Handing over power in family businesses

 Kwagala is not alone. Several family businesses end up folding because of a succession deal gone wrong due to various reasons ranging from different interests. Some parents force a child to inherit the family farm yet he or she has not been involved in the daily operations of the farm. 
 The question of what happens to the inheritance and who can take it forward brings up several questions. For others to watch their companies languish, founders refer to other options for succession besides family members. The idea to share it with an investor is seemingly gaining traction in order to minimise collapse.
 The founder of Kenya Women Finance Trust and proprietor of Makini Schools Dr. Elizabeth Mary Okello, decided to sell the schools. 

 The school was founded by Okello and her husband Pius Okello under the name Riara Gardens Academy in 1978 before it was changed to Makini Schools.
 She started the institution of learning as a result of the drop in education standards and the need to improve the education system.
 The learning institution since then has grown into a reputable institution with several schools including; Makini Cambridge, Makini Ngong Road Campus (Pre and Primary School), Makini Ngong Road Campus - High School, Makini Junior Academy, State House Avenue (Pre & Lower Primary), Makini Junior School Migosi, Makini School Kibos and Makini School Kisumu.

  Information indicates that in 2018, however, Okello surrendered management of the Makini schools to UK-based investor Scholé Limited and South Africa’s Johannesburg Stock Exchange (JSE)-listed Advtech.
  Okello earned nearly Ksh1 billion (Shs26.5 billion) from the sale of a 71 percent stake.  For her, this was her way of securing the legacy of Makini schools. 
 

Distribute shares
Speaking during the launch of the Succession (Amendment )Act, 2022, in Kampala, Nobert Mao, the Minister of Justice, noted that several people suffer silently when it comes to succession issues.

 “I believe this can be avoided and things move faster when they know what is at stake. The higher the stake, the more involved you must be,” Mao says.
 As you communicate succession, talk about the steps. Will the family have a shared future or not? Will succession be through distribution? 

“I think succession should not just be about distribution. It is possible to distribute without dividing. It can be in terms of shares but not division,” he adds, noting that there is a need for distribution in terms of inter-generational wealth. 
 In addition, there are modern solutions or instruments of incorporation. This  means “you can create a trust or living trust to deal with the headache of who owns what,” he says. 
In most cases, the goal of succession is to ensure education for those going to school and support vulnerable members of the family. 

 To avoid succession chaos, it is better to consolidate and do it in a better form without personalising the burden which was the case long ago. This can be through setting up a benevolent fund.
 “When it comes to succession and carrying on the empire or transitioning of the estate, one of the things giving them headaches is children who do not care about the cows or are even less interested in them. Others do not love being in hotels or the hospitality business,” he explained. 
 This, therefore, calls for estate planning or setting up a structure to help overcome chaos. 
 

 Structural plan
During an I & M bank plus IFC organised symposium about Corporate Governance and succession planning for family businesses, some solutions were sought on ensuring business continuity.
If you do not know who to transfer the business to, selling it off might be a better option. 

But a successful transition delivers, it increases revenues, cuts costs, and boosts customer satisfaction. 
It also frees up critical resources you can use to shore up activities designed to create a sustained competitive advantage and given today’s hotly contested marketplaces, creating a sustained competitive advantage is imperative if you want to survive.
 
 Succession plan
Sam Ntulume, chief executive officer of I&M Bank, says it is important to have a succession plan to identify the right people who are energetic, passionate, and understand the business in which the industry is involved.
  He notes that in the banking industry, they encourage customers to have good governance issues and good succession planning.

  “When it comes to banking, which is about receiving deposits and lending to customers who want to boost their finances, we need to ensure the company has good succession planning because when we lend the money, we want it to come back and ensure the organisation we are dealing with is to help close the gap through identifying that the person we are dealing with or the organisation is properly governed and has good succession plans and will exist in the long term,” Ntulume says. 

Sam Alibhai, a partner at PKF, notes that only about three to five entities reach the fourth generation. These, he says, have challenges around the regulatory environment and complying with regulations, especially with banks when the bank moves from one generation to another. 

 “Have good board members who have a variety of knowledge. When you look at several family businesses within the region, a substantial number of businesses have been able to get succession planning whether within the family members or outsiders either through an initial public offer on the stock exchange, venture capitalists, or private equity firm,” Alibhai says.

Competitor sale
  Thirdly, selling the business to the competitor may not always be a good thing because, in such instances some of those brands are eventually done away with where the competitor does not have to continue to keep on worrying about competition in the market.
 “It may give the financial worth to the business but it may take away the brand equity at the end of the day because somebody has spent a considerable amount of time building up for the last couple of years,” Alibhai adds.