Navigating succession planning for Kenyan family enterprises

Succession planning is a critical aspect of family businesses all around the world, including in Kenya. A recent report by PwC revealed that a staggering 70% of family firms may not survive the transition to the next generation. This alarming statistic raises important questions about the challenges faced by family businesses in East Africa and the risks they run if succession planning is not approached properly. Faizal Bhana, Director Middle East, Africa, and India at Jersey Finance, shed light on these issues in a recent interview on CNBC Africa. He emphasized that the main issue plaguing family enterprises is the lack of adequate governance and a clear succession plan both at the family level and within the family business. The absence of proper governance structures often leads to power struggles among family members, disputes within the family, and conflicts between family members and professional management within the business. Bhana highlighted the devastating consequences that can arise in the event of a key stakeholder's death, especially during crises such as the COVID-19 pandemic. Without a well-thought-out succession plan in place, family businesses risk facing chaos and even collapse. One of the key challenges identified by Bhana is the reluctance of many families to involve legal frameworks in their succession planning process. In cases where there is no will outlining the distribution of assets, the court may intervene, leading to a loss of control over the family's wealth. However, Bhana noted that in regions like the Middle East, governments are actively supporting family businesses by enacting laws and setting up support systems to facilitate smooth transitions and ensure the sustainability of family enterprises. In Kenya and other East African markets, different communities are exploring innovative methods to address succession planning challenges. Bhana touched upon the concept of 'Wakf,' an Islamic form of endowment that allows Muslim families to structure their wealth for charitable or family benefit purposes. This tool is particularly relevant in regions with significant Muslim populations, such as Mombasa and the coastal areas of Kenya. Moreover, families have access to a range of structures like trusts, foundations, and corporate entities that can incorporate cultural beliefs and traditions while providing a legal framework for governance. As the conversation drew to a close, Bhana was unable to delve deeper into the involvement of Islamic financial institutions in supporting succession planning for family businesses. However, he hinted at the potential for these institutions to play a vital role in assisting families with Islamic backgrounds in navigating the complexities of succession planning. The challenges and complexities surrounding succession planning for family enterprises in Kenya require urgent attention and proactive measures. By addressing issues related to governance, succession planning, and cultural considerations, family businesses can enhance their resilience and long-term sustainability. Embracing innovative tools and seeking support from legal and financial experts can pave the way for a smoother transition to the next generation, ensuring the continuity and prosperity of family enterprises for years to come.