JEDDAH - A comprehensive survey of Family Businesses in the UAE has revealed that CEOs and family members have a higher perception of business opportunities in their sector of operations than their counterparts in the United States.
Entitled “Differing Perceptions and Challenges Facing UAE Family Businesses: Implications for Practice”, the study released by the Dubai International Financial Centre (DIFC) Research Unit, was done with the support of the Walker Center for Global Entrepreneurship at Thunderbird School of Global Management.
It is the first study of its kind to compare the views and perceptions of parent-CEOs and family members within UAE-based family businesses. The study also derives its importance from being the first to compare UAE-based family businesses with US-based family businesses using a standardized and tested research tool and through direct face-to-face interviews.
The study results indicate a higher level of satisfaction with planning practices among UAE family business CEOs compared to US CEOs. In lights of its findings, the DIFC study stresses the importance, and highly recommends the writing of a family constitution that governs the family-business relations to avoid future conflicts and clearly define responsibilities and expectations among the various members of the business.
To further strengthen the foundations for future sustainability, the DIFC study also encourages family-owned enterprises to engage in a re-strategizing exercise that ensures the balancing of the growth and diversification drive witnessed by many organizations at its early stages with the need to introduce sound governance models and organizational systems. The study highlights the key significance of involving all stakeholders in this exercise.
Dr. Omar Bin Sulaiman, governor of the Dubai International Financial Centre, said: “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.”
“The family-run business faces many challenges such as globalization, the growing number of family members in each generation, growth of the company, succession plans and business continuity. It is well known that nearly 95 per cent of family businesses do not survive the third generation of ownership primarily due to lack of planning in the succession,” he added.
“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 to 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,” Sulaiman said.
“The DIFC has and will continue to always leverage its expertise and partnerships in providing innovative and useful business intelligence and business tools that will assist regional and international businesses and the financial services community to have better visibility and thus support smooth decision-making process,” added the DIFC Governor.
Dr. Zeinab Karake Shalhoub, director of Research, DIFC Investments, said the research showed that in the UAE, as well as in the US, chief executive officers (CEOs) generally perceived the practices, cultures and succession processes more favorably than other family members.
“Important relationships between family and family firm cultures were found in both the US and the UAE samples. Many of the findings in the UAE mirror those found in the US”.
She added that “UAE family businesses also exhibit stronger family influence in the business and greater challenges posed by generational succession; and the need for adaptation in a changing competitive environment.”
“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,” she said.
“It also recommends the appointment of at least two independent outsiders to the board of directors, as well as the employment of key non-family managers to ensure the professionalization of the business and the neutralization of the decision making process. In addition, assuring frequent family meetings and a more formal family council to educate and communicate with family members and family shareholders was also stressed to be a critical requirement for business continuity,” Shalhoub added.
The DIFC Study saw active participation by a number of family businesses in the UAE including CEOs and other family members in business.
Responses from the CEOs and other family members were compared to responses from CEOs and family members in other firms.
The UAE responses were also compared with those of family businesses in the US in an effort to test the universality of managing family businesses across different cultures.
Shalhoub pointed out that the study is a unique study that looks at challenges posed by generational succession in UAE family businesses and the need for adaptation in a changing competitive environment.