SURVEY

Family businesses lack succession plan - study

Moreover, less than one third of respondents believe their families share a common vision for the business’s future development

In Summary

despite 68 per cent of executives saying they intend to keep the business in the family, only 26 percent have a stated plan for the CEO position

study also faulted poor leadership stricture to crumbling of family owned businesses, saying that founding leaders overstay

 

Deloitte and Touche House on Waiyaki way. Photo/File
Deloitte and Touche House on Waiyaki way. Photo/File

Majority of family owned businesses lack any clear long term succession plans, with 24 per cent of them completely clueless, latest survey by Deloitte shows.

According to the Global Family Business Survey 2019 released yesterday, family business leaders traditionally focus their strategy on a two to five year period and have no 10 0r 20 year plans.

They instead end up taking a reactive approach to events as they unfold.

 

The audit and consultancy firm sampled 791 companies with an annual revenue of at least $1 billion (Sh103 billion) in 58 countries and established that only 41 per cent of them were confident about succession, with 35 per cent opting to remain neutral while the rest had no plan.

 

Of the 791 companies that participated in the survey, 43 per cent had annual revenue of less than $50 million, 37 per cent between $50 million and $250 million, 16 per cent between $250 million and $1 billion, and five per cent $1 billion or more.

Furthermore, despite 68 per cent of executives saying they intend to keep the business in the family, only 26 percent have a stated plan for the CEO position.

Moreover, less than one third of respondents believe their families share a common vision for the business’s future development.

The same amount of respondents would be willing to trade at least some measure of family control over the business for greater long-term financial success.

This, according to the study, has seen most businesses collapse after death of founders. In Kenya, only 17 per cent of family businesses survives past third generation.

The survey comes just a day after the Paunrana family unwillingly handed over its 45- year old Athi River Mining (ARM) company to rival Devki Group which bought it off at Sh5 billion due to huge debt.

Other solid family businesses in Kenya that are struggling less than a decade after death of founding leaders includes assorted businesses worth billions of shillings belonging to former Defense Minister Njenga Karume and that of former assistant minister and Nairobi tycoon Gerishon Kirima.

Nakumatt Supermarket a family business is also struggling and is currently under an administrator.

''This highlights a latent problem in many family businesses: family members’ goals often conflict. Goals set the direction of the business, and a lack of commonality can create fertile soil for family disagreements,'' the report said.

 

The study also faulted poor leadership stricture to crumbling of family owned businesses, saying that founding leaders overstay.

 

''Another urgent priority for family business leaders is to prepare the next generation for leadership by helping them to understand the business and encouraging their intellectual curiosity,'' the study said.

According to the survey preparing for succession well in advance and helping a successor to understand the business—ahead of time and in a calm atmosphere— reduces the potential for unexpected problems and disagreements.

The study further indicated that families are less likely to sell or close their business, and tend to endure increased financial distress, if doing so means they can avoid sacrificing their non-economic or sociol emotional wealth goal.

''What businesses should keep in mind is that selling minority stakes to other family businesses or family offices can be an alternative way to attract capital, while remaining true to their vision as a family-owned company,'' the survey indicated.