Avoid feuds in family business succession

When Maurice Hennessy visited Kenya in April 2018 to celebrate 200 years of their flagship product Hennessy VSOP, I had the privilege of having dinner with him, his nephew, Roch Hennessy, and 20 other Kenyans.

As a teetotaller, my interest was not the Cognac. I wanted to understand why some family businesses succeed in managing inevitable inter-generation succession while others don’t.

Maurice didn’t give a simple answer to this question. However, I gathered from our discussion that sustaining an enterprise into the eighth generation requires a lot of trust and respect for others.

These attributes are what is needed in order to delegate and give those you work with responsibilities that are necessary to see a successful enterprise.

A few more minutes with Maurice revealed that these attributes don’t come automatically. Both the founders and successors must deliberately captivate the necessary will and interest to effect a successful transition that does not disrupt the business operation.

Exposure to business at an early age certainly helps. Maurice, for example, grew up in Cognac, France, tending to their family vineyards. He studied Agriculture at a College in Paris. Except for a brief stint in West Africa, Maurice has basically been in family business throughout his life, helping to build the brand.

Several other family enterprises globally have succeeded in sustaining their businesses into multiple generation with different strategies. Some dilute their shares through capital markets by bringing in outsiders to run the organisation professionally watched by regulators.

Others try to sustain their enterprises through consensus but this has proven difficult simply because money has always been stronger than family ties.

Despite examples like the Hennessey’s and the existence of so much literature on sustaining family businesses, local entrepreneurs seem to be making horrible decisions in an attempt to achieve two divergent objectives of holding the family together and ensuring their lifestyle is sustained.

Media is replete with family feuds around succession in businesses founded by the first generation of entrepreneurs.

These feuds are often made worse by two factors: the profligate lives of the children of the rich which contrasts heavily with the frugality of the founders, as well as the tendency by founders to hold on for too long.

Such founders tend to forget that their demise is inevitable as day rise. They decline to give responsibilities for fear that their business will be ruined without realising that the business will be ruined anyway after their demise. It is better to allow children to run businesses while the founder provides whatever oversight.

Where children are not involved they develop interests other than family enterprise.

By holding on for too long, the enterprise patriarch or matriarch denies them the benefit of experience and some remain strangers until the demise of parents. This is common with many local entrepreneurs where in some cases children as old as 40 years have no clear understanding of their family ventures.

Some local enterprises, however, are making right decisions.

For example, the recent dilution of shares in Riara Schools to provide majority ownership to outsiders is perhaps the best demonstration of entrepreneurial leadership witnessed in Kenya.

The Gachukia heirs can now be part owners of the new entity just as any other shareholder. In the long run, the family unit remains intact and the motivation to sustain the enterprise.

The founders of the Riara empire have a story to tell the world but from their public display of their relationship, both Mama and Mzee played significant roles suggesting they had a trusting relationship. This trust attribute featured in the Hennessey’s story.

New families pop up after the demise of the enterprise founder. The resulting feuds have no good purpose other than destroying the family name.