As family businesses grow, the importance of applying corporate governance best practices has become imperative – in fact, their growth largely depends on it. Research by the OECD notes that family firms that integrate corporate governance measures outperform their rivals; achieving both superior returns and higher profitability. In addition, these measures provide constructive solutions to family ownership challenges, especially when it comes to succeeding generations.
Nevertheless, family businesses have room to improve in the implementation of effective corporate governance standards. Although family firms across the Gulf Region account for a significant margin of private sector companies and thus, are a substantial value addition to economic growth, only 30% survive into the second generation and a mere 12% continue to be profitable into the third generation.
With approximately $1 trillion USD worth of family business assets being transferred to the next generation in the Middle East in the next 10 years, the urgency of succession planning has increased with the new generational cohort of family members imminently approaching. This webinar broadly discussed building resilience, success and long-term sustainability in family firms across the Gulf Region, through proactive and effective succession planning.
The follow topics were discussed:
- Exit strategies as a key component of succession planning
- Building a holistic roadmap: Technical & intangible tools
- Empowering the next generational cohort
- Succession as a private matter: The impact familial relations have on business
- Understanding and building expectations for the future of the business
What we've learnt:
- A successful partnership in family business can be attributed to:
- Reaching an equilibrium between individual parties involved
- Building a strong foundational relationship between individuals based on love, respect and trust
- Adequate and timely communication – including internal, external, horizontal and vertical communication
- Research has shown that successful family businesses have 3 elements in common (The ‘3S’):
- Strength: This is based on the bond development amongst family members and the culture of privacy they nurture.
- Security: This is dependent on how comprehensive and scalable governance systems and processes are. This element is vital for both the success of the family and of the business.
- Sustainability: This element is based on how willing and able the senior generation is to transfer their wealth, and in turn, how willing the next generation is in taking over the business.
- Family businesses comprise of three fundamental layers: the family, the business and the finances. Each of these layers are complex and have several sub-elements, both tangible and intangible, that need to be acknowledged.
- The family business, with all its layers, is in perpetual motion and is thus ever-changing. It is imperative to find and strike a balance among the different elements in order to address what is in the best interest of the family business.
- Succession planning is a process and is dissimilar from inheritance planning. With succession planning, the next generation also inherits the leadership, management and vision it takes to run the family business.
- It is important to establish a family charter or a ‘partnership agreement’, outlining the roles and duties of each member - this charter is binding amongst its signatories. Additionally, this will house legacy data and information that will be used to guide conflicts and hurdles future generations may face in dealing with the business. Establishing this charter requires teamwork, leadership and communication.