The family business invariably grows from a single operating company. As the original business grows and matures, throwing off tremendous amounts of cash, the question becomes: what next? There seems to be three main strategic ideas: 1. Grow the same business geographically, 2. Financial investment programs or 3. Enter into new businesses locally. These strategies are not mutually exclusive.
Category Archives: Family Business
The Challenges of Generational Change in a Family Business
Andrew Carnegie, an incredibly successful American businessman, famously said “Three generations from shirtsleeves to shirtsleeves.” Here, shirtsleeves mean the clothing of a (poor) blue collar worker. This is probably the origin for the more modern day warning “The first generation builds it, the second generation enjoys it, the third generation loses it.”
In the GCC a quick and informal survey of family businesses would suggest that the second generation not only enjoys it, but often is the generation that loses it. This process seems to take years as often as it takes decades. Are there issues that we face that are different from those faced by the rest of the world, or are we just better at squandering family fortunes?
I will argue the former, and that blindly applying global best practice therefore harms regional family businesses. I will pick a number of the more salient issues that should reinvigorate the discussion.
The Family Holding Company: More Than Just A Legal Structure
With generational change increasing, the idea of institutionalising family businesses has gained wide spread acceptance. The magic formula seems to be create a holding company to hold the shares of the operating companies, a shareholder agreement, a terms of reference for the board and maybe add some independent directors to the board. Focussing on the holding company aspect, there quite often is no strategic plan let alone business plan. The holding company direction is set by the agenda of the constituent operating companies. Talk about the tail wagging the dog.
Family Business: Acknowledging Core Challenges
Family businesses have been the private sector economic foundation of the GCC. Their financial strength and contribution to national GDP is obvious. Their challenges, however, are usually private, hidden behind a family wall of silence. True, there have been a few public blow ups, but everything else is discreet. This is a shame, as these wonderfully successful family businesses deserve to remain successful across generations and a necessary part of that is open debate and discussion on the challenges faced by these families. How else can you learn?