A large majority of family firms across the region are currently in their second generation, and will undergo a generational transfer in management and leadership over the next 5 to 10 years.
Given the significant economic and social contribution family businesses make towards Gulf economies, it is imperative that this transition occurs seamlessly.
However, there are a number of threats that can pose a risk to family business continuity, and ensuring the sustainability of a family business is a delicate affair of managing family, business and ownership affairs harmoniously to avoid the risk of conflict.
Without a necessary corporate and family governance system in place, in a family business, family and business affairs are not mutually exclusive and as such, conflict in the family can potentially spill into the business and vice versa, causing long term impact on business sustainability and family harmony.
A family governance framework that defines a common system of values and objectives is required, as well as a structure for resolving conflicts.
Led by Amin Nasser, Middle East Family Business Senior Advisor, PwC, this webinar deconstructed the elements and dynamics across family firms in the Gulf Region and explore strategies & tools for conflict management.
- Discussed why conflicts occur in family businesses
- Explored the core issues likely to cause tension in a family business
- Deconstructed the impact of conflict on family wealth
- Outlined the strategies to navigate and minimising conflict in family firms
What we learnt:
- Family businesses face many challenges that other businesses might not ever have to face due to the intertwined elements that include the family and the business. In addition to economic instabilities & global pandemics, family firms struggle with balancing family needs with business needs and thus are posed to threats that affect family relationships as well as ownership and management succession; all of which threaten their survival.
- To avoid conflicts, family businesses should create clarity and certainty around all of the elements, establishing rules, conflict management protocols while formalising the relationship among family members. Family stability and success will reflect positively onto the business.
- Many family feuds regionally are often diffused, or at the very least delayed, due to a strong culture of respect for elder generations. However, these same families often come into conflict when the patriarch or old leadership generation passes, and the next gen come into the fold.
- Disagreement and conflict exist in all families and is not reflective of poor business management or performance. Disputes primarily take place due to shareholder expectations (both family and non-family members) not being met to their full extent. This is often exasperated by a lack of clear and effective communication with stakeholders. Without transparency, shareholders are likely to raise questions about dividend cuts – especially during times of decreased profitability.
- It is vital to understand the dynamics of family members within the family business. This is commonly demonstrated by the 3 Circle Model: Family, Ownership and Business/Management. By using corporate governance mechanisms and systems to formalise the relationships and interaction among the various systems, conflicts can be mitigated. Similarly, other formal procedures in dealing with family, such as judicial committees, family/shareholder councils, or confiding in trusted advisors, conflict can also minimise the occurrence of disputes. It is also important to engage passive shareholders who can provide additional support to the family.
- It is imperative for families to commit to consistent fairness – regardless of family member or non-family member and think about it as the most crucial ingredient for conflict management.