.
For example, those executives typically leave on a fairly regular basis – their ties to the business are not as deep-rooted.
While private firms may not be subjected to the same requirements as listed names, what is deemed good practice, in general, is largely embraced on both sides of the fence.
It is not a case of calculatedly copying the corporate governance practices of public firms with an eye on becoming listed one day; it is more about identifying good practice and implementing it.
Board quality is dependent on diversity, and requires a combination of skills and experience.
This transcends gender and includes ethnicity, social class and cognitive reasoning.
Diverse boards are less prone to ‘groupthink’ and more likely to embrace new approaches to meet future threats and opportunities.
“Diversity is a leadership challenge, as diverse boards are probably more complex to lead, but more effective at what they do”
-Moses Kemei is a Member of the Institute of Certified Secretaries.
- Captains of industry raise concerns over proposed tax hikes
- Explainer: Difference between Muguka and Miraa
- How the Finance Act 2023 hit Kenyans