Trustee debate: Why Kenya is lagging behind

A planned auction of politician Njenga Karume’s Jacaranda Hotel in Nairobi has flashed new light on trustees’ ability to oversee businesses.

While trusts are solely tasked with preserving assets and managing transition to ensure a business thrives and even grows in line with the founder’s vision, recent happenings reveal a glaring gap in Kenyan trusts.

The Karume Trust has been embroiled in many suits filed by the family, who have in the past accused the trust of running down his properties.

There are also several families feuding over assets left behind by their departed kin. These disputes, when not quickly addressed, invariably lead to the collapse of once vibrant businesses.

Advantech Consulting managing director Joseph Waruingi says family conflicts and collapse of once successful businesses are due to lack of management processes and systems that perpetuate loopholes for theft and wastage.

“The best way to prepare for expansion is to engage professionals who will set up management structures and help you understand future prospects of your line of business.

Founders and their children hardly have management expertise for businesses that grow beyond a single branch,” said Mr Waruingi, a former PwC partner, whose firm has advised government and private sector agencies in 23 African countries.

Mauritius-based attorney Asaad Abdullatiff, who runs Axis Fiduciary, which advises on wealth management, transition and corporate structure formation, says trusts, when well managed, should enable firms and families to smoothly negotiate transitions.

“A trust does not necessarily have to take over the management of a business, but should oversee its operations with the inclusion of heirs in their respective roles, or as top shareholders,” he tells Sunday Nation.

The founders, he adds, must oversee allocation of specific roles to their children, thereby reducing conflicts.

“Founders sacrificed and spent sleepless nights to build the businesses while their children watched it grow, but the third generation found all was smooth and sweet. It is this generation that plunders the wealth like there is no tomorrow,” Mr Abdullatif says.

“The first disaster is subdivision of property that sees wealth broken down to uneconomical units while those remaining in business squander every opportunity for growth by using emotions and childhood rivalries in decision-making,” he adds.

He warns that blind expansion without proper corporate structures in place exposes the business to further family feuds fuelled by increased mistrust.

“A successful business takeover by a new generation grows the value of the business, but family feuds threaten collapse of any enterprise regardless of its size,” warns Mr Abdullatiff.

Axis, which is planning to launch a Kenyan office to oversee East Africa clients, draws its clientele from a cross section of businesses such as real estate, technology firms, fast moving goods firms and retail chains.

Mr Abdullatif says operationalisation of the double taxation treaty between Kenya and Mauritius could unlock formation of more trusts keen to enjoy the benefits of a trust office in Mauritius.

“This is good for both economies since we manage the funds that are re-invested in Kenya, creating jobs and helping families,” he says.

While trusts are growing in popularity, Mr Abdullatiff says they keenly scrutinise all requests for enrolment to prevent incidents where Mauritian banks are used as havens for stolen funds.