In this region, we have hundreds of thousands of businesses that have been started by individuals who then go on to include spouses and grown children in the organisations.
But the challenge is often a successful transition of business to the second generation, particularly where the founder doesn’t believe that the entity can succeed without their presence and institutional knowledge.
According to Wikipedia, Founder's Syndrome (also founderitis) is the difficulty faced by organisations, and in paticular young companies such as start-ups, where one or more founders maintain disproportionate power and influence following the effective initial establishment of the organisation, leading to a wide range of problems.
In this region, we have hundreds of thousands of businesses that have been started by individuals who then go on to include spouses and grown children in the organisations. But the challenge is often a successful transition of business to the second generation, particularly where the founder doesn’t believe that the entity can succeed without their presence and institutional knowledge.
There are many businesses that are buried in the cemetery of dead ventures that failed to implement basic governance structures that would ensure sustainability beyond the founder’s death or incapacitation. A quick and dirty route that is often used is to give shareholding to the spouse and children so that ownership in the business is established, but the structures for ensuring continuity such as job descriptions for role holders in the business as well as reporting structures are not put in place.
In some cases, having spouses and multiple children in the business can lead to fudged reporting lines for employees with demands and counter-demands ordered that lead to angst and loyalty “fault lines” emerging as some employees interpret the pecking order of the children differently.
A founder, who envisages a legacy beyond just founderitis, can set a clean path to an organisation that outlives them. Giving family members job titles, with clear job descriptions and reporting lines would be a good start, accompanied by an organogram that allows internal stakeholders to know on what side their performance bread is buttered on.
Setting up an “executive committee” (Exco) of management members, who report to the founder CEO, allows for a corporatised environment if meeting times are set in a calendar with a standard agenda for operational performance reporting duly designed and followed. The Exco meetings should take place in the business premises and not at family dinners to clearly demarcate the informal home environment from the more professional organisational environment and also avoids the tag of a “kitchen cabinet” emerging from other senior non-family employees. The founder should then set up a board of directors which may or may not include family members, bringing in critical external insights on how the business is performing within the general economic environment as well as establishing controls and a solid risk assessment over the business.
If the business reporting at Exco level is robust, then information flowing up to the statutory board of directors should be easier to replicate and getting experienced directors who have exposure to other boards would be an excellent way to professionalise how the board processes are structured. A key risk that many family business owners are constantly wary of is exposing their institutional secrets to outsiders who may reveal the information or, in the worst case, set up competing businesses.
A way to mitigate against this risk is to ensure careful selection of external directors who do have a track record of sitting on other boards or who are not known to be serial entrepreneurs that jump at the opportunity of starting a new business time and again. Inserting a non-compete clause in the board appointment letter as well as non-disclosure confidentiality clause could also ensure that board appointees understand their duty of loyalty to the company. While the founder may chair the board, it would be prudent if an independent chairperson is groomed to take over to ensure that the board sets its own agenda rather than that solely of the founder, particularly in the area of oversight and risk management. A good board process should also be continuity of the board itself and here the role of a nominations committee would be useful in setting board director terms, recruitment and succession planning for independent directors.
In setting up a board made up largely of independent directors, the founder ensures that the longevity of the organisation is maintained as good directors should ensure that the business has the right calibre of employees who can run the venture professionally as support to existing family members as well as ensure that succession planning for critical roles is put in place.
Good directors will also ensure the establishment of a credible external audit process, and a viable internal audit resource if the size of the business permits so that control of the business is maintained and identified operational risks are continually mitigated. As treasonous as it may be to imagine the death of a founder, in light of all the big retail businesses that we have seen collapse in the Kenyan boulevard of broken dreams lately, it might be useful to start having these discussions at the next family lunch.
