Middle East Family Business Survey Key Findings. Challenges of Managing Business and Family. May 2014

Transcription

1 Middle East Family Business Survey Key Findings Challenges of Managing Business and Family May 2014

2 Table of Contents Section Overview Page 1 Family Business Survey 3 2 Key Issues and Challenges 9 3 Common Practices 13 4 s involvement in Family Businesses 20

3 Family Business Survey

4 Global Family Business Survey 1,952 interviews conducted in 28 markets North America Canada = 77 USA = 100 Western Europe Austria = 50 Belgium = 75 Denmark = 50 Finland = 50 France = 50 * Germany = 87 Greece = 33 Ireland = 100 Italy = 82 Malta = 100 Sweden = 100 Switzerland = 100 Turkey = 99 UK = 100 Eastern Europe Romania = 31 Russia = 49 Asia and Pacific Australia = 50 Hong Kong = 50 India = 50 Singapore = 50 South Korea = 74 Taiwan = 30 Latin America Mexico = 50 Brazil = 100 Middle East and Africa Middle East = 65 South Africa = 100 4

5 Family Business in the Middle East Some key facts Family Businesses in the ME began as entrepreneurs. Originally established years ago and over the years diversified their investments and created a number of successful conglomerates Over 80% of the businesses in the ME are either family owned or controlled. They are a significant source of economic activity and employment Most of the families are in their 2 nd generation and a significant number will undergo a generational shift in the next 5 10 years. Succession is therefore a major concern Only 5% to 8% of family businesses survive beyond the 3 rd generation. Family business continuity is therefore a major concern Some of these businesses have reached a stage where it is necessary to have a more structured governance process one less dependant on a charismatic leader A number of ME families are going through family feuds although respect for the elder generation has to some extent protected these families 5

6 Key findings and insights Family businesses in the ME have performed well and are bullish about growth in the next 5 years (83% have grown over the last 12 months (compared to 63% globally) One of the key challenges to growth is attracting the right skills / talent. It has become a greater challenge in 2012 (45% cited this issue versus 34% in 2010 Family firms want board level discussions to be about global challenges, growth, strategy, operations, profitability rather than family issues or conflicts Innovation, Consolidation, Competition are emerging themes that are consistent with global trends Family business in the ME are less fazed by the general economic situations than family businesses in other countries Succession issues. 50% plan to pass the business down to the next generation while a further 28% will pass ownership down but will employ key non family management. 20% of the families saw a possibility of family conflicts as a result Access to finance is a challenge Name lending no longer favored by financial institutions. Family businesses prefer not to leverage their balance sheet or sell off family assets Cash flow and cost control are key themes suggesting that there is more to do around internal processes, working capital management etc 6

7 The top 3 internal and external issues facing family businesses are the same in 2012 as they were in 2010 although market conditions is seen as less of an issue now and government policy more so. Key internal issues in next 12 months Recruitment of skilled staff/labour shortages Company re organisation/management model/mix Cash flow/controlling costs % 23% 26% % (43%) 23% (21%) 23% (17%) Key external issues in next 12 months Market conditions Competition Government policy, regulation, legislation or public spending % 17% 20% % (54%) 32% (27%) 47% (27%) 7

8 Five years hence, new themes such as price competition and innovation will drive board room discussions Key challenges in five years time Next five years Attracting the right skills/talent 55% (58%) Price competition Need to continually innovate Retaining key staff General economic situation Company succession planning 48% 45% 43% 42% 40% (59%) (62% (46%) ) (66%) (32%) Need for new technology Complying with regulations Number of businesses competing 28% 34% 34% (32%) (39%) (40%) Suppliers/supply chain Conflict between family members 20% 20% (27%) (9%) Internal External (%s in brackets = global results) 8

9 Key issues and Challenges

10 Family Business dynamics Business success cannot make up for family failure The family is a unique component part Understanding and managing these dynamics is critical Ownership Family 5 Business Key 1. Inactive or passive owners 2. Management and employees 3. Owner managers 4. Inactive or passive owners/family Members 5. Family 6. Family employees 7. Working family owners 10

