What businesses can learn from Tuskys on succession planning

Tuskys Supermarkets outlet on Tom Mboya Street in Nairobi. PHOTO | FILE 

By Canute Waswa

In Summary

• Entrepreneurs generally put the lion’s share of their effort into building up their business, naturally, while a negligible amount goes into planning for succession, even though it can take up to seven years to successfully transfer a business.

It was a script right out of an Afrosinema movie.

Tuskys Supermarkets chief executive Dan Githua was on Tuesday last week escorted out of his office... by the children of the directors in a dramatic scene that was captured on video. The video showed a handful of people storming Githua’s office, demanding he leave the office and “never to return to the company”.

In the video, the embattled CEO initially hesitates to leave but after some time, walks out of what appears to be a boardroom towards the car park and drives off, amidst shouts from a dozen officials following him.

The incident occurred barely two weeks after fellow columnist Bitange Ndemo wrote about the ‘curse’ of second and third generational wealth. And that is what piqued my interest in the succession dynamic of family businesses.

Let us start here. Families have always been at the heart of business. Family companies are among the world’s oldest. The Hoshi Ryokan, an inn in Japan, has been in the same family since 718. Kongo Gumi, a Japanese family construction firm, was founded even earlier, in 578, but went bust in 2006. The Antinori family has been producing wine in Tuscany since 1385 and the Berettas have been making guns since 1526.

Family companies played a starring role in the development of capitalism: think of the Barings or the Rothschilds in banking or the Fords and Benzes in car making.

And family businesses make up more than 90 per cent of the world’s companies. Many of them are small corner shops. And family businesses can flourish in the most sophisticated areas of the modern economy.

In fact, family companies were perfectly suited for the early stages of capitalism. They provided two of the most important ingredients of growth, trust and loyalty, in a world where banking and legal institutions were often rudimentary and poor communication made far-flung activities hard to control. It was easier to raise money from kinsmen than from strangers. And it was safer to send a relative than a hired hand to expand the business abroad.

Statistics, however, reveal a disconnect between the optimistic belief of today’s family business owners and the reality of the massive failure of family companies to survive through the generations.

Research indicates that family business failures can essentially be traced to one factor: an unfortunate lack of family business succession planning.

The worst thing about family companies is succession. This is difficult in all organisations, but especially so in family firms because it involves biological as well as the institutional sort and throws in a mass of emotions.

Family businesses that restrict their choice of heirs to their children can be left with dunces. Moreover, wealth corrupts, a principle so well-established that many languages have a phrase for it. In English it is “clogs to clogs in three generations”; in Italian “from stables to stars to stables”; in Japanese “the third generation ruins the house”; and in Chinese “wealth does not survive three generations”.

According to the Family Business Institute, an American consultancy, only 30 per cent of family businesses survive into the second generation and 12 per cent into the third. A mere three per cent make it into the fourth and beyond.

The reason is simple. Entrepreneurs generally put the lion’s share of their effort into building up their business, naturally, while a negligible amount goes into planning for succession, even though it can take up to seven years to successfully transfer a business.

As family businesses expand from their entrepreneurial beginnings, they face unique performance and governance challenges

The generations that follow the founder, for example, may insist on running the company even though they are not suited for the job. And as the number of family shareholders increases exponentially generation by generation, with few actually working in the business, the commitment to carry on as owners is taken for granted.
I hope Joram Kamau’s descendants read this. It may just come in handy.

Mr Waswa is a management and HR specialist and managing director of Outdoors Africa. E-mail: waswa@outdoorsafrica.co.ke