Many family businesses in the Middle East face pressure to transition to the next generation within the next few years. So succession planning is a highly sensitive and very emotional issue in the region.
In my long experience working with the region’s many family businesses, leaders of these organizations normally delay succession and defer making the transition for as long as they can. They hold on to the throne and retain control of the business for too long. Here are a number of reasons why:
- Family businesses in the Middle East are, for the most part, young. Many were set up in the last 40 to 50 years. A large number are still in the first generation and few are in the second or third. Consequently, there are a limited number of local best practice cases for succession.
- Potential feuds and disputes between family members delay succession and can result in the disruption or collapse of a business. For example, in Saudi Arabia, there are feuds and legal cases between family members worth billions of dollars tied up in local courts. These feuds certainly delay succession and don’t provide good role models or best practices.
- Most family businesses in the region are conservative. Traditionally, they pass the business on to the eldest son. In several cases, following this convention has not proved successful. This scares others away from tackling the succession issue.
- Compliance with Sharia law can often add another layer of complexity and potential conflict. In particular, this can be the case when equity shares are not allocated or donated to all family members in accordance with Sharia law.
- Few family businesses bring in competent outsiders to lead or manage the business and resolve issues around the succession. Also, the bloodline for the family business is still of primary importance. In limited cases, in-laws are appointed as leaders or key executives.
- Succession isn’t just about family members being appointed to key positions in the business. It often involves other positions.
Family business leaders have to consider these issues carefully in order to ensure an effective and successful transition to the next generation. They also need to build alliances with other family members and establish open and strong lines of communication with them. When managing the transition process, the business leaders should seek the help and support of the wider family. Remember that the new leader has to win the confidence and respect of all key stakeholders.
Despite all these challenges, there are positive signs that progress is being made. More family businesses now seek advice and support from outside experts and consultants. They also encourage their family members to attend training and educational programs. Certain rigid cultural and traditional factors are less of an influence today. These factors all improve the transition process.
Given proper and early planning, succession issues in the Middle East will be easier to manage in the future. But much still needs to be overcome.
Loutfi Echhade, Partner, Family Business Leader Middle East and North Africa, EY