Family Business Challenges

Challenges faced by Family Businesses in the UAE and MENA region

Family makes the home; business runs the home and balance between the two prospers the home!

We have earlier discussed the profile of family businesses in the UAE and MENA region. Continuing the same, we would now like to open-up with some challenges faced by family businesses in these areas which are continuously acting as hurdles in the journey of family businesses.

• The complexity of Business:

The character of a family business is such that, as a result of extended continuation they are involved in several companies or say are practicing the conglomerate diversification. The conglomerate portfolio of the business makes it diversified to such an extent that the primary purpose of the business gets passed over or thoroughly unnoticed. Diversification in business both in nature and members over a period of time leads to individual interpretation and perception of the mission of the family firms, i.e., a confusing reason for existence, which also leads to many conflicts and clashes during the process of decision making.

• The Pressure of family business: to stay, to succeed, to maintain and carry on the legacy

It is often witnessed that rather than letting the more youthful ones pursue the career within the area of their very own interest, the upcoming generations are pressured to carry ahead the family business. The pressure gets more intensified when the individual is also anticipated to hold and even continuously enhance the image and profits of the companies. The pressure goes on and is passed on further and hence, along with the business, the pressure is likewise redirected as the legacy to the coming generations.

• Rigidity to adaptation:

Family business as the name suggests involves many family members and also generations in most instances, running the business. Due to the generational gap, the two generations are not finely able to communicate their idea, vision, and view of the enterprise. An elderly member of the business might want the younger generation to feature and communicate the long-held values in the same way that is practiced from years and is considered to be the core competency of the business. At the same time, a member from the younger generation would want the implementation of his managerial knowledge in the most progressive manner which may also prove to be a point of difference (POD from the competitors) for the enterprise. In such cases, there may be a clash in the mindset of two generations/members concerned with the same business and might impact the enterprise adversely.

• Challenge of succession planning and Family Governance:

In most UAE and MENA region, business succession planning along with family governance (or maybe corporate) are the biggest challenges and also the reasons for business failures for family businesses.

o Succession planning is a careful and well-thought idea to hand over the business to the next member of the family when the one in the supreme position plans to retire. Most of such selections are made on the relationship basis and not the practical basis, which would analyze the capabilities and competencies of members for handling the family business. Therefore when this happens other members or say other deserving members of the family get discouraged, and this leads the way to conflicts, felt (leading to stress and anxiety) or manifested (open and can be observed). Apart from this, the business now goes in the hands of a person who does not have apt knowledge of the market and because of the conflict risen they would also not get the necessary support from the disappointed members which marks a downfall in the business.

o Corporate governance is needed in every business as the framework of corporate governance maintains the code of behavior, policies, guidelines and coaches the personnel for his or her respective jobs. Although in the case of a family business, family governance could also be exercised because it deals with the three most vital elements, i.e., Family, Business and Ownership. While corporate governance is mostly absent in family businesses, family governance is also not given much weight, if we speak about the MENA region. This results in role confusion amongst members of the family as rather than fulfilling their responsibilities, each one either depends on the other or is waiting for the direct instruction for performing a particular job. Lack of governance also results in the hierarchy structure (based on the relation with the owner) where members are reluctant to share information freely because the communication flow is mainly affected by the family hierarchy and not the business hierarchy. Finally, all this leads to an imbalance in the personal and professional lives of the family members because they realize that their skills and capabilities will not be the parameter of their position in the business which, of course, brings down the business and also leads to rupture of relationships.

The above graph shows that very few family businesses in the MENA region are following the family governance pattern. An ill-structured business organization brings resentment in the members of the family and reasons for members to fall out become more. In the next section, we shall discuss the ways in which these challenges could be surpassed.