As of 2016, we have more than 490 family-owned businesses in Kenya making a turnover of more than 1 billion Kenyan Shillings according to AsokoInsight. This is a testament that family businesses can and are working. But it is not a walk in the park, family-run businesses have a unique set of challenges not found in other private and public firms.
In a series of blogs, we aim to decipher the pillars of successful family businesses. It all stands or falls on management, hence we wish to begin with Corporate Governance as a pillar of a successful family-run business.
Below is a highlight of some of the bottlenecks for sound corporate governance in the areas below,
The composition of family-owned businesses is a limitation by itself. In the beginning competencies and skills are limited to the members of the family. In most FOBs the board members are usually preferably chosen from the family lineage; this is usually an opportunity cost that might be higher than getting an external unrelated consultant.
It is however advisable to outsource competencies lacking among the members and to ensure the hired individuals have the relevant authority and resources to perform their duties
It refers to the avoidance of being unduly influenced by the vested interest and to be free in terms of decision making. It becomes a challenge when one who is a family member to choose between the right choices in running the business and the values of the family which most of the time conflict from any constraints that would present a correct course of action to be taken. When it comes to this situation most of the time one would be forced to be lean towards their family values and automatically becomes biased that the best course of action would not be achieved.
One of the toughest decisions to be made in FOBs is Objectivity. It mainly shows up in small phases before it baffles those in charge. In the event that an incompetent family member is involved in running the business and overlooks rationality, professional standards, procedures, and practices in the institution and the laid down statutory regulations it means decisions would be taken without due diligence.
Objectivity is also compromised when such a person holds a position of prominence with a final say to the overall strategic decision-making of the organization.
FOBs are hence best run with the oversight of a competent board which will hence guide the important going concern strategic goals of the said firm.
Criteria of Evaluation and assessment;
Even the best ran FOBs at times operate with trust, but should they employ other important pillars or practices such as ethical leadership in the business, transparency in running the business or the business finds its way to deal with the agency problem in time should it arise would push the business in the right direction especially when the business struggles to meet its competitive advantage to beat its peers.
Designing and Implementation of Governance Audits;
Every business strives to acquire the adequacy and effectiveness of their organizations’ policies, systems practices, and processes within the legal regulatory framework. Should the FOB fail to observe some of the good governance practices like those mentioned above it will complicate the process of checks and balances and ultimately hinder making some of those running the business be held accountable on policies made that are not in line with the set standards and also the businesses objectives.