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Avoiding family wars that ruin businesses

These days I am being invited more frequently to help align family members within their businesses so they can lead the organisations they own more effectively.

I am encouraged by those who reach out to me for such assistance, as it speaks of being realistic about the importance of cohesiveness among them and of feeling optimistic that they can indeed do better.

In my capacity as an adviser — or, as I often label myself, coach — I first listen to each family member involved, getting a sense of their personalities and styles, and of the roles they play in their enterprise.

In a spirit of “appreciative inquiry” I like to start by having them tell me about the achievements they are proudest of and the strengths that explain them, and then asking them to share the challenges they face — including and not least with other family members.

For this to happen I don’t rush into these topics, but begin by building a relaxed, cheerful and trusting relationship with them, getting them to talk more generally about their lives, while revealing something about mine.

Business school

As I was preparing to write this article I caught sight of a book I’d bought some years ago at the London Business School bookshop but had never got round to reading.

Published in 2008, Family Wars is about some of the biggest family-run companies in the world, showing how in-fighting among family members threatened to bring about their downfall.

It covers families such as Ford, Gucci and the Watsons of IBM, using these as examples of different categories of wars, not least between fathers and sons, among siblings, and as a result of marriages between families.

It also provides advice for anyone involved in a family business, offering suggestions on how to avoid such problems.

The book’s authors are London Business School Prof Nigel Nicholson, whose research interests include the psychology of family business, and Grant Gordon, the director-general of the Institute for Family Business and a fifth-generation member and former senior executive of William Grant & Sons, the distillers of Glenfiddich whisky (my favourite).

Despite relating stories of specific family “wars” they are careful to point out that many with family ownership outperform other kinds of organisations, and that some of the world’s oldest companies are those that have remained owned by their founding families.

I related very closely to what I read about both the kinds of challenges that family businesses commonly face, and how to prevent them and handle them if and when they arise.

Not least about the wisdom of “appointing skilled non-family professionals to fill business leadership roles”; “appointing a neutral ‘ombudsman’ as co-mentor of a sibling team”; and “instituting appraisals and regular feedback on work output and mentoring for family members”.

Not surprisingly, Grant and Nicholson refer to the lack of trust as “the real killer”, where one person sees another as unreliable, inconsistent, devious or duplicitous. And – as I do – they advocate for a spirit of forgiving and seeking forgiveness.

To avoid undue conflict, a culture of equity and fairness must prevail, with no cheating and taking of shortcuts. Worst of all is the hiring of lawyers to sue one another, never mind if the dirty linen starts getting washed in public.

Just as insufficient cohesiveness leads family members to either waste energy in fruitless attempts to win battles at the expense of a relative, or to disengage and scatter, so excessive cohesion, where families retreat into their own exclusive world, are also unhealthy.

Consensus builder

The challenge is to nurture an atmosphere where differences can be aired and consensus built, in a spirit of give and take.

Yes, we want the leadership team in family businesses to be diverse — including these days by including the women. We want representation of a spectrum from elders to millennials, and it’s good for members to have varied exposure to education and to other cultures and countries.

Some will have a greater appetite for risk than others. Some will be more focused on longer-term sustainability and on being fair to all key stakeholders and some will be keener than others on professionalising.

The question is how such diversity can be brought together without generating wars, and by whom.

Who in the family is the consensus builder, the mediator? Or does the business, as so many do, require external help to keep the peace and allow each family member to contribute and thrive in their own way?

How firms can handle integrity lapses by staff

In PwC’s 2020 global economic crime and fraud survey, Fighting Fraud – A never-ending battle, fraud was identified among the top concerns. So the ability to identify fraud perpetrated from either within or outside the organisation and then to deal with it swiftly and fairly is critical.

In one large local company on whose board I serve, I chair the Board Audit, Risk and Compliance Committee, where the issue of identifying and handling fraud and other integrity issues features prominently. So let me share the lessons we have been learning in dealing with such matters.

A major challenge organisations face is just gathering information on fraud being perpetrated by employees or others, which is why many have invested in ways of making it as easy as possible to communicate information about integrity lapses.

These include ethics hotlines, compliance web portals, and email contacts to which to send such information – often outside of the organisation, and typically to an audit firm.

