Family vs. professionally run businesses

BY ANTONY MUTUNGA

History has it that family business is considered as the oldest and most common model of economic organization. Generation after generation would take over the family business either keeping it afloat or running it to the ground. While most of the people who founded the family businesses were successful in managing them, they always had problems when it came to handing over from one generation to another.

This created a stereotype that always the first generation would build the family business, the second would expand it and the third would destroy it. Out of fear in addition to a lack of interest in the family business by their successors, some founders decided to start calling in outsiders with knowledge to manage while they just remained as overseers with some control.

This saw the introduction of professionals as the family wanted to do what was best for their firms to survive and grow.  The success of professionally run businesses increased over the years causing people to start preferring them over family run businesses.

Economists and experts even expected the family business model to fade away quickly. However, family run firms proved the economists’ expectations wrong as they did not fade but instead increased their presence over the years.

For example, according to the Global Fortune 500 list 2016, the top company was a family-run organization, Wal-Mart. Other companies to also make the top ten of the prestigious list included Volkswagen and Toyota Corporation. Other examples of family run firms include Koch industries, currently run by the infamous Koch brothers and the in-land supermarket, Naivas.

On the other hand, professionally run companies also flourished over the years stealing the popularity of family run businesses. In the Global Fortune 500 list 2016, the rest of seven companies in the top ten were professionally run. It clearly indicates just how much professionalism has changed the business sector. Professionally run businesses include the likes of Apple, BP, ExxonMobil, Microsoft and inland supermarket, Uchumi.

However, the question that still remains is if businesses are better off under family leadership or are professionals the better option to help the company grow.

Family run businesses, regardless of having fewer numbers in the top ten of the list, still had an overall high percentage, above 40%, in the complete list, which included 500 companies. This was majorly attributed to the successful management of founders as they always had a long-term outlook in mind.

In the case of the Kenyan retailer, the success of Tuskys supermarket over the years was due to the excellent leadership and management of the late Joram Kamau who founded the company in 1990 as a small shop called Magic and eventually built it from the ground up to its current feat.

In addition to successful management, the survival of family run firms over the years can also be accredited to how well their founders transition from one generation to the other. Most founders groom their successors at an early age in order to prepare them to take over in the future. However, this is not always the case as some lack a succession plan and when it comes to passing over the torch, those who succeed them are unable to keep the companies afloat.

The founding father of Tuskys Supermarket successfully groomed his children to take over and expand the company. Filled with knowledge left to them by their late father, the children of the late Kamau took over the family business and went ahead to do as expected of them. They had a sense of commitment to keep their father’s legacy alive. This is another advantage of family-run businesses; they are motivated by commitment as their interests are at stake. They always have to ensure everything runs smoothly so as the family needs do not suffer a setback.

In spite of a sense of commitment, family run businesses are highly affected by family conflicts. Conflict is normal and can be solved among colleagues but it is difficult to handle when family members are involved. Mixed interests are the main reasons for family quarrels; they usually draw divisive lines that cause family run businesses to start crumbling.

Tuskys Supermarket was expanding well recording more than Sh31million in revenues in 2011 but family squabbles are now threatening it, with family members fighting over who should manage the retailer. It appears to be the textbook case of the so-called curse of the third generation. This caused the company to appoint a non- member as C.E.O in 2015 for the first time in the company’s history.

Similarly to family run businesses, professionally run businesses also depend highly on the success of the management. However, they do not concern much with long-term outlooks rather they concentrate more on the goals they are to achieve. When Tuskys appointed a non-family member as C.E.O, the retailer went back to its glory days.

This was however short lived; the C.E.O was accused of having other interests, which led to his suspension. Unlike family run businesses, professionally run firms are at the mercy of professionals who do not always put the interests of the family first. This can be attributed to the fact the professional managers work towards growing and expanding the company regardless of whether it is in the favour of the family or not.

Professionally run businesses also have a decentralized form of authority compared to family run businesses that are centralized. This assists each and every person in the company to grow leading to more profits for the organization. This is the exact opposite of family run businesses where the form of authority is centralized and only the management can make decisions leaving less room for growth among subordinates.

During the Kenya Top 100 mid-sized companies’ survey conference last month, family companies were urged to integrate professional management in their companies if they are to experience faster growth and mitigate risks associated with demise of vision bearers. However, according to a survey in 12 big economies by Edelman, a PR firm, 73% of people said they trusted family owned companies more, compared to the 64% who said they trusted publicly traded companies run by professionals.

Family run businesses will survive and grow as long as they have good management. In the absence of able successors, founding fathers need to be ready to integrate professionals to ensure the survival of their businesses. The question of which is better may still be difficult to answer but regardless of whichever one picks, the main aim of business remains to be maximizing profits.