Smooth transition with younger generation carrying the torch is key for GCC family firms

Rasheeda Haddishis of Oxford Strategic Consulting explains why some GCC family firms thrive and others fail.

Family firms play an important role in the GCC economy, but unfortunately not all of these businesses are reaching their full potential. Family firms help to generate a large proportion of non-oil GDP, which accounts for nearly 80 per cent of the GCC economy GCC. Moreover, these firms remain a massive source of employment throughout the region. Yet some only last for one generation, while others continue to grow over the course of several.

What explains this variation? Oxford Strategic Consulting (Oxford) research identified three key reasons why some family firms in the GCC thrive, while others struggle to make it past the first generation.

• First: good governance is critical

Family firms with a strong governance system in place are more likely to see the family firm successfully transition from one generation to the next because good governance facilitates healthy succession. On the other hand, a lack of good governance means family firms will struggle to handle the change management needed to keep competitive and productive.

• Second: minimise conflict and utilise positive emotions

Conflicts of interest between family members can prove damaging. These can become especially harmful when internal and private matters become public, causing rifts. Oxford research into emotion in family firms revealed that these firms exhibit both the positive and negative emotions that we would expect to find within families themselves. Firms that harness the power of positive emotions, such as loyalty, and minimise the occurrence of negative emotions tend to be more successful.

• Third: not all family members are interested in running the family business

There are many reasons for this lack of interest, and not all instances involve a loss of family values or a lack of motivation. In some cases, members of the younger generation are attracted to entrepreneurship, living in a new location or working in a completely different industry. Whatever the case, a lack of interest in running the family firm on behalf of the next generation often complicates succession and can add additional stress.

That being said, many family firms benefit from the diverse educational and professional experiences of younger generation family members. Although many are educated abroad and sometimes experiment with professional opportunities outside the family, most return home to work in the family business. Loyalty to their relations and a desire to maintain the family’s reputation are strong motivating factors for many of the younger generation. This new generation will also need to help their country grow in the future if they are likewise expecting to see healthy growth within their business.

The economy of the GCC is constantly changing, and family firms that proactively confront these changes will be better prepared to succeed. Family firms should establish good governance systems, minimise conflict and utilise positive emotions to remain competitive and productive. Those companies that proactively confront change and possess realistic expectations of their family members will be best placed to achieve the continued success that we have come to expect from the GCC family firm.

Rasheeda Haddish is an Oman-based senior research consultant at Oxford Strategic Consulting, a consultancy that specialises in building human capital across the GCC and Europe