Family business issues

Family businesses account for most of the UAE economy, dominating the automotive, fashion, real estate and retail sectors. While changes due to globalization, politics and legislation all affect family-owned businesses in Dubai, the biggest challenges to such companies come from within.Only 30 per cent of family firms survive long enough for the second generation to take over; just 10 percent make it to the third generation. Most family businesses last just 24 years.“Shirtsleeves to shirtsleeves in three generations” is the American adage for this phenomenon. Others call it the “Three-Step Waltz.” The first generation starts a business; the second causes it to grow or fail; the third generation spends the profits or is left without anything to show for the whole endeavor. The biggest problem family-owned businesses face is the disentanglement of ownership and management, of family issues and work issues. Most family businesses start out with a very informal style. As they grow, however, they need to adopt standard policies and practices which family members role model rather than count on being exceptions to.In the Middle East, inheritance can cause a business to struggle. The eldest son is meant to take on a leadership role in a family business but what if he is ill-suited to do so? What if children have other interests and aren’t actively engaged in making the business grow? What if offspring or other family members are guaranteed leadership positions no matter what their skills or experience are? Family choices like these can be tricky obstacles to a company’s success.While it’s a good thing for people to be able to experience an industry and different kinds of work firsthand, people that join the company should have the proper qualifications, education and training no matter if they’re family or not.Another issue is the blurring or roles and responsibilities in family-owned businesses. As your business grows it’s important for these roles to be clarified to prevent conflict. Everyone should be very clear about what their job entails and who ultimately makes decisions. If everyone is involved in everything; very little will get accomplished. Everyone benefits from regular performance reviews too. Positions and promotions should be based on merit, not only on family ties. Failure to do so can create an unhealthy company culture in which both family and non-family members garner very little motivation. Such assessments can help family members move into positions they’re better suited for or leave the company to seek out new careers altogether. Such assessments are essential in terms of leadership review. The CEO of a publicly-run company averages about six years. The CEO of a family business may have a career that spans 25 years. This can lead to stagnation and failure in terms of adapting to changes in business models and strategy, technology and emerging markets. Hiring an outside consultant to perform assessments can help family businesses to gain an objective point of view when it comes to performance reviews.Allowing outside counsel can be tough for many family businesses to consider but this practice can also help families to separate business issues from family or ownership issues, improve communications and understand family dynamics. Hiring non-family executives can bring new insights and provide great role models and mentors for all employees. An alternative practice to hiring outside consultants is to form a family council. This can help to manage matters that seem both family and business entwined. The council should begin as a small group that includes the actual owners. With time, this council may open to include more and more family members as policies and visions come into alignment. The family council doesn’t manage every detail of the business but makes decisions regarding issues that are both business and family-related. A family council may occupy itself with establishing three different kinds of plans: individual career plans, family plans and business and management plans.If you own a family business, these are all important considerations in terms of having a legacy to leave. As your business grows, you’ll have more leeway and positions to offer your growing family too but this will only occur if you avoid the nepotism pitfalls that cause many a family-owned business to fail.I work with family business owners helping them to develop an action plan as well as a set of skills that are necessary to transition their company from small family business mentality to a corporate culture of breakthrough thinking and innovation.