Not surprisingly perhaps, utilisation of these platforms is relatively low when compared to informal reporting, or finding out about cases through the grapevine.

Organisations, therefore, need to build cultures and systems that enable whistleblowers to feel it is the right thing to do and to feel secure about doing so. Some even provide monetary incentives, although this may encourage false whistleblowing – a not unusual occurrence anyway.

The speed with which reported issues are investigated, action is taken, and communication is fed back to the whistleblower, has a direct impact on confidence in the process. So there must be adequate investigating capacity, with staff possessing the relevant forensic experience.

Matters reported must be handled with utmost confidentiality, for whistleblowers need to remain anonymous, thus minimising the chances of retaliatory actions being taken by those involved in the integrity matter.

Then, staff in departments that are likely to access information on matters being reported – such as ICT, investigations and internal audit – should sign Non-Disclosure Agreements.

Some decide to sue staff for damages resulting from integrity issues, pursuing criminal and/or civil litigation. But the evidence threshold for successful litigation is extremely high, so one must ensure that documentation and other sources of evidence are impeccable – no mean feat.

For criminal proceedings, the investigating officers and prosecutors need to be properly appraised of the matter to ensure they fully understand the issues, prepare robust witness statements, and hence prosecute successfully.

In addition to the evidence, witnesses must come forward and corroborate that evidence, so organisations need to publish guidelines on witness protection, together with incentives to encourage witnesses to be present in what are likely to be lengthy court processes.

When obtaining evidence from private investigators, one must ensure that it is obtained through legal means, so that it can stand scrutiny in court.

Organisations also need to be alive to the fact that fraud can be perpetrated by anyone – even those responsible for ensuring internal compliance and investigating abuses.

Serious background checks and vetting therefore should be carried out before onboarding such staff, and an internal mechanism must be put in place to ensure that fraud perpetrated by staff in these offices can be detected.

In staff induction programmes the value of integrity and the importance attached to compliance should be included for all staff, and there should be continuous emphasis by all levels of management on these subjects in staff meetings.

Alongside this, those who uphold the value should be recognised, while those who do not should be penalised.

A major fraud risk results from conflicts of corporate and individual interests. It is therefore important for staff to be given an opportunity to declare such potential or actual conflicts so as to remain relaxed in their roles.

The process of making declarations should be continuous, so that staff are given an opportunity to declare interest conflicts upfront.

What happens when there is proof of culpability, and the organisation wishes to recover its losses from the employee?

With the slow pace of court litigation, it takes forever, diminishing the value of any recoveries. And that’s if the verdict is favourable, in itself of relatively low probability. But at least with the introduction of the Small Claims Courts such matters will be concluded much more quickly.

The more I have been involved in these integrity and compliance issues, the more I have realised how complex and challenging it is to deal with them, and how one must keep constant focus on them and keep applying the lessons learned.

Why it’s a good idea for family businesses to form boards

Much of my talk with owners of family businesses is about whether the time is right for them to create a formal board with independent directors.

Very few do, even where their companies have reached a significant scale. So I was pleased that on a recent webinar hosted by Sirdar, the South African-based organisation that helps build better boards around the continent, this was the topic of discussion.

There was easy unanimity among the contributors that appointing independent directors is a good idea. So why are most family business owners reluctant to bring in such independent voices? What do they fear? Why do they hold back from what is commonly labelled as “professionalising”?

Well, they’ve never done it, and doing so has never been on their horizon. As one owner-director-manager put it to me, “My brother and I just talk about things like strategy as we drive to and from our office,” and another does so with his father at their family Sunday lunches. That’s worked well enough, they reckon.

But as younger generations have been emerging into senior leadership, and as “sustainability” is entering the mindset of SME owners, more family businesses are bringing external minds into their worlds.

Not to hand over control to them, and perhaps not – at least initially – to have them be full directors with fiduciary responsibilities, but to be “advisory” board members. This way they can test the waters, seeing how much value they add and how well the chemistry works between them.

A common concern is loss of control, having been used to always acting as the sole decision-makers. Yet disagreements among family members are all too normal, and a common role of independent directors is to act as mediators and consensus builders.

More so if they are offered the position of chair – in itself recognised as displaying good governance. This implies seeking individuals with high emotional intelligence, able to bring together different perspectives.

