By Martin Testa,
Martin Testa is Adjunct Professor at the Maastricht School of Management in Holland and Chairman of Nobel Mantrich Institute – an international management consulting and training company in the family business sector. His indepth association with Middle Eastern family businesses goes back 10 years.
For a family business to be built to last Egyptian business owners need to seriously address how the business will survive in their absence. From my experience in advising family businesses internationally and comparing them to those which I have worked with in Egypt, I can safely say that the survival statistics of family business from one generation to the next does not vary much between Egypt and other countries. This means that only 30% of family businesses will survive their transition to the next generation and only a third that survive the second generation will make it to the third.
This is cruel statistics, but true. Egypt has undergone great developments in the past few decades and family businesses have been the cornerstone of a lot of progress that has been achieved. Nevertheless, one needs to keep in mind the history of Egypt and how family businesses have developed as a result of that. Egyptian family businesses have had their fair share of ups and downs through recent decades. I admire the toughness and resilience of some who have actually survived for more than a century. But what distinguishes, Egypt from other countries in the Middle East is the nationalisation era during the Nasser years. It was very difficult at that time for family businesses to flourish. This period reduced the longevity of many private family businesses and many of these had to restart from scratch. So in comparison to other businesses in the Middle East, Egyptian family businesses are relatively “young” with most of them being in the first or second generation and some moving toward the third generation.
There is a famous phrase in many family business circles which says that the founder generation establishes the business, the second generation develops it and the third generation destroys it. In Egypt, there are many reasons why this is also possible however the most prominent ones are that the inability of the senior generation to delegate responsibilities to the younger generation as they grow older and a shortage of trust between the senior and junior generations. There is also the view held by many senior generation members that the next in line are not responsible enough and are not appreciative of the efforts made by the older members in building such a successful business. The generation gap itself and the different attitudes this creates between senior and junior generations is also a major contributor to failure of adequate succession planning.
To be perfectly straight with the reader, succession is in fact a complex subject. Just thinking about succession and how it can take place is in itself an intellectually and emotionally draining issue. There are so many areas one has to deal with simultaneously here: loss of control and power; the future after retirement; aging; mortality; tax; wills; maintaining contacts and networks; coaching and training; strategic planning of the business; share transfer; conflict among family members; financing the business, etc., etc. It is amazing how difficult family issues which have long been neglected and swept under the carpet start to surface again when one starts dealing with succession. It is no surprise that many founders and senior generation members like to leave the issue on the back burner and let it fester.
Ways of Tackling the Issue of Succession
The senior generation needs to realise that the succession issue should be handled as from yesterday and not as from tomorrow morning. Many times the “monsters of succession” start to show their heads more in our imagination then in reality. The quicker we can face reality, the more time we have available to deal with the succession issue, the more patient we can be and the more delicately we can handle it. Frankly, there is no other way to successful succession.
Succession is a continuous journey – it is not a one-off process and it definitely is not just a decision. The journey requires a lot of discussion, fact finding and analysis. It also requires all those involved to ask lots of smart questions and patience until they are able to come up with the answers. If the journey is handled in an organised and structured way encompassing all those family members involved in the process, then the succession fears and “monsters” in our imagination will be easily dissipated.
The family needs to be organised in a free-flowing discussion which ideally should be facilitated by an outsider who the family confides in. Tough issues need to be addressed on a step-by-step basis. The key individuals currently running the enterprise should be involved in the discussion on the same level-playing field as any other family member.
Honesty and open discussion is key to the whole process. Questions related to the current key individuals within the business and their future need to be addressed. Questions about the readiness of the next generation and what preparation they need to undergo for the future challenges should be decided upon. What is important is that that all the family members first agree in principle about the values of the family enterprise and how they would wish these values to be passed on and concretised in the future. By agreeing about the key principles and vision of the family business they then have a solid foundation on which to start tackling the detail. Of course, the devil is in the detail. However, continuously asking the right questions and not expecting any immediate answers is very crucial. In Egypt, conflict and confrontation is seen as a direct threat in many social spheres and some go into great lengths to avoid it. This is also very true in Egypt when dealing with conflicts at family business level. However, the senior generation needs to look at conflict within the succession process as a challenge. To do this they need to visualise that the ultimate reward of addressing conflict today as the continuity of the family enterprise tomorrow. While it may sound highly unlikely that family relationships would be better after a confrontation than before, the real understanding and bonding that can arise from such authentic, honest and well managed conflict resolution can bind any resulting wounds and mend long-hidden differences between people for the long term success of the family enterprise.