Keeping UAE business in the family

Could you sack your own son, or give your sister a pay cut?

Delivering unwelcome news is never easy for managers – but it is especially difficult for those working for the Middle East’s numerous family-owned businesses, which dominate the private sector.

Randel Carlock, a professor at Insead, says family businesses face unique challenges in reconciling the emotions of family life with the harsh realities of the balance sheet.

But the co-author of When Family Businesses are Best – who was in Dubai this month with the Entrepreneurs Organisation, a non-profit global network of more than 10,000 business owners – explained why the long-term approach often favoured by family firms can pay off.

Why is the management of family businesses an important issue?

Because of the overlap of family and business you have a lot more drama. Take Gucci: everybody knows the terrible stories of the sons turning their father in to the tax authorities. When family and business overlap, it creates a powerful story – of both success and potential failures and conflict. When you work for a family business, it’s basically about trying to be professional and emotional at the same time. And that’s something of an oxymoron.

The other thing is that the world economy is shifting. Where’s all the growth? It’s in the Middle East, Asia and South America. Those economies are totally dominated by family businesses, so it’s just raised the profile of how important it is to the world.

Are family firms run less rationally compared to other businesses?

The business side is rationally run. But how can you be rational with your son and your daughter? You love them. Maybe your daughter is really skilled as a business leader, but your son is not quite so skilled … What do you do? Do you leave your son out? It’s a natural conflict.

How do you manage that?

The two critical factors for family business success are clear values that the family agrees on, and strong governance: the family meets together and has a board of directors for the business. If your brother is not performing and if you’ve got good governance, you make that tough decision to move your brother out.

How important are family businesses in the UAE?

The whole economy is built on family businesses. Sure, you’ll have international firms that come in. But in some parts of the economy, particularly fashion, automobiles – anything that takes a long-term commitment to build the brand and reputation – you’re going to find more family firms.

Why is that?

One of the key competitive advantages of family businesses is passion: they care. Very few people go home at night deeply committed to the large public company they work for. But when you work for a family business, even if you’re not a family member, you’re part of the family. It’s one of the reasons that fashion and cosmetics are dominated by families – because you can’t do those kind of industries without passion. But you don’t see a lot of family-owned insurance companies because insurance is really just numbers.

Several family businesses in the Gulf are said to be considering IPOs. Good idea?

If you need the capital to expand, then go public. But too many people go public for the wrong reason. And the truth is it’s not a very good way to be organised. Wouldn’t you rather be owned by 50 people from the same family who plan to keep the business for generations? Because that is the competitive advantage of a family business: a long-term perspective. Growing on your own capital at a steady pace is a much smarter way to do it. And family businesses have enough trouble keeping their family happy. Why bring in 10,000 strangers?

Are there any issues in the way UAE family businesses are run?

Their technology is first world – it’s the latest thinking. But sometimes on the family side they’re a little too traditional. Young people need to be empowered because young people have the energy and the new ideas. And this is what makes a dynamic economy. And so I think one challenge in the Middle East is to keep that respect and participation of the seniors, but the energy, motivation and the passion of the young generation.

Do family businesses suffer from an image problem?

Probably, simply because they don’t do a lot of public relations, and economically most people are fairly naive. Most people do not realise that their Volkswagen comes from a family business … that their Louis Vuitton comes from a family business. And even some family businesses do not realise how important family businesses are.

business@thenational.ae

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