Siblings 'curse' that family businesses must overcome

NAIROBI: The biblical brothers Cain and Abel — sons of Adam and Eve – birthed the family feud. When God favoured Abel’s animal offering over Cain’s garden sacrifice, an enraged Cain killed his brother, introducing murder to the world. And it appears that today, this curse continues to stalk many family businesses.

A report released last week found that Kenya’s wealthy proprietors of family businesses are not preparing their children to take over, exposing these enterprises to risk of collapse. Without a clear succession plan or will in place, many families have been exposed to fallouts.

The Knight Frank Global Wealth Report showed the biggest worry for billionaires is how to transfer their wealth to the next generation. Most of them fear their children are not ready to take up the mantle of running the family business. Failure to draw a proper succession plan has seen a number of relatives of some super-rich Kenyans turn on each other in a scramble to control family wealth.

The latest family business feud involves Tuskys Supermarket, founded by Joram Kamau and that has led to the forceful ejection of CEO Dan Githua.

Mr Kamau built an empire from a small shop in Rongai, Nakuru in the 1980s. In Rongai, with a small shop called Magic that sold mattresses, Kamau built a relationship with the founder of Nakuru Mattresses (now Nakumatt). Kamau would get certain goods from Nakuru Mattresses on credit, which he would then sell at low prices. As the business grew bigger, Kamau left his first shop to his brother Peter Mukuha Kago. Mr Kago transformed this into Naivas.

Kamau’s sons joined him in growing his business outside Nakuru, and the supermarket chain has since spread its wings into Uganda. It plans to enter Ethiopia and DRC in the near future. But in a rare but embarrassing peep into the lives of the secretive, media-shy family that runs Tuskys, the third generation, made up of the grandchildren of Joram Kamau, ejected Mr Githua last month. It appeared to be a textbook case of the so-called Curse of the Third Generation.

The drama was a culmination of years of discord among the heirs of the giant business. Trouble began soon after the demise of their father Kamau in 2002.

It was hoped that the recruitment of an ‘outsider’ in Githua would ease the simmering tensions while excluding Mr Mukuha from day-to-day running of the business. But Mugweru was the first to object the entry of the new chief executive, questioning his suitability and capacity to oversee operations.

Meshack Joram, the chief executive officer of the Institute of Directors (Kenya) - a corporate governance body, blames the wrangles with most family businesses on the lack of proper governance structures that clearly define members’ roles, responsibilities and processes.

University of Nairobi lecturer XN Iraki thinks the super-rich are not doing enough to inculcate their children with the right management and wealth creation skills. He says sibling rivalry is based on the feeling of entitlement and the fact that they never worked for the business they now own. “Wielding power matters more than running the business – after all, they found it there!” said Dr Iraki.

COMPETITIVE EDGE

Iraki recommends floating a firm on the stock exchange to distribute ownership and let professional managers to run the show. “The family can retain their shareholding but with no power to destroy the firm,” he added. Mr Joram argues that businesses have to recognise that the skills that were instrumental in growing firms into successful business empires are not necessarily the same ones required to keep it afloat. Different skill sets are now required, including corporate governance and multiple stakeholder management.

He recommends the drafting a family constitution as the first step out of family feuds. A family constitution is a statement of the principles that outlines the family commitment to core values, vision, and mission of the business.

Management consultant Sunny Bindra says family businesses will continue to have serious problems in Kenya until there is a major shift in understanding. “The problem comes when the founder passes on, and inheritance issues kick in. A business, however, is not a shamba to be divided; it is a cash cow that needs to be protected and nurtured. If you immerse it in court battles and high-decibel disputes, it dies. It loses its competitive edge. It stops being attractive to employees and customers alike,” said Mr Bindra.

Another retailer, Naivas, still part of the family dynasty, is also at the centre of a sibling battle for control. Newton Kagiri and Simon Gashwe - brothers turned foes in a bitter succession feud - agree on very little. A few years ago, Mr Kagiri moved to court claiming his siblings excluded him from owning a piece of the retail store.

However, there are family-run businesses that have broken generational curses to build successful enterprises. Some have even gone ahead to list on the stock market. World famous successful family businesses include Phillips, Walmart and New York Times.

The country’s biggest retail chain, Nakumatt Holdings, is a successful family business. Its CEO Atul Shah began working in the retail business with his father when he was 10, and now his own sons and one of his nephews are part of the team. “We are allowing the next generation to bring in their ideas. They want to do things a little differently –some of it may succeed, some may fail. But that is the beauty of it,” he was quoted in a PWC’s Global Family Business Survey of 2014.

ISSUES OF INHERITANCE

Also, about 50 years ago HJ Paunrana, the founder of Athi River Mining (ARM) Cement, started small. He did not have formal education in cement making but had ambition and vision. HJ bought a plot of land with limestone deposit in Athi River in 1974, but it was not until 1996 that the firm produced its first bag of cement. The firm went on to expand and list on Nairobi Securities Exchange with a market capitalisation of more than Sh14.4 billion as at Friday March 11, 2016.

Now, his son Pradeep Paunrana heads the company. Mr Paunrana went to the best schools just like many would in the second generation of a wealthy family. Armed with an MBA from Stern School of Business at New York University, at 24 he was ready to take over the company and he has done that.

Bindra believes successful businesses stay away from the headlines. “They think long and hard about power and responsibility well in advance. Wise founders create understanding about the issues of inheritance and entitlement during their lifetimes,” he said.

“They do not create unrealistic expectations about wealth. They divide according to contribution, not bloodline. They professionalise the business early, before generational change occurs.” Sadly that wisdom is not common, Bindra adds.