Kenya Association of Stockbrokers and Investment Banks
It always comes as a surprise when a once thriving brand is brought down to its knees, yet, it’s not so surprising when the root cause is succession.
The third generation curse manifests as a staggering decline in the survival rate of mostly family-owned enterprises to 13 percent by the third generation.
The reasons to believe this phenomenon are many, the main among them being the lack of succession planning. Without a clear and well-defined process for passing the leadership torch, businesses remain vulnerable to power struggles and mismanagement.
In business; leadership, governance, and ethics are essential for success. However, family connections and personal agendas can sometimes compromise these principles.
The collapse of many large corporations and retail outlets in Kenya can be attributed largely to the decision to keep the business within the family.
While family succession may seem like a natural choice, it often comes with a number of challenges that can prove invincible. From issues of poor leadership and sibling rivalry to the temptation of preferential treatment and "soft loans" taken by owners, the pitfalls of familial control are manifold.
Choosing the dining table as the backdrop for board meetings might seem cozy, but it could unintentionally blur the boundaries.
Kenya has about 490 family-owned businesses that earn revenues of more than $10 million across a wide range of industries. Out of the 490, 70 companies (14.3 percent) make over $50 million annually, with 22 of those making over $100 million.
Kenya's Vision 2030, the nation's strategy for social and economic development, is largely dependent on these companies as the economic growth engines. Approximately 60 percent of the workforce in the country is employed by these companies.
The founder's curse, a more malevolent phenomenon, holds that "the stronger the founder, the weaker the organisation." As such, not so many enterprises survive past the lifetime of the founder. Geoffrey Odundo, former Chief Executive of the Nairobi Securities Exchange (NSE), advocates for a transformative solution: public listing.
Mr Odundo opined that listing on the stock exchange offers a viable pathway to break free from the founder's curse and secure the future of small and medium-sized enterprises (SMEs) in Kenya.
A public listing has a number of prospective benefits that will assist family-owned businesses with succession challenges. Firstly, considering companies listed on stock exchanges must adhere to strict disclosure standards and regulatory requirements, listing on a stock exchange may encourage transparency and responsibility in the operations of the business.
This increased degree of openness will reduce investor fears and boost trust in governance, which will make succession transitions easier.
Furthermore, family-owned companies have access to a larger pool of capital for growth and expansion projects when they enter the public markets.
Companies can strengthen their long-term viability by implementing governance reforms, funding strategic investments, and carrying out succession planning efforts by utilising the equity markets.
Brenda is Financial Literacy Associate, Kenya Association of Stockbrokers and Investment Banks
