x Abu Dhabi, UAEWednesday 26 July 2017

Family companies face tricky choices

Family-owned companies, a mainstay of Gulf economies, face serious challenges as the first generations depart. Working out the right policy demands careful forethought.

Throughout the world family run businesses are the exception, rather than the rule. Fathers and sons, mothers and daughters may dream of working together one day. Usually, however, circumstance, education, finances or a misalignment of interests render these dreams just that.

It's a different story in the Arabian Peninsula. Here families work together for generations, and experts say up to 90 per cent of businesses are family-run. Many of the region's commercial conglomerates, started in living memory, are now reaching the stage where they must plan for the future.

But how will economic and cultural changes impact the management structures of a backbone of the local economy? In a culture so focused on family, how these firms evolve will have a significant impact on how the country develops.

Fortunately, as The National reported yesterday, these issues are under analysis by scholars, including a team at the American University of Sharjah. But National Research Foundation funding for their study, first set at Dh1 million for three years, has unfortunately been cut to Dh200,000 for one year. These questions demand careful investigation: officials and families alike must understand what approaches make the most sense, for the families themselves and for the nation.

The art of management has changed in the decades since many big family companies were founded. A business that began with a son watching his father make handshake deals outside their one warehouse may by now be a computerised conglomerate with a dozen facilities in several lines of business in a number of countries.

That kind of diversification is vital for the national economy, but today family control of such a firm demands a younger generation capable of managing all this, either by delegation or by consensus.

We are now well into the first, maybe the second or even the third generation of some firms. And yet, there are many questions on how these companies will develop. Are clear succession plans in place? Will the brightest son or daughter assume the mantle? Is the next generation even interested in running a family business?

Answering these questions will be quite a challenge. So the future of these firms is truly worth studying.