The Three-Generation Curse

It is not, in the end, a succession planning problem. Most family businesses that collapse in Kenya did not fail because nobody discussed who would take over.

They failed because nobody built the legal architecture to carry that decision once emotion, grief, and competing claims entered the room.

A plan lives in conversation and good intention. A structure lives in a constitution, a shareholders’ agreement, and a trust deed — and only one of those survives a funeral.

A Pattern, Not a Coincidence

Across Africa, family enterprises are not a side note to the economy; they are the engine of it. Family-owned businesses employ the majority of the workforce in Kenya, and they are frequently described as the backbone of local commerce, from the corner pharmacy to the regional retail chain.

Yet the same enterprises that build first-generation wealth tend to struggle to keep it. Research summarised by African business analysts puts the pattern starkly: a large share of family businesses collapse or are sold off before reaching a second generation of ownership, and only a small fraction make it to a third.

This is sometimes called the “third-generation curse,” as if some fatalistic force were at work. It is not a curse. It is a predictable outcome of running a growing enterprise on an informal foundation — verbal understandings, undocumented shareholding, and an assumption that family loyalty will do the work that legal documents are meant to do.

Kenya’s Cautionary Tales

Kenyans do not need to look far for examples. Three of the country’s best-known retail chains — Tuskys, Nakumatt, and Naivas — were all built by families, and all three were tested by the same stress point: what happens when the founder is no longer there to hold things together by force of personality alone.

Tuskys Supermarket Founded in 1990 by Joram Kamau, Tuskys grew into one of East Africa’s largest retail chains before its collapse roughly two decades after the founder’s death. Commentators point to sibling rivalry among the five brothers who inherited the business, internal fraud, and aggressive debt-fuelled expansion as the contributing causes — a mix of governance failure as much as commercial failure.

Nakumatt Holdings Once East Africa’s largest retailer with 65 stores across four countries, Nakumatt was placed under administration after a 2018 audit reportedly found billions of shillings unaccounted for, and was fully liquidated by 2020. Its court-appointed administrator drew direct parallels between its governance failures and those that brought down Tuskys.

Naivas Supermarket Naivas faced its own succession dispute when a family member moved to court over a proposed investor buy-in, illustrating that even a comparatively successful family business is not immune to ownership conflict. Industry commentary credits Naivas’s eventual stability, in contrast to Tuskys, to improved corporate governance put in place in time.

The contrast between Naivas and its former rivals is the entire argument of this article in miniature: the difference was not the quality of the products on the shelves. It was governance — whether ownership, authority, and succession were defined in documents that could outlast a disagreement, or left to the goodwill of people under financial and emotional pressure.

Why “Planning” Is Not Enough

Most founders we meet have, in some sense, “planned.” They have an idea of who should run things next. They may even have said so, at a family gathering or in a private conversation. The difficulty is that intention without instrument carries no legal force. When a founder dies or becomes incapacitated, what governs the business is not what was said at the dinner table; it is what is written in the company’s statutory documents, in any trust deed, and, failing both, in the default rules of the Law of Succession Act, Cap. 160.

A succession plan is a sentence. A succession structure is a set of binding documents that still functions when the people who agreed to them are no longer in the room to enforce the agreement personally.

This is the distinction between planning and architecture. Architecture means building, in advance, the legal scaffolding that will hold the business upright through the exact moment it is most vulnerable: the transfer of control from one generation to the next.

The Three Pillars of Succession Architecture

1. Separate Ownership from Operating Control

One of the clearest lessons from Kenya’s family business disputes is the danger of conflating who owns the business with who runs it. A founder’s children may all be entitled, morally and legally, to a share of the value the business has created — but that does not mean all of them are suited to manage it day to day.

A properly drafted shareholders’ agreement, executed under the Companies Act, 2015, can separate these roles cleanly: defining ownership percentages, voting rights on key decisions, and the process for appointing or removing managers, independent of who holds shares.

• Ownership percentages recorded and agreed in writing, removing room for later dispute over who is entitled to what.
• Voting thresholds specified for major decisions so that no single heir can act unilaterally, and no decision is paralysed by deadlock.
• A defined process for appointing professionals, even non-family, management, where family members lack the requisite skill or temperament.

2. Use a Family Trust to Hold the Business, Not the Will Alone

Kenyan law allows a family business, or the shares in it, to be transferred into a family trust governed by the Trustees (Perpetual Succession) Act, Cap. 164, as amended in 2021 and again in 2024. Once incorporated, a trust becomes a body corporate capable of holding property, suing, and being sued in its own name, with perpetual succession — meaning the trust continues seamlessly regardless of the death of any individual founder, trustee, or beneficiary.

This matters because a will only takes effect on death, and only after the often lengthy probate process under the Law of Succession Act has run its course — a window during which a business with no other governing structure can drift, be mismanaged, or be pulled apart by competing claims.

A trust, established during the founder’s lifetime, can keep the business operating on fixed terms throughout that transition, with a trustee bound by fiduciary duty under the Trustee Act, Cap. 167, to manage it for the benefit of the named beneficiaries.

3. Write a Family Constitution

A family constitution is not, on its own, a court-enforceable document in the way a shareholders’ agreement or trust deed is. Its value lies elsewhere: it is the document that sets out, while relationships are still calm, how family members are expected to treat each other as shareholders, employees, or simply heirs of a common legacy.

It typically addresses entry requirements for family members who wish to join the business, dividend policy, conduct expected of family employees, and the agreed mechanism — mediation, arbitration, or otherwise — for resolving disagreements before they escalate into litigation.

When a family constitution is referenced in and made consistent with the shareholders’ agreement and trust deed, its informal guidance acquires real teeth. It becomes the shared understanding that the legal documents were drafted to protect.

What This Looks Like in Practice

For a family business owner thinking about this today, the work is sequential rather than overwhelming.

It typically begins with an honest audit of how the business is currently owned and controlled, followed by the drafting of a shareholders’ agreement that reflects realistic family dynamics rather than aspirational harmony, and, where the scale of the business warrants it, the incorporation of a family trust to hold the core assets.

A family constitution, drafted last, then captures the values and conduct that bind the documents together.

None of this requires a founder to relinquish control today. A well-drafted structure can keep the founder firmly at the helm during their lifetime, while ensuring that authority, ownership, and process are already defined for the day they are not.

The Bottom Line

The three-generation curse is not destiny. It is what happens, predictably, when a thriving business is left to run on memory and goodwill rather than documents that can be enforced.

Tuskys and Nakumatt are not cautionary tales about bad luck; they are case studies in governance built too late, or not at all. The families who avoided that fate did so not because they loved each other more, but because they put structure around that love before it was tested.

The businesses that survive three generations are rarely the ones with the most talented founder. They are the ones with the most carefully built architecture.

Build the Architecture, Not Just the Plan Mukamba & Company Advocates advises family-owned businesses on shareholders’ agreements, family trusts, and succession structuring under Kenyan company, trust, and succession law. If your business has grown beyond a handshake, it is time to put the architecture in place. Reach us through www.mukambalaw.com.

This article is for general information only and does not constitute legal advice. For advice on your specific circumstances, please consult Mukamba & Company, Advocates.