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Governance and Succession Planning in Family Enterprises

  Aug 10, 2018

Founders of family enterprises are often the carriers of the vision. However, some of these great visions hardly live up to the third generation. Succession planning and governance are very crucial in the longevity of any enterprise. Most crucial in this discussion is; the optimal time for the founder to exit or to let go of the day to day running of the business and the structures to enable the founder or the successor to do so seamlessly.

Strathmore University Business School in partnership with Kenya Top 100 Mid-Sized Companies Awards, hosted an entrepreneurial knowledge session on 8th August 2018, discussing the thematic topic: Why do businesses struggle with succession?

Successfully operating family enterprises requires a blend of both strong family values and strategic management skills, to enable the business to grow and transition from one generation to another. Establishing the structures to do so, requires an alignment of both informal and formal structures to propel the business forward. Dr. Edward Mungai, Associate Dean Research, and Innovation gave insights on what are the most critical elements to consider in setting up a governance structure.

Should business always be family owned? Under what circumstances should partial or total sale of ownership be considered? Research shows that listed founder family-controlled firms (FFCFs) perform better than listed non-family firms. However, FFCFs superior performance depends on how a family firm is defined and characteristics of the sample. FFCFs that adopt professional practices and induct non-family managers, respect meritocracy and follow rational decision-making practices perform better.

“Well governed family firms overtime outperforms non-family firms, due to the balance of agency and stewardship. To deal with these challenges, family firms need to formally professionalize operations, minimize family conflicts and manage succession,” explained Dr. Mungai.

The panel discussion comprising of Mr. Emeke Iweriebor – Group Executive Director for East and Southern Africa, United Bank for Africa (UBA), Darshan Chandaria – Group CEO Chandaria Industries and Mrs. Wairimu Njage – Executive Director Rusinga Schools drew experiences from running operations in Family enterprises.

Mr. Emeke Iweriebor echoed the sentiments that the main reason businesses fall before the 3rd generation is that the highly concentrated decision-making processes are often met with the unwillingness to create accountable boards.
Mrs. Wairimu Njage and Darshan Chandaria spoke of the importance of family enterprises in ensuring that they recruit and maintain talent, as opposed to family members entitlement to key influential positions. “Families should be realistic about entitlements. Being a family member should not warrant one a specific post. Positions should be earned on merit,” remarked Mr. Chandaria.

The Kenya Top 100 mid-sized Company survey is an annual competition that seeks to identify the best managed SMEs in the region. It is an initiative of Nation Media Group, financial consulting firm KPMG and Strathmore University Business School, a knowledge partner of the awards. The competition, now in its eleventh year in Kenya, has since expanded to Uganda, Tanzania, and Rwanda. Strathmore University Business School will host Kenya’s Top 100 Mid-Sized Companies Conference, a precursor to the gala dinner in which the 2018 Top 100 mid-sized companies will be recognized.

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