Four key areas of focus for family-owned businesses

As family business owners and leaders enter 2024, Wasseem Suleiman (partner at Mazars) outlines four key areas of focus for the current year.

In most economies, the majority of businesses are family-owned, hence, family-owned businesses are the biggest contributor to any country’s GDP, and they represent an essential source for creating jobs in the market.

In the Middle East, this is no different – according to research, family-owned businesses contribute a significant part of the GDP (~60%) and employ more than 80% of the region’s workforce.

As we head into yet another promising year for family businesses, four key areas that leaders should focus on are:

Good governance

Good governance is important in any business; however, it is essential in family businesses because, with no governance, family members who are engaged in the business will act as shareholders rather than focusing on the responsibilities of the role that each member is assuming in the business.

Family businesses with no governance fail in building an institutional structure and environment which, in most cases, lead to not being able to grow the business. It should be noted that establishing good governance at the founder generation phase is much easier than establishing it at the next generation phase.

Aspiration and values

In any family business, the aspiration and values of the business must be set by the family members. These values need to be communicated in board meetings, family gatherings and company events. Each family has its vision for its business which could be linked to the family background, culture or interests. In some cases, these values could force the shareholders to make hard decisions that may not be commercially viable, yet, it is essential that leaders stand by their values – as this defines the heritage and identity of a family business.

In a dynamic and fast-changing global market, the new generation in the family should be allowed to add to or modify some of these values; however, this can only be done within the general direction of the overall set values by the founder and the first generation of the family.

Succession planning

Any new generation needs to be trained and prepared to join the family business at an early stage. Not all members of the family however will have an interest in being part of the family business – they should not be forced to join the business as they will not perform well or engage in the business’s overall vision.

The new generation members who would like to join the business need to have a clear path in the business like any other employee. Some families prefer to have the new generation members work for companies outside the family business for a few years before joining the family business to learn the basic corporate skills in an environment where they don’t have any privileges.

Other families allow the new members to start working for the family business immediately after they graduate, however, they keep them under the supervision of non-family members to train, guide and coach them until they are ready to manage a department, a function or even a subsidiary. Family businesses are advised to have a family members’ committee separated from the Board of Directors to discuss non-operational matters related to the future and sustainability of the company.

Succession is a very delicate process that needs to be designed in a way that ensures a smooth transition and continuous appraisal of the family members’ performance in their assigned roles.

Non-family members in leadership roles

Successful family businesses attract talent and leadership from outside the family who can bring expertise and skills that are not available to the family members. Non-family member leaders should be allowed to take decisions within the set guidelines of the company without having the family members intervene in their decisions.

High performing non-family members must be seen as great assets to the family business and not as a threat that could take the attention away from the family members. Family businesses that do not retain and nurture the ‘stars’ among non-family members struggle in achieving their goals and aspiration.

A warm family atmosphere should be created in family businesses for better engagement by non-family members in order to achieve a great outcome for the business.