FAMILY BUSINESSES

Plan for succession of your businesses or they sink

Studies have pointed out that Close to 98 per cent of Kenyan owned family businesses are in first generation since Kenyans started owning and operating businesses post independence

In Summary
  • Only  two per cent of those transitioned to second generation is already in the verge of collapse due to inefficient succession planning
  • We need to provide platforms and structured discussions that can lead to policy developments on Kenyan owned family businesses succession
PriceWaterhouse Coopers managers (From L) Michael Mugasa, Peter Ngahu and Sunny Vikram during the PWC 2018 family business survey press conference.
PriceWaterhouse Coopers managers (From L) Michael Mugasa, Peter Ngahu and Sunny Vikram during the PWC 2018 family business survey press conference.
Image: Photo/Courtesy

Family firms have been crucial features of the business landscape for centuries and remain important hitherto.

They can be small, medium, or large and have appeared in all sectors and in all three industrial revolutions. Throughout they have an important role in employment, income generation, and wealth accumulation.

This makes them remarkably hard to describe as they are multidimensional, and no single definition fully captures their intrinsic diversity.

However, a broad general definition of the family firm is one where a family owns enough of the equity to be able to exert control over strategy and is involved in top management positions. It is important to note that in Kenya, family businesses have provided employment to approximately 60 per cent of the workforce and contributes to approximately 50 per cent of Kenya’s GDP.

This, arguably, makes family business ventures vital factors in our economy we cannot dare neglect. The government has over time stipulated policies in support of Small and micro enterprises as demonstrated in MSE Act, 2012. Arguably, Majority of these firms are family owned.

This is actually a step in the right direction though the large firms were not considered at all. Over and above the challenges addressed by the enactment of the MSE Act, family businesses face a lot of other structural challenges: the main has been succession planning.

We have witnessed Kenyan owned family businesses either go down or out rightly close doors after the exit of the founder/s.

Others are suffering perennial management wrangles due to lack of or unavailability of efficient succession plans. We have several succession related cases in court greatly affecting the operations in these type of businesses.

Studies have pointed out that Close to 98 per cent of Kenyan owned family businesses are in first generation since Kenyans started owning and operating businesses post independence.

This means majority of the founders are in their late 60s, 70s and 80s which means in the next few years if not months, these founders will hand over the businesses to the second generation.

The two per cent that thus far has transitioned to second generation is already in the verge of collapse due to inefficient succession planning. Should we cling to the philosophy of “wait and see?” or we are supposed to institute measures to avert the impending danger.

Some large family firms in their first and second generation such as Chandaria Industries, Bidco, Naivas, Tuskys, Kenyatta family businesses, The Ndegwa family businesses etc. are an employer to thousands of Kenyans over and above being key tax payers and substantial contributors to Kenyans GDP.

We need to provide platforms and structured discussions that can lead to policy developments on Kenyan owned family businesses succession just like other developed countries of the West else we are bound to lose it all.

Kenyan institutions of higher learning need to develop programs centered on family businesses and create a fund to facilitate research in this area. The action should be now.

The challenges on succession are already evident.

The writer is PhD student at Kenyatta University with research focus on matters family Businesses.

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