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Insights from Hani Al Zubair, Director at The Zubair Corporation
Statistics show that only a very small percentage of family businesses survive beyond the 3rd generation. The reasons for this early disappearance of family-owned companies is arguably different from one case to another. Yet, it is striking how some families seem to be more successful than others in overcoming the 3rd generation hurdle. Hani Al Zubair, Director at The Zubair Corporation in Oman, speaks about the challenges of bringing in a new family generation, what the first and second generation should prepare for, and how giving the next generation a free choice of career can ultimately become an asset for the family and the business:
Some say that, in family businesses, the first generation creates, the second spends, and the third destroys.
Admittedly, the third generation can only destroy a family business if the first and second generations fail to “ institutionalise “ the business structure. But what exactly does institutionalisation imply?
The family business needs to be set up in a way that permits it to run in a professional manner with rules and regulations that clearly identify the roles, responsibilities and even limitations of each individual family member. It also means that there needs to be a clear and understood demarcation between the “family” and the “business”. It is only once these two aspects are considered that the family business can have a better chance of surviving past the third generation.
Therefore, the “institutionalisation” of the business needs to happen during the reign of the second generation, and is, ideally, driven by the first generation, the founders. It is of the utmost importance to have everything set up before the third generation members come knocking at the door.
In my personal view, it is more beneficial for the third generation not to grow up with the fixed idea of joining the business. If some of them do end up working with the family, then it should be considered a bonus as opposed to it being forced or promised.
Indeed, as the family moves into the second, third or fourth generation, most recognise the dangers of promising employment to family members without discrimination with regards to competence or experience. This type of behaviour raises the following concerns:
- The business may become overburdened with family members.
- Family conflicts are more likely if standards concerning employment and development are unclear or not communicated properly.
- The motivation of non-family employees will suffer if family members are awarded jobs and promotions without set criteria or standards
- Family members may not develop themselves fully if family jobs are too readily available.
- The family should address these concerns by developing specific employment policies for both family and non-family members.
Having said all this, it is in the overall best interest of the family to ensure that all its members get the opportunity of a first class education. The family should set up a system through which:
- Family members will be sent to the best possible schools
- Internships can be arranged either internally or externally (with business partners or principals)
- Family members can be sent on to higher education
Those members who decide not to join the family business and venture out on their own will do so knowing that they have had the benefit of a first-class education, and that grew up being part of a nurturing and caring environment. This positive reflection will make them ambassadors for the family and will hopefully further them in creating their own careers and wealth. Out of the family members not joining, there will be some deciding to become doctors, others engineers or take yet a totally different direction. Some may even start their own businesses either independently or in conjunction with other family members or the family business itself. The advantage is, that they can do this with the fallback that they are still part of a big family and still hold their share in the family business.
For those, on the other hand, that end up wanting to work in the family business, certain basic principles should be observed:
- Entry criteria should be established for family members.
- Family members need to have appropriate work experience and should be able to meet the requirements of the position in question.
- Family members should have between three and five years external experience to ensure that they can add value to the business. This also enhances their credibility with non-family employees.
- Family members should have a genuine interest in joining the business rather than seeing it as a duty or a birthright.
- Upon entry, family members should find themselves within the settings of a “proper” job.
- Family members should not directly manage other family members.
Ideally, these principles need to be agreed upon and then published in order for all members to be aware of them.
At the end of the day, the most any founder can do to try and ensure the long-term survival of his/her legacy is to set the business up in a proper manner with clear guidelines and sensible discipline. It is important to remember that the business should not be a burden for the family, but should be a source of pride and ultimately a source of wealth to each and every family member.