11 Significant issues facing Family Businesses Continuity planning It is important that each family has a vision for the future and is fully committed to the success of the business. It is very easy for family members of the next generation to have conflicting objectives. Succession planning / Generational change The succession is the biggest threat facing all family businesses. There are two dimensions to this: ownership succession and management succession. Conflict management Conflict always exists in families, and it will always exist in family businesses. Managing conflict is the key not just to the survival of the business, but to the survival of the family itself. 11

12 Significant issues facing Family Businesses in the Middle East Family issues Clarity about future strategy and vision Family of more than one branch Transitioning of the current to incoming generation (succession) Engaging passive members of the family Choosing the future leaders of the family Mentoring and training of the next generation Deciding between reinvestment of profits and payment of dividends Establishing strong business working relationships between family members Agree a process for resolving conflicts Business issues Decision about the future strategy of the business Decision making and the rule of the majority Family representation on the Holding Company Board Performance of family members actively involved in the business Setting remuneration levels for family members working in the business Agreeing the terms and process for exiting the family business 12

13 Common Practices

14 What do successful families do to address these challenges? Partition ownership issues from business issues Create separate forums for family and business Engage passive family members Set up good corporate governance mechanism Accountability and reporting to the Holding Company Board and shareholders Communication to the shareholders Establish the family Rules Address key ownership issues Create clear lines between family and business Create family protocols Commitment to fairness Family members to be treated in a consistent and fair manner Conflict resolution mechanism Involve third party mediation 14

15 Family constitution or protocols The Family Protocols is the outcome of a process in which Family Members from the outgoing and incoming generations come together to set the rules defining: Their business relationships Roles, responsibilities and authorities Boundaries between Family and Business In this process the Family Members examine and evaluate alternative options and create practical solutions for the continuity of the Family Business into the next generation. 15

16 Family Protocols sections It is important that these protocols are prepared in conjunction with the Shareholders. The protocols should be modeled on the basis what is good for the family business is good for me. Family Protocols would usually cover the following: 1 Family Ownership and Structure - - Ownership of shares - Holding Company structure 2 Shareholders Vision Statement - - Ownership philosophy - Family values - Family vision 3 Governance of the Shareholders Assembly/Council - Role of the Shareholders Assembly - Voting mechanism for decision making - Membership of the Shareholders Assembly - Election of Chairman / Vice Chairman - Duties and responsibilities 16

17 Family Protocols sections (Cont d) 4 Who can / cannot become a Shareholder - Will it only be bloodline? - Position of in-laws - Will adoption be allowed? 5 Family representation on the Holding Company Board - Board structure (Family / Non-Family directors) - Election process; Terms of office; Meetings etc. - Duties and remuneration of the Board of Directors - Boards of subsidiary and associated businesses - Role and duties of the Board Secretary - Guidelines for conducting board meetings - Advisory board 6 Restrictions on Family Members investments - Restrictions on what family members can invest in their own name - Family joint ventures 17

18 Family Protocols sections (Cont d) 7 Family Personnel Policy - Criteria for family employment - How will family members be rewarded - The Family Personnel Committee - Training and mentoring of family members 8 Governance of the Family Assembly - Role, membership, meetings and voting of the Family Assembly - Family Assembly Committees 9 How do we deal with Exits (family members wishing to leave) 10 - Mechanism and process of exits - Rules on valuation - Holding Company obligation to buy shares - Building reserves for exits Family Office - Type of office - Scope of services - Funding of the Family Office - Family Office Manager 18

19 Family Protocols sections (Cont d) Charitable activities - Charity Committee - Funding Conflict Resolution mechanism - Conflict Resolution Committee - Role of the independent Non-family outsider Dividend policy - Balanced dividend policy - Process of recommendation and approval Confidentiality and Code of Conduct - Rules on confidentiality - Shareholders obligations - Violation 19

20 s involvement in Family Businesses

21 s involvement in Family Businesses An integrated development programme for directors of family businesses Family Business Survey 2012 s Involvement in Family Businesses Our credentials in helping family businesses and their owners Our experience in helping local family businesses - Business restructuring and transformation - Ownership and Corporate governance - Business and Financial Strategy - Organisation design - Due diligence and valuation - Family compensation and reward structure. 21

22 Amin Nasser ME Entrepreneurial and Private Clients Leader Telephone: Fax: