Family Business Challenges From One Generation to the Next
Family Business Challenges From One Generation to the Next
Being part of a family-owned business can mean many things. Some people consider working with family a safe option when it comes to career choices, while others claim friction and rivalries may arise due to conflicts among family members. Whether one works with family or not, there are bound to be complications. However, when it comes to working with family, these work issues will follow a person home and interfere with their personal life.
The intention of a family business is the ability to easily transfer the business from one generation to the next, or for various members of the family to work together, simultaneously. However, some families face succession challenges when it comes to transferring the family business from the first generation to the second and third generations. In a recent study, it has been approximated that more than 70 percent of family-owned businesses do not survive the transition from the business owner, or founder, to the second generation (Grassi Jr. & Giarmarco, 2008). From the surviving 30%, only 15% of businesses continue to the third generation (Tatoglu, Kula & Glaiste, 2008). One of the most important aspects of a family business is continuing with family leadership and ownership, but this is also where so many family businesses fail. This is because different generations think differently and approach situations in different ways from one another. Unless family members match in leadership qualities and problem solving skills, the business will suffer.
Creating a succession plan will promote succession and reduce failure. By identifying and discussing the barriers to successful business transitions, one can avoid reaching the point of business failure, which is mainly led by professional management. Other factors, such as motivation, willingness, and knowledge play a significant role when it comes to living up to business expectations. Statistical studies found that a lack of willingness can be harmful to the family business in the long run when the next generation takes over because willingness is the desire to want to take over, and if one lacks this desire, then the business will not run as efficiently as it should. Motivation is finding a reason to take over. Lastly, having the right and appropriate knowledge will allow for a business build up, or continuation, with a strong base.
Recently, Dubai has issued a law regulating family-owned businesses in the emirate to help protect family wealth and grow their contribution to the country’s economic and social development. Family-owned businesses are not just common here in the emirate, but also encouraged in order to live on for coming generations to structure the family assets. This ownership contract preserves the rights and assets of family members involved in the business as well as focuses on building a sustainable and more flexible economic model. In order to avoid conflicts, the law states that all members of the business must be members of the same family and have a single common interest. Also, for those families that wish to maintain the significant proportion of their ownership in the UAE, DIFC and ADGM offers the option to operate family trusts. They had introduced the concept of a trust, which protects and preserves the performance, wealth, and structure of family-owned businesses in Dubai. The trust has become the ideal choice for the holding and preservation of family business interests.
