Family Business – survival of the fittest

we are here to add what we can to life not to get what we can from itFamily businesses are so fundamental to the Middle East that they make up greater than 80% of the rapidly growing private economy of the GCC, yet their inherent complexity makes their evolution critical to their ultimate success and longevity. Thus, it was a natural step for Deloitte to launch a family business service line based in the Middle East.

Family businesses are knitted together by strong but complex bonds and as the proverb “from shirtsleeves to shirtsleeves in three generations” reminds us, careful planning is essential to balancing the needs of the key members of the business, who will have their own objectives, perspectives and goals, with the needs of the business.

So how do family businesses face up to these challenges and ensure their success and longevity?

By ensuring planning and governance frameworks are in place to deal with the future strategy of their business and the family.

In our experience, transition from one generation to the next is often one of the most problematic and least planned for events within family businesses. All too often, family business leaders continue well beyond what is necessary or reasonable in terms of the alternatives, for fear of ceding control over the family business and, to some extent, avoiding their own mortality. Without careful and structured planning for bringing junior members of the family through the ranks of management and a planned for transition of leadership and ownership between generations, it is all too easy for generations of wealth to be uncontrollably dissipated amongst family members.

Family governance planning, the process of establishing structured planning and frameworks, is crucial to creating a shared vision of the way forward and the only way to accommodate changing family dynamics. It builds trust and provides opportunities to take stock and gain perspective – something not easily done amongst the pressures of daily business. Structures often revolve around the key elements of: a family constitution – a practical way of reaching family consensus on how to run the business and deal with the inevitable conflicts that growth and increased success bring; a family council – a structured forum that builds family support, unity and empowerment; and a family office – a forum to control and consolidate the management of a family’s wealth.

The extent of planning and governance frameworks required tends to be something that evolves over time and Deloitte, the oldest professional services firm in the Middle East, is well placed to listen and explore a family’s needs and develop a bespoke service that suits the families specific requirements and vision, and does so over the long term.

We are able to assist families manage the ever-evolving social and cultural changes occurring in today’s society, including the redefinition of women’s roles in both the family and business, as demonstrated by one of the largest regional families whereby today it is the daughters that predominantly sit on the Board of the family business. As a result of this social and cultural shift in women’s roles, women are becoming more involved in the business activities of the family and business, with a growing awareness of the need for family governance. Many are keen that the succession of the family business and wealth is passed down through the family in a manner which benefits all family members and wish to contribute to the mechanics of how this succession takes place, as well as play an active role.

Governance models need to be dynamic and flexible enough to transcend traditional practices, growing with the family and their changing social and cultural attitudes, yet at the same time honour and preserve the family’s traditional values and Sharia’a practices.

The value of an external professional adviser with a new raft of skills, competences and experience, as well as an independent objectivity not often found among family members, cannot be underestimated and an ability to navigate through sensitive problem areas for both business and family can make all the difference in the world.

By Paula Morris, Head of Private Client and Family Office Services International and M&A Tax, Deloitte Middle East

One thought on “Family Business – survival of the fittest

  1. True, i am a victim of the family conflicts that come with running a family business. My father and uncle have business set up in East Afirca but refuse to highlight a constitution of how the business will be divided with the children. This brings fear and leaves us choosing whether to keep family united with love and find employment outside or join the family business and risk breaking the family apart with greed.

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