Managing any business involves many challenges. But managing a family business brings with it a unique set of challenges, many due to the close emotional relationships involved. In the Middle East, where relationships and family are very important, managing these challenges becomes crucial. One of the most difficult issues for a family business owner to consider is the succession of the business and the long-term success of the company.
There is a famous saying “It is not what you leave your children that matters, it is what you leave in them”—meaning that families need to prepare their children with values and behaviors before wealth. It is important for the next generation to understand the history of the family, the family business, and the challenges that the older generations have faced, so that the following generations are able to build on them.
The Middle East families have rich history and values. However, in many cases the history of the family is not documented or passed down to the next generation. It is important that the older generation dedicate some time to talking about the history of the family and explaining the challenges they had to go through to build the successful businesses they have.
In addition, family values are entrenched in Middle East societies. However, with globalization, these values are losing strength. Accordingly, families need to ensure that they pass those family values to the next generation and to their business
Unfortunately, succession planning is not always the top priority for Middle Eastern business owners. There is a natural hesitation for owners to deal with succession issues because they associate it with negative connotations, such as retirement and death. Also, due to social pressures, families tend to avoid speaking about succession or discussing it with the patriarch.
Add to that the perception that succession planning is a lengthy and complex process, and the result is that owners may find it easier to postpone making difficult decisions rather than dealing with them.
Starting the succession planning conversation early on is the key to understanding the realities of what’s involved in the planning process. Here are some key concepts that advisors to MENA family businesses should consider when embarking on the succession planning journey with their clients.
Preparing for what’s to come
Mentoring and coaching the next generation and transfer of knowledge and know-how is key for successful transition. This is not an event, it is a process that needs time and commitment from all involved.
It needs to start from an early age, building character in the younger generation, giving them “war stories” about experiences of the older generation and the founders. Gradually giving them responsibilities that allow them to build their own experience and connect with the professional environment and colleagues.
A prepared, written succession plan outlines the way the business can be managed after the founders’ retirement, death or disability. Such a plan entails the effective transfer of management of the business, along with its core values, culture and traditions. Embarking on this process can help the family determine if it should sell or retain the business, addressing the question of whether or not the business has the potential to support family members into the next generation. A strong plan will maintain the family’s financial interests in the business.
Succession involves much more than just picking a family member as the next CEO and training that person to take over the business. It should be broad in scope and involve all family members, including those who are not actively involved in the business. This means that when the time comes to implement the succession plan, there are no surprises to any members of the family. The goal is to design a plan that will meet the family’s expectations and hopes, so it’s critical to include these important stakeholders in the process. Key non-family management should also be included in the process, as their role may be impacted by the succession. Often when stakeholders are excluded, they won’t support the outcome — an oversight in the process that can cause an otherwise good plan to fail.
Clarity for the future
A well-defined succession plan sets out clear expectations and roles for all family and non-family members in the business. This reduces the potential for future conflict between active and non-active family members, as the transparent nature of the succession process brings to light various sources of contention or ambiguity that can be managed in the early stages of the planning.
Knowing that the long-term strategic objectives of the business are being considered creates confidence among employees, customers, lenders and suppliers. It demonstrates that the business will continue to be managed in a professional manner, and that the future leadership of the company will be left in good hands.
Succession planning timelines
There is no set amount of time to create a succession plan. Documenting a well laid-out plan can take over a year to develop, and implementing the plan can take three to five years.
The length of time depends on reaching agreement of all parties involved in the process. The key to a smooth transition is starting the planning process early enough to account for all stakeholder concerns and addressing areas of family conflict that may arise. Clear timelines for succession are a great way to identify the amount of time required to train a successor for a smooth transition. Not all leaders are created equal, and some successors will require more time than others to really get a handle on the role and requirements. Setting realistic timelines helps set up successors for success and maintain the longevity of the business.
When it’s time to let go
Founders should also avoid fake retirements where they think they have retired and delegated the responsibility to their next generation, while in reality they still intervene in every decision and over step the authority they gave to their children. In many cases, long standing employees play on this and keep going back to the founder to correct or change decisions made by the younger generation. This undermines and demotivates the younger generation members and makes them unable to manage the business, creating tension and disruption to the growth potential of the business.
When it is time for the final decision to exit the business, there are a number of options available, all of which require objectivity. Should the business be: 1) passed down to the next generation; 2) transitioned to a third party; or 3) sold altogether. Factors such as age, desire, skill sets, management experience, family dynamics and the current state of the business should all be considered when making the decision of how the business will be led when the founder makes the final decision to exit the business.
Starting the succession planning journey early on provides the knowledge that allows founders to drive the exit process and determine what’s best for the future of the business. Then, as they formulate their exit strategy, build the business team and support system and manage the process, they will be in a better position to let the business thrive for generations to come — allowing them to learn from their mistakes to be able to build their own” war stories,” standing outside the shadows of their successful self-made parents.
It’s the future – and it’s their future.
About the contributor
Adib Rashid, CFBA, CFWA, is the Family Business Partner with AKT Consulting, which was established to serve the needs of emerging and highly‐ developing markets in the MENA region and has a geographical presence in Saudi Arabia, the UAE and Jordan. Adib is a member of the FFI board of directors and the Finance and Audit Committee. His previous Practitioner article was Governance, Succession and the Middle East Family Business. He can be reached at Adib.firstname.lastname@example.org.