How Family Businesses Deal with Succession
This semester I found myself in a Global Family Business Leadership class. A close friend referred me to it since I had never heard about it before. The thought of learning more about family run businesses was something I found exciting, since much of my family works and owns jewelry based companies. As I began the class and learned more about family businesses focused in the Middle East we touched upon many topics like Islamic Finance, succession, globalization, the role of innovation and much more. Not only did we focus on these topics but also learn about other frameworks. We spent time discussing these topics and frameworks in order to learn more about the structures of the businesses we might encounter on our trip to Dubai over Spring Break. This class was incredibly different from the rest because we learned concepts and material in class but were able to apply it in real life as we began meeting many family businesses in Dubai and Abu Dhabi.
I personally became more fascinated with the topic of succession as we looked at case studies in class. We learned that only one third of family businesses succeed from the 1st generation to the 2nd. From there, only 50% succeed to the third generation. So as we began learning more about this topic I began to think, what makes a business more likely to succeed when dealing with succession? Do people focus on planning succession or do they hand over the business with hopes of it living on? How do you properly choose the person that will be taking over the business next?
A portion of many cases we have read in class dealt with succession. Much of it was based in countries that are more traditional and so choosing the successor came down to the first born male. Additionally, in cases like Juchheim we found that the son that took over the business, had worked in it throughout the course of his life. When it came to taking over he had already known much about the business itself. During class I learned that there are many forms of succession and that it depends on the family to make that decision. As we made the transition to visiting Dubai we were able to see first-hand how differently family businesses handle secession. Two families in particular stood out when dealing with succession because they handled it in completely different ways.
We were able to meet Sultan of the Olayan Group on our first day out. Interestingly enough, he was in the process of dealing with the transition to be a part of his family business. When meeting with him he spoke about the strict process to be able to even join the business. He explained the need to work outside of the company for five years in an area that he can potentially bring back information in order to help the family. He worked with Private Equity and had many ideas about how he could help his family business in the future. Not only did he have to work outside of the business, but also deal with strict testing and interviews by others to see if he was qualified to join. This family business was not based on nepotism; it was strictly based on merit.
After reading the cases in class, I didn’t think we would encounter a family that had planned their succession so well that it made family members work even harder to be a part of it. It almost reminded me of one of my cousins’ immediate family businesses, where in order to join the family you must go through two promotions prior to being allowed to join. Sultan was in the process of having interviews to join the business and was kind enough to meet with him the day before he had to take an interview.
The Mehta Family, was completely different from the Olayan Group. We were also fortunate enough to meet them early on in our trip. They were so incredibly kind to host us in their beautiful home. The founder and father, Yogi Mehta, was working on handing over their business to their only son Rohan Mehta. When dealing with succession, it was much less planned and implied that their only son would be the successor of the organization. Rohan had just begun working with his father after taking on a few tries to start other companies. As opposed to Sultan, Rohan didn’t have mandatory rules to follow in order to join the business. I found that their business was structured so differently than the Olayan Group. The size of the organization was definitely a factor, but the age of the business is also something to take into account. Yogi Mehta is the founder of their company and are still functioning in their first generation, whereas the Olayan Group is moving into their third generation. Learning to deal with succession also comes with time and practice.
There is no saying what type of succession will work the best, but I can definitely say I have been able to form my own opinion by taking our trip to Dubai. Through the statistics we can see how difficult it is for a family business to succeed, and I personally think that there needs to be a lot of training and planning done in order for a family member to take on the business successfully. With more planning I believe succession will go more smoothly than if a child is just thrown into an organization to take over. This course was so incredibly valuable because I was able to learn material in a class room and apply it almost immediately. By meeting different families, we were able to see first-hand how businesses are succeeding in the changing climate of Dubai.
