Family firms still lack formal deals

Family businesses in the region are not well prepared in terms of succession planning as word-of-mouth still rules, according to an expert in the field.

“It is evident that families with proper succession planning and ownership structures are more viable and vibrant than others. However, a significant number of family businesses in the GCC rely on traditional word-of-mouth arrangements between family members rather than formal written agreements,” Amin Nasser, Partner, Business Advisory Services at PricewaterhouseCoopers (PwC) told Emirates 24|7.

According to Nasser, another important issue that plagues family-owned businesses in the region is the lack of proper succession.

“One of the biggest threats facing family businesses is the issue of succession. The transfer of ownership process is a difficult challenge that family businesses encounter. In many instances, the process of letting go together with the process of preparing the successor is challenging for most family businesses,” he said adding that “mentoring and developing the next generation of family members is crucial to the success of the family business.”

Moreover, it is vital that succession is planned during the lifetime of the business founders. “It is important that the founder of the business oversees this process during his lifetime as the appointed successor may not receive the full support of the other family members. A lot of families in the GCC follow the rule that the eldest son should take over from the founder.”

But such a policy often leads to friction among the family members. “This has caused sibling rivalry in certain cases where the person appointed is not accepted by the rest of the family as their leader. This situation is likely to change when the families get into the 3rd generation where the family members are highly educated and believe more on performance rather than hierarchy,” explained the PwC expert.
And, there could be situations when conflicts take centre stage, sparring in the public/legal domain (the case of Algosaibis and their son-in-law Maan Al Sanea).

“Conflicts in family businesses arise mostly because the family owners perceive that their needs are not being met. Conflicts also surface when situations are not clear or not properly understood/communicated. Just as conflicts exist in families, it also exists in family businesses.

“Sadly conflicts between family members usually lead to the destruction and fragmentation of family businesses. As the family members start fighting with each other, the family cohesion and harmony are negatively impacted and family members end up not just leaving the family business but also the family. In the GCC, a number of family disputes have ended up in courts, which have implemented strict rules on asset management under dispute and sometimes even freeze the assets under dispute,” he added.

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