Complex Made Simple

How to keep family from killing the company you worked so hard to create

You spent years building a strong business, but it may all be for knots when family takes over.

Almost 90% of businesses in the Gulf are family owned and together they contribute 50 to 60% of the region’s overall GDP In the Middle East, we have fourteen of the largest 500 global family businesses that employ 500,000 people and make up 3.2% of the region’s GDP Business leaders must therefore delicately manage the side-lining of a non-family member who may have been involved with the business for decades

Daniel Fleming is the Head of Wealth Advisory, Middle East, JP Morgan Private Bank. Previously, he has served as Associate Director, Trust and Estate Planning, Middle East and Intermediaries, HSBC.

With succession planning being a major part of GCC family-owned businesses, AMEinfo asked JP Morgan’s Daniel Fleming the following question:

Where do family businesses in the Middle East fail when it comes to succession planning? And how can that be prevented?

Fleming: Family businesses account for a large proportion of businesses in the GCC. Almost 90% of businesses in the Gulf are family owned and together they contribute 50 to 60% of the region’s overall GDP. Family disputes due to miscommunication and generational gaps may weaken business continuity in the region. Nevertheless, family businesses can also be highly sustainable because of long-term commitment by family members who are deeply invested in the future of the company and have a shared vision. Succession planning is particularly important within this region as a high proportion of family businesses want to guarantee that their businesses continue growing. In the Middle East, we have fourteen of the largest 500 global family businesses that employ 500,000 people and make up 3.2% of the region’s GDP.

Passing on the family business from one generation to the next remains a major concern for owners. It is crucial to ensure that family businesses plan and train the next generation to pass the family ethics, principals and traditions to the next generations. They must appoint a qualified successor for the family business to succeed and survive, as less than 30% of family-owned businesses survive to the next generation.  

Many family business patriarchs have multiple children. Choosing their successor is, therefore, a delicate challenge. Third generation children are becoming more and more involved in the business, each with different roles. This can lead to a lack of clarity on succession planning. Additionally, daughters are now getting increased levels of education and, as a result, are playing growing roles in management succession.  Business leaders also have challenges when selecting when to involve third-generation members of the family in the business. Some enter directly after graduating from university, while others obtain work experience elsewhere. When they do finally enter the business, leaders must determine who they are going to replace or if there’s a new role. Business leaders must therefore delicately manage the side-lining of a non-family member who may have been involved with the business for decades. Also, within the very large families, we are seeing the dynamics of second to fourth generation involvement in the family business. Managing the fast pace ambitions of the young with those of the old guard who can’t let go is challenging.

What we are seeing is second generation business leaders looking to avoid making the same mistakes as their first-generation predecessors when then transiting to their children.  Many family businesses are now creating criteria for the next generation. For example, they may impose education and/or outside work experience requirements before joining the business formally. 

The future for family businesses will remain positive as they continue implementing appropriate strategies for growth, keep up with the ever-evolving digital world and explore opportunities to tackle new markets.