The challenge is often between generations, where younger, more exposed directors may feel constrained by their elders – who remain convinced that the way they’ve always been handling the business should remain untouched. “If it ain’t broke, why fix it?” they pose.

A major benefit of bringing non-family members into a board is the formalisation of strategy development and implementation, along with more effective performance management.

Professionalising also implies having a Board Charter; circulating board papers in advance; and agreeing a calendar of board meetings (and perhaps board committee meetings, assuming the appetite exists), at least quarterly and each with their purpose and agenda. In these ways the business becomes more focused on the longer term – and is therefore more sustainable.

How do owners go about identifying the benefits they can enjoy as a result of appointing independent directors? It’s not hard.

The family decision-makers are typically the father and two or three from the next generation, maybe brothers, maybe cousins, and now including the occasional female member. They should list the areas where they are strong and ones where they are less so, and seek external contributors to fill the gaps.

Likely candidates will have their own functional, geographic and other experiences; they will come with complementary educational backgrounds and networks; and their personalities and styles will be compatible with those of the family.

It may be good to offer them initial engagements that don’t even include directorships. To offer a personal example, in a couple of family businesses where I was invited to be a director, it was after carrying out some consulting activity with the company. They were happy with my contribution and my style, and I felt comfortable with them.

Even once appointed, there may be benefits in having the independent directors carry out activities beyond merely attending board and board committee meetings. They can guide strategy retreats, meet stakeholders and offer other areas within their expertise.

At the conclusion of the Sirdar webinar, one of the panelists’ closing comments was to urge families to bring in external directors, as his family business had done to great effect. And for my conclusion here I turn to Manu Chandaria, whom I interviewed recently on a Nairobi Business Forum webinar.

In commenting on how it was that he and his family managed to grow their business to the scale they have achieved, one of his explanations was the bringing in of professionals as both board members and executives at an unusually early stage of their development. So if you are running a family business, try it!

Dr Manu Chandaria Wisdom Session with Irene Gathiaka & Mike Eldon

(Dr. Chandaria wasn’t able to join us for a while, so I filled in by offering some background on him and on our efforts that led to the launch of KEPSA.)

Balancing the State and people power

Eight years ago I wrote a column about Why Nations Fail, the book by Daron Acemoglu and James Robinson, and more recently I acquired the subsequent one by these two economics professors, The Narrow Corridor.

It’s another global analysis of how liberty and wellbeing flourish in some states but degenerate to authoritarianism or anarchy in others.

New opportunities and threats emerge, as some successful societies continue to thrive while others falter.

In Why Nations Fail, Acemoglu and Robinson concluded that nations thrive when they develop “inclusive” political and economic institutions, and fail when those institutions become “extractive” and concentrate power and opportunity in the hands of only a few.

Inclusive economic institutions that enforce property rights, create a level playing field, and encourage investments in new technologies and skills are much more conducive to economic growth than extractive economic institutions that are structured to extract resources from the many by the few.

Inclusive economic institutions are in turn supported by, and support, inclusive political institutions, which distribute political power widely so as to establish law and order, the foundations of secure property rights, and an inclusive market economy.

Conversely, extractive political institutions that concentrate power in the hands of a few reinforce extractive economic institutions to hold on to power.

What are they telling us now, in The Narrow Corridor? In most places and at most times, the strong have dominated the weak, and human freedom has been suppressed – either by force or merely through customs and norms.

States have either been too weak to protect individuals from these threats or they have been too strong for people to protect themselves from despotism. Liberty emerges only when a delicate balance is struck between the state and society.

Which nations are more likely to succeed and to fail today? Which countries are becoming more inclusive in their economics and politics, and which ones will be leaving the narrow corridor of balanced liberty that requires adequate but not excessive state power?

With Covid having intensified inequality between rich and poor, between the digital and the non-digital, is the corridor narrowing further – including in countries like America?

And with ones like Hungary, India, Turkey and the Philippines having shifted to more autocratic styles, we have been confronted with the reality that political liberty is not such a steady or durable phenomenon.

Is Kenya within or beyond the narrow corridor? And either way, where are our ever-manoeuvring politicians taking us? Are we still just passive citizens waiting for our tribal princes to tell us for whom to vote?

