In Kenya, most family businesses do not last two generations. That is an unfortunate reality that carries dire financial and social implications for families behind the enterprises and for the economy as well due to the significant capital destruction.
Some of the reasons for the downfall of these businesses includes an entitlement culture, generational differences in terms of vision and priorities and lack of family cohesion.
An enterprise may adopt the best business plan, but unless the above issues are identified and addresses, it is built on quicksand.
To guarantee their businesses not only last but thrive across generations long after they are gone, discerning founders contract the services of a family office, wealth management firm that provides personalised services, including investment management, financial planning, and estate planning, to help them lay the foundation for a successful future.
Besides addressing the family dynamics, the family office advises on the applicable legal and tax regimes, and help the businesses navigate complicated economic conditions like exchange controls, currency issues, and political turmoil.
So, what are the critical issues for consideration when commencing a discussion with a family?
First, the business lines operated, including but not limited to any existing joint ventures plus other relevant issues which may be unique to that family and the country or countries in which the businesses are located. For instance, political risk issues require considering the use of bilateral investment treaties to strengthen the legal position of a family.
Second, the office considers corporate governance (or lack thereof) of a business which may include having in place a remuneration or dividend policy.
Third, religious background and its importance (for example the applicability of Sharia’h principles on the succession planning) is also an important starting point.
Fourth, educational backgrounds of the family members and an overview of the family dynamics and “politics” are disclosed at this stage.
Fifth, the role of spouses and female family members is explored especially as the issue of spouses and female family members continues to be a topic of debate in certain jurisdictions.
Sixth, the office makes enquires into the long term aims and aspirations of the patriarch and/or significant owners. This in itself is a complicated discussion as the aim to get to the bottom of the vision and key drivers, how family relationships are viewed and the outcomes ideally sought by the family.
Lastly, this initial discussion helps give an understanding the overall debt and equity make-up of the businesses.
This is not exhaustive as the circumstances of each family are different. However, it allows the team of expert in the family office to put together pieces of a complex jigsaw and to create a high-level view of the overall state of affairs, salient challenges and hopefully, the “glue” keeping the family together.
This initial discussion helps gauge the “temperature” of the stakeholders, especially as many patriarchs and family chairpersons tend to think that all is well at the home front, refusing to acknowledge home truths even if apparent.
However, having a candid discussion, the family office receives feedback from all stakeholders on an entirely confidential basis (this is agreed in advance with the key family members). The feedback is based on detailed questionnaires which we prepare and are bespoke to each family. One hopes that the areas of mutual understanding and “family glue” outweigh the differences and areas of disagreement.
This feedback is vital if one is to have an honest and open conversation as to the actual state of affairs existing within a family. The truth often hurts but it is best faced in advance. To be effective, the advisors are balanced, open minded, empathetic but also honest and fearless in highlighting different issues and challenges. Giving unpleasant feedback can be tough but there is no choice if the advisor is to advise on remedial steps and suggest constructive, practical and long-term solutions.
After the discussion, the next step is to arrange a family (stakeholder) workshop. The purpose is to highlight the “family glue” – the important drivers why the family wishes to be together in business in the long-term and the strengths of the family. However, the areas of disagreement must also be highlighted (on a no names basis, of course), to try to build consensus around areas of material disagreement.
It is impossible to agree on every aspect but finding common ground on salient themes is the ideal outcome. Again, the role of the advisors in this process is critical. It is imperative they are (and seen to be), open, honest, caring and able to listen and not lecture. The moment there is a sense of “an agenda” in place and trust is lost then the process will be derailed.
Atiq Anjarwalla is a Senior Partner, Mona Doshi is a Partner and Kajal Patel is a Senior Associate at ALN Kenya | Anjarwalla & Khanna.
