Earlier in my career, I was heavily involved with a project for a Middle Eastern family conglomerate. Following comprehensive assessments while looking ahead to future scenarios, I had a productive conversation with the owner’s son and recommended that he take some time away from the project and accumulate additional industry experience elsewhere.
This is a decision of particular relevance even to this day. I now have a board room position having accepted an invitation from the same person – and there are learnings from this experience that others should always consider. Firstly, people welcome transparency and value honesty. Secondly, family members are not always suitable candidates for
assuming roles and responsibilities beyond the start-up period.
Although he was CEO at the time, the son was, however unintentionally, preventing the company from scaling greater heights and witnessing achievements come to fruition. While his capabilities were apparent, he wasn’t ready for the role at this stage of his development.
As such, he admirably made the correct decision, leaving his role to pursue an opportunity with a competitor based elsewhere. He has since returned to the business as CEO, backed by the competencies required to be a leading CEOs in his field.
Back then, the company boasted financial resources but lacked effective management. Today, it actually has both. These are essential factors when leading any business, yet success in these areas cannot come to fruition without professional leadership of the highest standard.
Professionalising is futureproofing
First, let’s be clear about the definition of professional. It means proper governance guidelines, regular board meetings, official hiring policies, KPIs, and a succession plan that offers a vision for the future. It also means family members are treated—and compensated—in the same way as employees hired from outside.
Without these components, family companies are presented with a lose-lose situation. If they stick to the family-only approach, their success will diminish with each passing generation. In fact, research from Arthur D. Little shows that by the fourth generation, less than 5 percent of family-run businesses globally remain operational without professionalising. Meanwhile, if they decide to hire from outside, the absence of clear governance and opportunities for progression will ward off the best talent.
You can’t pass on passion
Of course, running a company professionally is not the only success factor. Why did Amazon and Google initially become successful? It’s not necessarily because the founders were professional, but because they were passionate. Uber is an interesting case; the co-founder of the ride sharing platform, Travis Kalanick, turned out to be a public relations liability and was voted off the company board – a sign of professionalism in action. Yet without Kalanick, there would be no Uber.
What gets a start-up off the ground is enthusiasm, belief – even obsession—and in this sense, a family set up is often the best way to begin. The problems come later. When a mother or father starts a company, it is built on passion, but it is a stretch to assume that their children will be passionate about the same topic. So, while family members can make perfect founders, it is almost inappropriate for the second generation to remain solely in charge.
The outsider perspective
As a business matures, it needs people with experience, and for founders to assume that their children are the most knowledgeable people out there, is fundamentally flawed. Yes, a family member can be passionate, but that passion is often better channelled through the role of board member than executive decision-maker. On the board, a family member can still offer valuable input, without responsibility for running the business day to day.
That should fall to professional managers, and the advantages of hiring externally are manifold. First, they are free from the complexities of family dynamics. Professionalising in the Middle East, and regions where respect for seniority runs deep, can be particularly tough.
Second, an outsider is more likely to prioritise the business over personal performance. For a hired professional, demonstrating the ability to grow a business is valuable CV material and a ticket to career progression. By contrast, family members aren’t going anywhere.
The winning formula
The prevailing advice is not to eradicate ‘family’ from family business. Quite the opposite: by professionalising, families can protect their reputations and ensure their legacies live on. What’s important is reaching a happy medium, where family and external employees work in harmony for the good of the business. Family business is the backbone of Middle Eastern economies, and by professionalising, they can make sure it remains that way.