•With the shared common interests, values and viability of business ideas based on family ties, family businesses possess the greatest potential of success.
•Lack of professional management of family-owned-business also expose them because of lack of single common chain of command, reporting and leadership systems.
Family is the basic unit of society. It plays a central singular role in primary socialization of social, cultural, economic and even political values in our lives.
Since it provides this critical base and foundation at the very formative stages in life, most of our individual life aspects and interests get aligned to those of our respective families and in some cases, members of a family come together to establish wholly family owned entities.
With the shared common interests, values and viability of business ideas based on family ties, family businesses possess the greatest potential of success.
This is due to the fact that values imparted on children at the family level are expected to be as pure as the mother’s love and rich in ethics, trust, honesty and respect ingredients.
This, has, however not been the case in the current times since the families have become more of legal entities, rather than social.
The primary socialization roles by parents at the family unit have also been mechanized and taken over by the internet and television sets.
In view of the above realities, family owned business are at most risk and exposure to loss and fraud.
This is largely attributable to the false belief of trust and ethical conduct among family members which they capitalize on to run their businesses instead of proper systems and professional processes to insulate themselves.
This exposure is not as sharp as in other forms of businesses, if compared.
This is majorly due to knowledge of trust issues and fraud by employees, shareholders and partners which cannot be ruled out and as such, the same are controlled by professionalizing of business operations.
Lack of professional management of family-owned-business also expose them because of lack of single common chain of command, reporting and leadership systems.
This limits the success of the firms especially if different family members issue conflicting or duplicating instructions and directions to the employees and even suppliers.
It further lowers the compliance levels by subordinates and employees due to divided loyalty and confusion on what directives to action on or prioritize.
The net effect of such scenarios is high exposure to vulnerability of business. This is due to losses resulting from lack of statutory compliances like filing tax returns in time as well as fraud by employees and suppliers.
Another big, and probably the biggest challenge, to family- owned-businesses is conflict of interest and embezzlement by family members.
This is one of the most open secrets in Kenya where we have been treated to reports of one or two family members “supplying goods” to his/her family owned enterprise at exorbitant costs and/or not being able to account for resources he/she is entrusted with. The duo aspects are not unique to this nature of business.
It is, however, worth noting that family owned businesses are more at risk due to various factors based on their management and risk mitigation systems.
The first one is bestowed-familial trust that is mostly abused.
For instance, when a family member has been tasked to supply commodities to the business, the likelihood that the employees receiving the same will take it upon themselves to countercheck every item on their specificities on quality, quantity and brand, among others, is very low.
Secondly, fraud and embezzlement is highly probable especially when payments are being made to a family member who chooses not to abide by ethics and best interest of the business, the accountants and cashiers who are his/her juniors and employees, will not pose questions on the amounts payable, their purpose and even supporting documents.
In this case, the business stands to suffer immense loses.
Since we are all first social animals before anything else, family businesses are best placed to greatness due to their social foundation.
However, due to the contrasting realities of the ethical values among us, the family values alone have proved nonviable in spurring growth and sustainability of businesses owned and run by families.
The social and family ties must therefore be reinforced by effective measures and systems of risk and fraud prevention, detection and control, backed up by best practices.
Otherwise, family owned businesses, majority of which only realize minimal profit margins, will continue to be ‘failed-stories’ due to preventable risks from themselves, the family members.
The Writer is a Criminologist, Certified Security Risk Management Professional and Trainer at Brand Institute of Forensics and Security.