[vc_row][vc_column width=”2/3″][vc_column_text]Last Tuesday, a video of a nauseating scene at the Tuskys management offices went viral on social media. In case you missed it, an entitled, uncouth and mealy mouthed ragtag of young family members burst their way into the Tuskys CEO’s office and demanded that he leave the premises immediately. Having engaged some media journalists to film this Mexican soap opera in its full but cheap theatric version, the posse used choice epithets and kindergarten taunts to push the CEO out of his office, into his car and out of the premises. What they did was, to say the least, a childish but very public display of corporate ignorance. Legend has it that many years ago, the grandfather, Joram Kamau, started the business as a small provisional store called Tusker Mattresses in Rongai, Nakuru county. He grew the business slowly and eventually expanded by opening the first store in Nairobi’s Tom Mboya Street, as his some of his sons joined and helped to grow it into the successful enterprise that it has become. He passed away but ensured that the shareholding of the business, which had been formally structured into a private company, was distributed amongst his seven children. However, since early 2012, the public has been treated to sibling fistfights and courtroom battles for control of the multi billion shilling turnover business.

Let me tell you young rabble-rousers what no one else will tell you: the business may have been started by your grandfather, but now has multiple stakeholders who are deeply invested in its success. The first of these stakeholders are the employees who wake up at the crack of dawn every morning, while you turn on your mattress in blissful slumber, to walk or ride to work in the supermarket branches and at the head office. Their daily labor output helps to serve customers who purchase the goods that produce the revenue that eventually filters into dividends that line your mealy mouthed pockets. The second key stakeholders are the suppliers of the stocks on the shelves of the supermarkets. If no products are delivered, no sales will be generated. The third key stakeholders are the banks that lend the working capital to the business. They monitor the cash flow with beady eyes, ensuring that money generated from goods sold is not diverted to other non commercial uses, as that will spell disaster in the form of non-repayment of loans. The business is no longer a small, rural kiosk. It’s a corporate entity.
A typical family business goes from rags to riches and back to rags in three generations. Research has shown that only about 10% of family businesses make it to the fourth generation. Once you rabble-rousers have deposited your juvenile theatrics at the left luggage counter at the Tom Mboya Street branch, you urgently need to put together a family constitution that is an instrument often used by wealthy families to avoid future disputes. According to a KPMG Canada advisory paper titled “Constructing a Family Constitution” a family constitution serves three purposes. Firstly, it documents the values and principles that will underpin the conduct of the family business. Secondly, it defines the strategic objectives of the business. Finally it sets out the way in which the family will make the decisions affecting the ownership and management of the business.

The fact is that many family businesses don’t fail because the business has become unsound; rather they fail because the family member disputes derail the business from the successful track laid out by the original founder. The KPMG paper finds that from their own research there are five common issues for family businesses namely balancing family concerns and business interests, compensating family members involved in the business, maintaining family control of the business, preparing and training a successor and finally, selecting a successor. What we witnessed on television last week, was clearly a dispute over the last point, that is, some family members clearly have not accepted the current external successor that was appointed primarily to dilute the dispute about an internal successor running the business as was previously the case. That this fight was going to happen was inevitable. The KPMG research paper finds that as any family business grows into the second generation, the demands of the business and the demands of the family members working in it begin to diverge. The family dynamic may be that while not all the children or grandchildren are interested in running the business, all are highly interested in receiving the benefits in the form of dividends therefrom. The family constitution therefore helps to address these issues for current and future generations. A good constitution thus takes into consideration a number of issues such as the strategic business objectives that should reflect agreed family values and aspirations for the business. It should also include the process for hiring, assessing and remunerating family members employed in the business together with the rules for nominating and appointing management successors and the process for nominating and assessing individuals for appointments to the company’s board of directors or family council. Further, it should cover the composition and rules of conduct for a family council, communication and disclosure policies between the company and family, the process for resolving conflicts about the business between members of the family, rights and obligations of shareholders as well as the recommended or compulsory retirement age for family directors and managers. Finally, the constitution should also include the process for buying out family shareholders in the business, and clearly articulate policies concerning external, non-family ownership and management of the business as well as procedures for amendments to the constitution.

It’s never too late to write a family constitution but it is best done during the lifetime of the founder to ensure that his or her values are distinctively captured for posterity. It then helps to avoid the despicable television drama that the Tusky’s grandchildren have sullied their grandfather’s name and memory with.

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Twitter: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]