Or will we at last select those who best understand what lies within the narrow corridor and how to have us inhabit this privileged space?

If America itself is finding it hard, with Republicans burying their heads in the Trumpian sands as they deny truth and sneer at science, and with us facing our elections in a year’s time, should this be cause for gloom and doom?

During our years since independence it could be argued that we have done better than many other countries – and not just in Africa – at surviving within the narrow corridor, balancing the power of the state and that of the people.

We should feel good about our evolution into multi-party politics and the devolution of power to the counties, about our reasonable freedom of speech and our relatively open economy.

Could we have done better? Of course. Will we? That’s a hard one. We have among us everything from Utopian optimists to self-flagellating pessimists.

What’s for sure is that, as everywhere, the struggle between state and society will continue. But it is not further constitutional tweaks, with yet more laws and regulations that will take us closer into the desired corridor or keep us there.

And it is not more duplication and fragmentation of state institutions.

No. It is all to do with values and how these are reflected in behaviour. How are we encouraging good behaviour, that promotes integrity and cohesion? And how are we penalising bad behaviour that prevents it?

We citizens must take seriously our responsibility for influencing the leaders of state institutions in ways that can see our vision of shared prosperity be actualised.

With all the talent and energy that exists in Kenya, surely this is doable.

How poor governance causes projects to fail

I was recently involved in a discussion about an IT project that was facing challenges, where the IT expert from one of the Big Four consulting firms who was with us introduced me to a new term, “project governance.” I liked it, for it places emphasis on the leadership that guides the progress of the project, ensuring that the technical folk involved are able to guide it to a smooth launch, while overcoming the inevitable challenges and setbacks that come their way.

I smiled as I heard about the issues preventing this software system from going live, for it reminded me of all my turbulent years in the IT-vendoring business. I was filled with nostalgia as I contributed to the discussion, where those involved described what ails them and what they’re doing about it. I’ve not been active in that arena for many years, but what struck me was how familiar it all sounded.

Amazing in a way, as so much has changed in the IT world since I left it – never mind since I joined it in 1967. Yet what I saw was that, to translate from the French, “The more things change, the more they stay the same.” At least the governance aspects.

So what were the issues preventing the new generation system from going live? I am certainly not going to bore or confuse you with the technical ones, but here’s what emerged at the governance level. First, the overseas-based vendor was not sending appropriate technical experts to solve them, and when matters were escalated to their head office they sent another who had to study everything from scratch.

Meanwhile at the user end they kept coming up with changes that interfered with the smooth flow of the process. The longer this went on the more complicated finding solutions became, and so the consultant proposed a comprehensive review of the project by an independent external expert.

Now here’s another example of the need for robust project governance: the digitisation of the courts. It was back in the eighties when the IT company I was leading first introduced word processing into Kenya’s judiciary, an institution that was then – as it is now – very far behind the times in using technology. And that’s putting it mildly.

It was 10 years ago that they had a go at bringing in digital courts, where lawyers and their clients could interact with judges via video link. But the facilities quickly fell into disuse, just as the attempt to have stenographers transcribe court proceedings in real time faded out, leaving the judges to continue with the manual note taking they had been used to. The Court Management Information System introduced in Dr Willy Mutunga’s time as Chief Justice is also not in use.

So with the Coronavirus crisis forcing the closing down of the physical courts, what change management will the judiciary finally put itself through to ensure that it joins the rest of us in the 21st century? What energised project governance will it introduce to make a virtue out of the necessity of the day?

How will the appropriate financial and human resources be made available to ensure that this time what everyone knows should happen does so? In the past, going way back to my awkward 1980s project, the launch of the new IT system faded out when the enthusiastic and competent person leading the initiative left the judiciary, and I understand this has happened since.

This time we must not allow that to happen. There is so much technology expertise in this Silicon Savannah of ours. Let us bring in whomever we need and provide the necessary resources so that better late than never we see this vital arm of government take advantage of what technology can offer to transform its effectiveness and its integrity.

This time we must ensure that the right kind of project governance takes these projects to the point where they become the new normal, leading us to ask why it didn’t happen much sooner. And a final thought. I’m a great fan of the Rapid Results Approach: go for 90-day quick-win objectives, and empower the team to break through all the bureaucracy. Get going, members of the judiciary, and this time make it stick.