Kenya’s Multi-Billion Shilling Family Businesses and Succession in a Pandemic

KPMG’s annual African family business barometer for 2020 highlights some of the trends that were apparent in family businesses across Africa, including in East Africa. Interestingly the research found that, despite COVID-19 having affected the confidence levels of family businesses (particularly the uncertainty concerning future economic prospects in the short to medium term), less than 20% of the family owned businesses surveyed said they were significantly impacted by the pandemic, and many generally remained optimistic for the longer term.

This once-in-a-generation crisis has stress tested the foundation, legacy and heritage of family-owned businesses, as well as their ability and dependability, while placing added pressures on them. On the whole, family businesses have come out of the crisis still standing, but importantly, with a better understanding of the operational intricacies of their businesses, ready to face the future and the opportunities that lay ahead in this post-COVID and African Continental Free Trade Area (AfCFTA) era.

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Many businesses have inevitably been forced to rethink their business models to ensure sustainable business operations. Through embracing new ideas and forward-looking innovations, they have developed resilient business models with purpose and values at the core of their operations to preserve their legacy. This is a concept that has been referenced by The Edelman Trust Barometer, where society expects businesses to solve some of societal problems in times of crisis. This being the case, most family-owned businesses have thus exercised their corporate social responsibility in line with their ESG and business strategies. Family businesses, perhaps now more than ever, are focussing on their businesses having a positive impact beyond shareholder return, but particularly on the wider community of stakeholders relevant to their businesses.

Another key trend that has emerged during this period is the accelerated integration and involvement of multiple generations of the family into the business. Driven primarily by the high mortality impact particularly of the patriarch, matriarch, and founder generation, as well as the need to preserve the legacy and founding values of the business, family businesses have used the opportunity to restructure their operations. By doing so, they can ensure that more family members are integrated into the business, for longevity and continuation of the family business and avoid the ‘Founder’s Curse’ dilemma. Where the founder is reluctant to give up day-to-day control of the business, resulting in adverse consequences to the family business and operations.

This is a challenge that is not only apparent in Kenya but across the globe. Insights from Deloitte’s family-owned business survey highlights that 70% of family businesses will have lost their wealth by the second generation, while 90% will have lost it by the third generation. Different cultures have their own version of an old proverb which sums up this challenge. The most common is “shirtsleeves to shirtsleeves in three generations.” In Japan, the expression is “rice paddies to rice paddies in three generations”; in Italy, it is “from the stable to the stars and back again”; and in Scotland, it’s more literal: “the father buys, the son builds, the grandchild sells, and his son begs.” All of which underline the importance of succession planning for families that intend to keep their businesses within the family.

The pandemic highlighted the importance of integrating the next generation into the family business, which is critical to succession planning and ensuring business continuity. The NextGen now have the necessary skills, character, capacity and capability to run many of these family businesses are now ready to make their mark and present the new order of business. This level of competence is acquired through their vast experience having studied in some of the world’s leading universities, as well as their digital exposure, which brings to life different beliefs and systems to the business that give them a competitive edge in an ever-changing market landscape.

As a leading international finance centre, Jersey provides a forward-thinking approach, a comprehensive legal and regulatory framework, and offers certainty, stability, and substance. With the current increase in pan-African and cross-border activity, such expertise will help family-owned businesses to scale and protect their wealth. Essentially what this does, is it enables family-owned businesses to raise capital that will give them the financial support they need to expand. Taking into consideration different regional blocs and treaties, such as the East African Community trading bloc and the AfCFTA, will allow family-owned businesses to enter new markets, expand their customer base and develop new products and services.

A good example of this is the significant private equity investment made by French investment firm Amethis Finance in the Ramco Group, an East Africa head-quartered family business conglomerate, in 2014. This private equity investment was primarily used to allow an accelerated, but structured, expansion of the group into the East African print sector. As a result of this growth, the group has now grown to more than 50 companies operating within East Africa. Despite its humble beginnings in Nairobi in 1948, with foresight, careful planning and a mixture of family and professional management, the group has since expanded into key economies in East Africa, employing more than 4,000 people with ambitious targets to grow even further and expand across Africa.

What success stories tell us, time and time again, is that careful planning and engaging experienced experts early provides the foundations for the preservation and protection of the family business, thus ensuring its continued survival and operation.

Involving multiple generations of the family and any professional management of the business in these discussions also helps to foster and create meaningful governance structures and avoid conflict in the long term. This ensures that the business is focussed on growing and expanding within the agreed objectives and aspirations of the founder and his or her family. Conversely, what we also learn from colossal failures of once booming family businesses, and there are plenty of examples of this in Kenya, is that family businesses that fail to put in place robust governance and succession planning, at the death of the founder, are most likely going to end up in prolonged legal battles, bitter family disputes and the ultimate destruction and significant downscaling of their business.

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