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Family business leaders looking for a smooth transition to the next generation can start planning today with six guidelines outlined in an ongoing study from Thunderbird’s Walker Center for Global Entrepreneurship in Glendale, Ariz.
“Silence or denial of the succession challenge is not the answer,” said Thunderbird Professor Ernesto Poza, co-author of the study prepared for the Dubai International Financial Centre in the United Arab Emirates. “The work of boards, family meetings and high-influence outsiders — with chief executive officers who are willing to listen — can make a distinct contribution to a positive succession process and business continuity.”
Poza is working on the project with Thunderbird Professor Robert D. Hisrich, Ph.D., MBA candidate Jacob Ruesch and other Thunderbird students. The researchers surveyed family companies in the United Arab Emirates and compared results with responses from 80 family businesses in the United States.
“The Arabian Gulf is dominated by family businesses,” said His Excellency Dr. Omar Bin Sulaiman, governor of the Dubai International Financial Centre. “Most of the family business in the UAE and the Gulf are still young and in transition phases.”
This makes succession planning crucial in the region.
“Many of the findings in the UAE mirror those found in the U.S.,” said Dr. Zeinab Karake Shalhoub, director of research at the Dubai International Financial Centre. “But UAE family businesses also exhibit stronger family influence in the business and greater challenges posed by generational succession.”
The CEO parent or grandparent plays a pivotal role in this succession process. Thunderbird’s research shows that family owner-managers in the United States and the Arabian Gulf share a tendency to be more optimistic than other family members about the business practices and procedures they oversee.
An optimistic outlook has its benefits, but Poza said the way a CEO expresses this “positivism” can create potentially damaging disconnects with the rising generation who represent the firm’s future.
He said wise family business leaders remain open to the perceptions of others — both inside and outside the family. The research shows that family business leaders in the United Arab Emirates often embrace this concept better than their counterparts in the United States.
“The greater receptivity by Dubai CEOs to outside advisers is an encouraging sign,” Poza said.
The Thunderbird study, titled “Differing Perceptions and Challenges Facing UAE Family Businesses: Implications for Practice,” recommends six practices for family businesses in both regions to help keep the lines of communication open. These practices include:
1. Writing a family constitution that spells out the employment requirements of family members and promotes a vision of professional management of the enterprise.
2. Developing clear standards and processes for both managerial and ownership succession.
3. Strategic planning that re-invigorates the opportunity-seeking orientation of the entrepreneurial stage.
4. The use of boards of directors with a minimum of two independent outsiders In this case, “independent” refers to nonfamily members who derive no economic benefit from the company through employment or professional service contracts.
5. The employment of key nonfamily management to positions of significant responsibility in order to ensure the professionalization of the business.
6. Frequent family meetings or a more formal family council to educate and communicate with family members and family shareholders and act as the family’s board.
“Two generations that disagree but are capable of acknowledging what has made the business successful thus far and what needs to change in order to make the business future-ready are the necessary ingredients for continued success,” Poza said. “A disagreement across generations over the strategy of the firm is a disagreement worth having and resolving.”
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