Tuskys fall reveals rot in family-owned businesses

Monday, June 5th, 2023 01:10 | By
Tuskys supermarket. Photo/Courtesy

The curtains have fallen at last on what was one of the biggest testaments to Kenyan entrepreneurship, Tuskys Supermarket.

Last week, the High Court ordered the liquidation of the company.  Justice David Majanja stated that the value of the company’s assets, at Sh6 billion, could not cover its Sh20 billion liabilities. It was impossible for the company to ever settle its massive debts.

Tuskys collapse in slow motion was a long-running soap opera. It was the culmination of a mishmash of bad business decisions, hubris, family feuds, brothers at daggers drawn, and sheer bad corporate governance.

At its height, Tuskys was the largest supermarket in Kenya, with aggressive expansion into the neighbouring countries. Paradoxically, at that point, nobody could have ever predicted that the core was rotten.

The collapse and subsequent liquidation of Tuskys Supermarket is symptomatic of the problems that are bedeviling many family-owned businesses in Kenya.

And the picture is not pretty. The story is usually typical. A patriarch starts a small business to fend for his family, either on his own, or with his spouse. After initially struggling for several years, the business finally makes a breakthrough, and becomes a major enterprise.

As the patriarch ages, he fails to create proper succession mechanisms, or even inducts his children into learning the ropes of how to run the business, or the value of hard work.

Eventually, the patriarch passes on, and the children take over the reigns of the company.

It is at this point that all the errors of omission and commission by the patriarch come to the fore. The children started slugging it out for control of the business. Some rush to the court to issue injunctions against their own siblings.  As this battle is going on, staff in the business get disoriented. The more malevolent of them take advantage of the situation and start pillaging the company. And then the usual red flags start appearing.

Salaries start getting delayed. Suppliers payments start getting pushed back. There is no executive leader in the company because the siblings are pulling in different directions. Eventually, creditors start going to court to sue to get paid. From there, it is all the way downhill. The sad thing about this saga is that family-owned businesses represent Kenya’s best opportunity of growing a world-beating entrepreneurial class. The troubling thing is that the collapse of family owned business enterprises, even those that have made it big, is nothing new. But nobody learns. The founders of those family businesses seem to fall into the very same trap that dealt a fatal blow to their contemporaries.

The bottom line is that unless the country addresses the huge fatalities in family owned businesses, Kenya will never grow an entrepreneurial class of global standards. Flourishing companies such as East African Breweries have been in business uninterrupted for over a century, suggesting that transgenerational wealth transfer is a critical aspect of growing world class enterprises. So have many of the South African companies that are now making aggressive forays into the rest of the continent.

What can the country do?

Kenya has never given the family owned enterprise its due recognition. The business ecosystem in Kenya does not seem to “recognize” family businesses. Those family businesses which become successful are deemed to be corporates. That is, until they crumble under the contradictions inherent in being family businesses!

This official attitude towards family businesses needs to change. The potential in family businesses is huge if properly harnessed. The Government, business analysts and business associations, now completely indifferent, need to understand that this is one sector that has its own unique challenges that require unique solutions.

 Initiatives designed to address the challenges facing family businesses, because they are essentially family appendages, need to be developed and rolled out. There is just one problem- who will bell the cat?

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