80% of businesses in Middle East are family-run or family based. According to Middle Eastern Business Insights, over 41% of the business plan to pass the mantle to next generation. More than $1 trillion is expected to be handed down to next generation. However, less than 40% of business have shareholder agreements in place and about 40% have no plan to deal with conflict that may arise between Faraid’s, Asaba and Arham claimants under Shari’s succession laws. What is distressing is that if business history of other families is any indication, just about 1/7th of business will survive intergenerational transfer and other family business may just perish.
Even though Middle Eastern companies are different in size and governance areas, one central element common is the overlapping role of family, ownership and management. The family firms have brought few competent outsiders to lead and manage their business and resolve the issue around succession. In many cases, in-laws and relatives are appointed as leaders or key executives. Hence, succession for many of these companies is not about family persons but also other positions.
How must the Middle Eastern businesses plan and execute succession. Few common elements of successful succession plans across the world can be pointers.
- Nurturing and mentoring are essential to sustain and extend founder’s entrepreneurial values
- Heirs well-prepared in terms of educational background and experience and having spent couple of years at different levels are better prepared
- Family must plan current owner characteristics and leadership style, current company situation, leadership development and successor characteristics and post-succession company structure and process
- Discuss the succession management within family and with Board
- Plan the role adjustment process for the founder and the next generation family member
- Exposure to various aspects of business at early age is important
- Training (formal or on the job) has certain advantages
- While mentoring from father is a must, complement with outside professionals
- Succession should be encouraged to build their own performance assessment system
- Gaining experience outside the system is a must for diversified groups
- Attempt transition when the business is health and markets are near normal