Family businesses in UAE need rules to avoid conflicts

Dubai: Family members and chief executives from family businesses in the UAE have a higher perception of business opportunities in their sector of operation than their counterparts in the US, a new study has revealed.

The study was conducted by the Dubai International Financial Centre (DIFC) Research Unit with the support of the Walker Centre for Global Entrepreneurship at Thunderbird School of Global Management.

"This comprehensive scientific study comes as part of the DIFC's efforts to provide sound and fact-based business intelligence that would help regional family-owned businesses cope with the pressures of change and succession-planning as well as assist the international business community to understand the needs and aspirations of UAE-based family businesses," said Dr Omar Bin Sulaiman, Governor at DIFC.

The study is the first of its kind to compare UAE and US family businesses using a standardised and tested research tools and through direct face-to-face interviews

The study said over 80 per cent of businesses in the Gulf region are either family-run or controlled, an indication of the family's importance both to the development of the economy and society.

The slowdown in global economic conditions has brought into focus the opportunities and challenges that family businesses in the region face.

"The Arabian Gulf is dominated by family businesses. Most of the family business in the UAE and the Gulf are still young and in transition phases," Sulaiman said

"In addition to operating in a difficult economic environment, family businesses have also got to deal with generational change. Traditionally such businesses have been very conservative in their approach and resilient to market conditions," said Ameen Nasser, Partner, Business Advisory Services, at PriceWaterhouseCoopers in Dubai.

"In recent times, a number of families diversified into what could be termed 'non-core' activities. We are likely to see such families carrying out a strict and non-emotional review of their business portfolios resulting in the possible winding down of certain activities," Nasser said.

According to Dr Zeinab Karake Shalhoub, Director of Research, DIFC Investments: "The study identifies a number of areas for improvements and provides six major recommendations to UAE CEOs and family members including writing a family constitution; developing clear standards and processes for both managerial and ownership succession and adopting a holistic strategic planning approach."

Other recommendations include at least two independent members on the board of directors, employment of non-family managers, frequent family meetings and communication with family shareholders.

Nasser however said some of these measures are already being implemented regionwide.

"There is an encouraging trend to clarify and separate family issues from management for these family businesses thereby increasing the focus on business. These governance structures help reduce family conflicts and sibling rivalry and also improve the chances of the next generation of family members embracing and supporting the family business," he said.

The study concludes by recommending "the writing of a family constitution that governs the family-business relations to avoid future conflicts and clearly define [sic] responsibilities and expectations among the various members of the business."

Should there be a constitution to guide family businesses? Or should they be left to their own guidelines?