Is there Hope for Family Businesses?

By November 15, 2017Evolve Insights

As it appeared in the Daily Nation on November 14th, 2017
Do you work in a family business? What do you think about the future of your organization? Like many other people, I have had the opportunity of working in a family business. The large company where I worked for almost 2 years already had three generations involved in its operations. The second generation was actively involved in the management of the business; their founding father was getting frail and the third generation was just getting off college. In addition to the members of the founder’s family, there were other relatives working in the business. When I look back, this business would not have survived the death of its founder had it not brought in professional managers.

Most large corporations started as family businesses and some have retained family control. According to the inc.com encyclopaedia, family businesses are the oldest form of business organization and are simply businesses in which two or more family members are involved with the majority of ownership or control lying within a family. Many of us may have heard of the Sam Walton family behind Walmart, Cadbury brothers behind the Cadbury brand, the Porsche family behind Volkswagen. Other large family businesses include Koch Industries, Ford, Carlson, Oracle, Nike, Samsung, Cargill and many others.

Closer home, the list of family businesses in Kenya is endless. We may know of large family-owned business such as Bidco oil refineries, the Simba Corporation, Nakumatt, Tuskys, Ramco Group, Brookside Dairy, the Makini schools and many others. There are also plenty of family owned small and medium sized businesses. Indeed, most business in Kenya and across the globe are family owned or family controlled. On its website, the Association of Family Business Enterprises (AFBE) reports that family businesses in Kenya account for approximately 80% of the economy and work force. It is true to say that family businesses are an economic powerhouse that drives the world of business locally and globally.

With more than 150 of the Fortune 500 companies being family-controlled, family business will remain a major backbone of the global economy. While some statistics paint a bright picture for family businesses, others paint a grim one. For example, a 2016 Family Business Survey by PricewaterhouseCoopers (PWC) indicates that nearly half of family business owners (43%) have no succession plan. In Kenya the same survey showed that 45% of the family businesses surveyed had no succession plan. Succession planning is one of the major challenges facing family businesses across the globe. Is there hope for family businesses?

According to Family Business Alliance an association of family businesses in the USA, more than 30% of family businesses survive into the second generation, 12% are still be viable into the third generation and 3% operate to the fourth-generation and beyond. AFBE on the other hand points out that less than 15% of family businesses in Kenya exist after the first generation. I believe it was for this reason that AFBE was founded two years ago so that more family businesses in Kenya can transition into successive generations.

Having recently witnessed thousands of jobs lost at Nakumatt it is important that we rethink family businesses survival. I believe the question of family business in the African context needs to be supported more by regulators, associations, the academia, researchers as well as business advisory firms to give secure the millions of jobs in these businesses.

Lucy Kiruthu is a Management Consultant and Trainer connect via twitter @KiruthuLucy