I have to apologise to the followers of this blog for the long absence. It has been a hectic month filled with traveling and completing my undergraduate studies. I am back in Kenya and enjoying it so far.

Just the other day I was attending an informal interview at a local investment bank, as I waited for the interviewers at the reception, I picked up a copy of "The African Investor". In it, I read an article about family businesses' and their great appeal to Private Equity. The article can be found here is a very interesting read especially the part where the Kenyatta's are given as an admirable example with Uhuru Kenyatta citing his net worth as being approximately 10 billion dollars. If this is the case, then Uhuru could have personally financed the 2009 budget by himself. However, I doubt the figures.

The article raises an important issue, more so about the state of family business ownership and succession issues especially amongst native Kenyans. This is an issue that needs immense research given that most businesses estimated at around  81% of the businesses in developing countries are family owned. With so much of national wealth and livelihoods dependent on the existence and success of these businesses. Kenyans need to be sensitised on this matter. Some of the key issues are;

  1. Succession. It is important to have succession policies or plans in place. Replacing legendary managers such as Warren Buffett of Berskshire Hathaway or Walt Disney of Disney Inc is usually a very tough challenge, it is made worse when the incumbents are caught up in a cult of personality where as Prof Jeffrey Sonnenfeld of Yale University states "They develop such a heroic persona and there is so much legend and myth-making that their identity becomes one with the job: they feel threatened that somebody could come along to erode that persona". However, given prudent planning both by the current business leaders and preferably by a third party should lead to smooth succession. A number of Asian owned businesses in Kenya are having intergenerational problems due to conflicting aspirations with the latter generation often opting to pursue different interest other than the family business. Right now, this issue is offering ripe pickings for investors in Kenya. In true African style, myths exist that succession planning will lead to the death of the founders, such thinking really curtails any planning and often leads to the demise of the business. In S.Africa it has been found that only 25% of family businesses make it to the 2nd generation and only 10% make it to the third generation.
  2.  Separating ownership from management. In the early phases of the business, it is often the case that the owner will control all key decisions and functions of the organisation. However, as the business grows, it will get more complex. At this stage, it is advisable for the owners to appoint capable managers who will be more qualified to handle the complex business functions. It is often the case in Kenya that owners will still want to retain control of the business functions such as the accounts, logistics, marketing and others more often than not leading to the demise of the business. There are plenty examples of this, with a prominent Stock Broking firm being the main example.
  3. The other issue is remuneration, with owner managers, there is a tendency for many to use the company as a personal bank account. This is one of the biggest factors that ensure that most family owned businesses never reach the second generation. Remuneration structures are needed so that the business survives.  It is advisable and good business practice to pay the family member what the market value of that job is worth. However, in different countries tax considerations come into play that will also affect remuneration.
In a nutshell, it is worth mentioning that before the industrial revolution, there were family businesses, before Wall Steet, there were family businesses and if there is anything certain about our uncertain business environment is that there will be family businesses in the future. Their existence and success is crucial for the economy. Why would you care if you do not and will never have a family business, well, this exposes the great gap that needs to be filled in Kenya's financial circles. The need for dedicated business units in banks, investment firms and asset management firms that will focus solely on family business advice and research. Germany, England and South Africa are well ahead of the curve, it's about time that we got in on the act.