LISTING OF FAMILY-OWNED BUSINESSES | Audit. Tax. Advisory

“LISTING OF FAMILY-OWNED BUSINESSES”

What do Nike, Bosch, Dell Technologies, Porsche share in common? Apart from being the leading brands, they are also Family-Owned Businesses (FOBs). According to the Family Business Index Report by Ernst & Young, these firms are among the over 500 top companies globally generating a combined turnover of $7.3 trillion in the year 2020. 

According to the 2019 survey by Asoko Insight, a corporate data platform, a handful of the FOBs in Kenya have a yearly turnover of over $50m. Hence, the foregoing statistics support the logical plan of the Capital Market Authority of Kenya (CMA) to segment a platform for family businesses on the bourse. There are two key dimensional challenges that balance the CMA’s success or the inertia of bringing to bay these family businesses which are discussed in the last two sections of this article but before we get there, let’s discuss some of the key attributes that cement family-run businesses as they have a striking effect on the listing structure and mechanism that CMA needs to adopt. 

The unique ingredient of family businesses

Family business or not, there are three common factors influencing all companies. These are; economic, financial, or managerial which have little to nothing whatsoever to do with the management style nor ownership status, however, in the case of family businesses, they possess unique characteristics that adversely impact how they make decisions, opine, and relate to stakeholders.

Given the motive of the family business to ensure economic sustainability for not only their retirement period but also the forthcoming generation together with the family pride that tags along, they adopt a multi-generational outlook for their business to not only be financially stable but also championed by the family’s bloodline.  In family firms, emotional attachment or sympathy is the most unique trait as family members are raised in closeness and this norm forms a strong sense of attachment which may result in a strong positive feeling or a negative one towards each other.

These strong feelings reinforce how they interrelate when engaging by either creating a check of balance or a unified front amongst them as they address the business challenges. This trait beefs up their reluctance to incorporate non-family members into their “personal lives” through dilution of control making them more risk-averse and enhancing cohesion among family members. 

The perception of family business listing on the stock exchange

FOBs’ internal operations are greatly impacted by family relations hence there are myriads of challenges encountered as they intra-relate.  Understanding these bumps is the backbone to CMA designing an effective and receptible family listing platform on the bourse. The structure should be designed to be accommodative on the business culture and secondly ensure sustainability which forms the two key dimensional challenges that ought to be well thought out and implemented to the core. 

The Culture Integration on the bourse and sustainability 

The majority of family businesses opt not to list with the major reason emanating from concerns revolving around the loss of control of the business to the outsiders assuming they are given a free gate pass to listing according to recent research conducted by the World Federation of Exchanges.

A recent commentary by the CMA Executive demonstrated the Authority’s initiative to incentify the listing of FOBs at the bourse. The initiative to exempt them from voting rights clauses which gives the stockholder the right to vote on matters of corporate policymaking shall ensure their control is not diluted through the continuity of their culture-making decisions.

Another recommendation to the CMA would be to tweak the free float clause whereby the family could still comfortably retain control even after listing or incorporate a dual-class share in a manner that would allow the family to reserve a whooping control. 

The bourse may also create a corporate debt market as opposed to only equities which may be a more palatable alternative to the listing of the firm’s equity which logically shall be attractive to the family businesses as they raise capital. 

Sustainability of the Family Business on the bourse

The listing structure should stand the test of time by striking a balance between culture integration on the bourse and the sustainability of these family businesses, otherwise, death on arrival shall best describe the special platform being designed by CMA. 

I reckon developing a family business competency program by partnering with organizations with such expertise shall ensure efficient engagement in the bourse as they shall be able to demonstrate their understanding of the company and the precedence concerning issues. In addition, the CMA should facilitate the creation of opportunities for the family businesses to engage by either co-hosting experience or education sessions with traditional listed companies to shed more light on the challenges these non-family listed companies face as well consequent outcomes. One discernible challenge that may be faced by the family business is the corporate governance issue that needs to be addressed as the emotional and sympathy trait shall put family businesses’ heads below water upon listing.

The CMA needs to also have a well-defined market size for the opportunity by laying out solid yet sustainable requirements for listing family businesses.

CMA to enhance policies and create awareness on the importance of listing the FOBs.

Related: Financial Governance for Family Business.

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