Why do people start family businesses?
Why does anyone start a family business? As a long-standing business advisor, there are days when I feel compelled to ask that question.
This is one of those days. I ask because I feel sickened by the myriad court battles, protracted inheritance disputes and ugly sibling rivalries that so often characterise family businesses here in Kenya. So frequent are these events that I question whether most Kenyan family businesses will ever survive beyond the second generation.
Family businesses are the beating heart of the world economy, make no mistake. They are believed to represent 80 per cent of companies worldwide. But they have a problem. They don’t have good survival rates.
A survey by Egon Zehnder reveals that only 30 per cent of family firms make it to the second generation; only 12 per cent make it to the third generation; and just a tiny 3 per cent survive to the fourth generation and beyond. The vast majority die with their founder. Very few get it right.
Why should this be? Do you really need me to answer that question? The answers are all around you in our news headlines in Kenya: endless court appearances; fistfights between siblings in inheritance rows; chief executives ousted by factions of the board, then reinstated, then ousted again. All with cameras present.
Most family businesses have a strong founder who builds them. Sometimes with vision and guts and determination; sometimes with connections, patronage and deceit. This founder, quite naturally, tries to involve family members in the business. Partly to spread the newfound wealth amongst those with blood ties; partly because it is easier to trust and motivate your kin. Or so they think.
Once the founder passes on, however, all hell often breaks loose. Those family members whom the founder generously involved in the business seem to develop a dangerous sense of entitlement, and think the business is their cake to divide. Other family members, legitimate or illegitimate, crawl out of the woodwork to lay claim to the cake, frothing bitterly at the mouth to grab their piece. And all those who used to dutifully gather at the founder’s farm to listen to his rambling stories with fake fraternal bonhomie reveal themselves for what they really are: an avaricious pack of hyenas battling over a corpse.
Because a corpse is what the business quickly becomes when it is under dispute. Good employees stay away or leave. Who wants to be in a business where ownership is not clear; where family factions fight over the assets; where spoilt brats expect regular cash allowances from the takings? Banks shy away or demand a premium for lending to the firm due to the risk involved. Competitiveness suffers because of weak funding and dysfunctional management. Customers start migrating as the dirty linen is shown daily to the world.
Eventually, once the fighting is done, there is no prize to take home. The business is extinct, with a posse of enriched lawyers conducting the final rites.
So I ask again. Do you really want to involve all those family members in your business? The chances are very good that it will end in tears.
A business is not a prize. It is something that must be nurtured and nourished. It needs care and attention. It must be run to high standards, and protected from fraud and larceny. It demands proper corporate governance and oversight. Otherwise you will be left holding a debt-ridden corpse.
Do you still want to run a business with your family? Really? In that case I have some recommendations for you. First, please create some family values around sharing and kinship. Second, educate your kinfolk on what a business actually is. Third, don’t let their expectations go crazy; set a requirement that those who reap from the business must also put in their sweat and toil. Fourth, develop a talent pool and only allow qualified and credible family members anywhere near the company, and then too only when mixed judiciously with professional outsiders.
Fifth, put in robust governance mechanisms to regulate the decisions of the company, keeping family issues far away from the boardroom. And lastly, write it all down and make it legally foolproof. Oh, and you have to do all of that in your lifetime. Don’t just croak and leave an almighty mess of seething greed behind you.
If you can’t do any of that, do us all a favour and employ professionals from the beginning. We don’t need another ugly family soap opera on our screens.
(Sunday Nation, 6th March 2016)
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