Family businesses are often seen as the backbone of developing economies since they foster entrepreneurship with strong business values, long-term and strategic vision and a deep connection to the community. Despite this, such businesses carry a lot of potential risks which are rarely discussed until they are exposed to the public. In Africa, especially Kenya, family companies dominate the key sectors such as retail, real estate and manufacturing. Despite these businesses being built on years of hard work and sacrifice, inherent characteristics such as tight control and trust-based leadership which prove to be beneficial to them also serves as their greatest weakness once a conflict arises.
Family businesses portray an image of long-term and strategic vision. This can be attributed to minimal pressure from the shareholders, which allows them to reinvest patiently and have a solid plan over the next few years. However, such organizations suffer from limited formal governance, bypassing professional channels for informal and emotion-driven decision making. Second, stability of the business revolves around the founder. Once the founder passes away or resigns, leadership wrangles and rivalries begin to rise. For instance, once Tarlochan Singh Rai, the patriarch of the Rai Family passed away, his sons have been in a constant dispute, with the latest one being Iqbal Rai trying to access and gain control of the bank accounts of the family’s investment company after being locked out.
Family companies are characterized by concentrated power among a few family members, often without an elaborate leadership structure. Their board rooms often lack independence and executive appointments are based on loyalty rather than meritocracy. This fosters a weak corporate structure and enables environments where disputes can quickly lead to court battles and a publicized scandal which will lead to reputation damage and stalls business decisions which will affect the company in the long-run.
Many family companies operate unclearly, which cannot be enforced by law. Family founders operate under the assumption that their children will sort themselves out, often ignoring the complexities surrounding power sharing, especially when the businesses have grown to great heights. Without a solid governance structure, succession becomes a major issue. Unfortunately, Kenyan family businesses have been plagued by unclear succession issues. For instance, Tuskys Supermarket, which was a major shareholder in the retail sector, declined shortly after the death of its founder Joram Kamau. Power struggles among his children over leadership wrangles led to its eventual collapse.
There have been many family-owned businesses that have suffered the same fate as their predecessors. Upcoming family businesses can avoid the same fate by implementing reforms such as formalization of governance where the businesses should strive to include independent directors and separate ownership from management. Second, establish clear succession plans to minimize the risk of future leadership wrangles. Third, establish internal dispute resolution mechanisms which will keep potential disputes out of the public eye.
Family businesses are key to a country’s economic growth. However, emotional decision-making and unclear governance will always plague these organizations, unless they revolve structurally and culturally.
