Had the great Russian novelist Leo Tolstoy been a business school professor rather than a writer it is likely that his introduction to Anna Karenina would have been reversed.
Instead of writing “all happy families are alike; each unhappy family is unhappy in its own way” he might instead have decided that ‘unsuccessful family businesses are alike, but each successful family business is successful in its own way’. This is because the desire to grow and develop a business is as evident in the founders of an enterprise that is ultimately unsuccessful as it is for those that thrive. The ambition, effort and vision necessary for establishing a sustainable enterprise are common factors, but the vital elements that ensure survival and sustainability are diverse and often unique; trying to develop a one size fits all approach to growing a successful family business is not just pointless, it is positively harmful.
As a researcher, teacher and author in corporate governance I am often asked for my opinion of the right time for family businesses to address corporate governance issues (such as leadership, board development and management style). These questions result usually from a major change to the leadership (for example when the relatives who started the business decide it is time to pass the baton) or from the desire of the younger generation to become more involved with the direction of the company.
My experience is that there is no ideal time, but that as with larger enterprises a focus on corporate governance often has a major and positive impact on performance. In particular, when family enterprises are transitioning in terms of size or breadth of their operations it is vital to ensure that very sensitive issues such as succession planning, roles and responsibilities and the long term future are properly and constructively managed.
Unfortunately it is often at these tipping points that clear and objective thoughts and advice get lost in the fog of intra-family disagreements.
For family enterprises to ensure as much as possible that there will be a business to pass on to future generations, clear guidance would be a genuine asset. Unfortunately, this type of business is not included in the rich array of corporate governance guidance that has been developed over the last 20 years in Europe and North America.
For many Western commentators, corporate governance is an issue that only impacts larger companies, in particular those that are listed. As a result, much of the available body of guidance addresses the role of the board, independence of directors, structures and membership of formally constituted committees that are typically found in large companies.
For a small enterprise looking to become larger or for a local business wanting to become more international this guidance is of little practical benefit despite the real opportunities for reputational status and internal clarity that could be achieved.
Without the strong management characteristics that are a by-product of a focus on corporate governance practices the chances of long term sustainability and development remain uncertain and risk of failure is increased. Fortunately for family businesses in the UAE, guidance designed specifically for SMEs has been developed that provides a framework for the development of corporate governance in family businesses.
This unique publication provides clear guidance for family business and contains perhaps the most insightful and important advice ever written: don’t confuse the family business with the business of the family.
In the business environment of the Middle East, where family ties remain strong and trust is still based on personal bonds these words resonate.
As the business environment and culture of the world changes in the rest of the world, the example set by the leaders of the corporate governance community in this region may prove to be the beacon that guides family businesses in the West towards success in their own way.
The writer is professor of internal auditing at Cass Business School, part of City University London.
