Four challenges for Middle Eastern family businesses

I recently attended two family business forums, in Riyadh and Al Khobar, Saudi Arabia. At these events, many of the big issues faced by family businesses were discussed, such as succession, governance and the separation of management and ownership.

But I was struck by a common theme throughout many of the round table discussions: namely, the challenges that face family businesses in the Middle East. These challenges are not unique to the region, but they are more prevalent than in other regions.

They can be summed up in the following four areas:

  1. Management. The separation of management and ownership is a big and tough issue. Many family businesses in the region are yet to separate the two formally and effectively. They haven’t created clear roles or defined the line between being a member of the management and being a member of the family.
  2. Succession. I talked about this in my earlier blog entry, but I would like to return to the point because it was a major theme at these forums. Many Middle Eastern family businesses struggle with succession and, for many, the failure to deal with it effectively has become critical. Family businesses must establish a set plan and a defined process for succession, and they must communicate these at an early stage to all members of the family. So far, few Middle Eastern family businesses have established that plan and process.
  3. Communication and transparency. These two go hand in hand and are particularly relevant to Middle Eastern family businesses, which suffer a lack of both. They are also linked to the previous points: for management and the succession process to work successfully, you need to have a good level of open communication and transparency. Family businesses need to deal with conflicts or disputes as professionally as they can. An important part of being professional is being able to communicate in a transparent way with all parties involved and to resolve, in a constructive and fair manner, any concerns or worries raised. Such professionalism will help to align the interests and objectives of the family business with those of the family members.
  4. Regulation. This point is different from the other three, because it is an external factor. The regulators in the region haven’t helped family businesses enough. Many Middle Eastern family businesses want, and expect, the regulators to create a framework for things such as succession, and to define processes and practices to deal with areas of conflict, equity transfer and disputes within family businesses. Many also want governments to take a lead and legislate on issues such as company boards and conflicts, and on governance matters such as board, audit and remuneration committees.

Of course, these challenges are, to a certain extent, being addressed by many well-respected regional family businesses. And some governments have drafted laws and regulations to tackle the issues. I see this firsthand through my long-established professional relationships with some of the Middle East’s largest family businesses.

Nevertheless, more needs to be done to address these challenges, not just for the health and continuity of family businesses, but for the benefit of the whole Middle Eastern business community and economy.

Loutfi Echade, Family Business Leader, Middle East and North Africa, EY

 

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