Feature of the Week

April 27, 2014 11:30 pm

Lessons that help to keep the business in the family

TOPSHOTS Burj Khalifa (C), the world's tallest tower, is seen engulfed with fog as it stands behind a traditional mosque in the early hours of the morning, in Dubai on November 25, 2013. The Emirati city is competing with Brazil's Sao Paulo, the Turkish city of Izmir and Ekaterinburg in Russia to host the Universal Exposition in 2020 according to the International Exhibitions Bureau (BIE), which oversees the organisation of these large-scale events. Dubai could present a "positive" image of tolerance in a region rocked by turmoil if it wins a bid to host the six months event, UAE Minister of State Reem al-Hashimy said. AFP PHOTO/MARWAN NAAMANIMARWAN NAAMANI/AFP/Getty Images©AFP

New horizons: Burj Khalifa, the world's tallest buidling, surrounded by early morning fog in Dubai

In the 1970s, Khalid Rashid Al Zayani watched as the trading establishment set up by his father, uncle and pearl merchant grandfather crumbled amid internal rivalries and argument.

Mr Al Zayani helped reorganise an offshoot family group, setting up governance systems that put in place a modern organisation that today spans car dealerships, financial services and aluminium manufacturing.

More

Feature of the Week

“We have total separation of ownership and management in our companies,” says the honorary chairman of Al Zayani Investments of Bahrain.

The new chairman, Mr Al Zayani’s younger brother, Zayed Rashid Al Zayani, was the first family member to have gone abroad to get an MBA, from Boston University School of Management.

“Now it [getting an MBA] is standard,” says Mr Al Zayani. “We make it clear that with an MBA the chances are they will go up the ladder faster.”

For many Gulf companies, demand for business education has surged as large family enterprises face reorganisation challenges.

Family-owned businesses make up 80 per cent of all companies in the oil-rich Gulf. Employing a majority of the region’s workforce, they also account for a majority of the region’s non-oil revenues. As governments in the Middle East try to reduce dependence on hydrocarbons revenues and generate more productive employment opportunities for the region’s growing youth population, the role of family businesses is becoming evermore pivotal

Oil revenues have been flowing into the Gulf’s private sector since the 1960s. As a result, owner-manager businesses gradually moved to a second generation that often set up their own business lines. Today, as conglomerates move on to the third and fourth generations, family rivalries can set in as some units outperform others, prompting arguments over resource allocation.

“That creates a very difficult structural transition for which many families have no reference model,” says Joachim Schwass, co-director of the Global Family Business Centre at IMD in Lausanne. “That’s why they are looking for education like this, trying to learn from older families to see how it is done.”

Focusing on linking management education to family ownership priorities, IMD is launching The Next Generation in November, a programme for younger family business executives, with dual modules in Lausanne and at the school’s Singapore campus.

Across the Middle East, the American Universities of Beirut, Cairo, Sharjah and Dubai, as well as Zayed University of the United Arab Emirates, all have business schools.

Western schools, long the preferred education destination for the region’s elite, have been tapping into rising demand for part-time degrees and intensive courses via local campuses. Mostly based in the UAE – already home to a thriving business community – strong communication links to the airports of Dubai and Abu Dhabi have helped the schools attract new students from companies and families across the Middle East.

Previously expensive business education courses were only available to larger conglomerates, but the recent trend is for small and medium-sized enterprises to recognise the competitive advantage on offer via education.

Insead established its Abu Dhabi campus in 2010. Its five-day Family Enterprise course focuses on governance and effectiveness, dealing with issues such as succession, family charters and councils.

“Gulf families tend to be more hands-on than European families – the key is governance and how to separate the framing of the mission versus executing that mission,” says Ludo Van der Heyden, professor in corporate governance and strategy at Insead.

Prof Van der Heyden says Insead is now seeking to increase specialist courses focusing on owners’ needs.

With the wealth of many family companies in the Middle East being wiped out over time, dealing with business turbulence is vital. As successive generations take over the business reins, reinvention married to tradition can help families to build a legacy while maintaining their competitive edge, he adds.

London’s Cass Business School, which opened a centre in Dubai’s International Financial Centre in 2007, accepts 60 students a year from 400 applications to its Executive MBA programme in Dubai. About a 10th of this year’s intake, who are mainly from the region, are taking elective modules on family business issues.

Cass’s specialist management and shipping MSc programmes in London are particularly popular with family groups from the Middle East. However, it is succession planning that is the key concern for most family businesses in the region. The subject is taught in Dubai as part of the school’s corporate governance course.

“This is a very important topic in the Gulf,” says Ehsan Razavizadeh, head of Cass’s Dubai centre. “You have to think about this early on, plan early and explicitly ask who wants to be a part or not.”

Nigel Nicholson, professor of organisational behaviour at London Business School, agrees that governance tops the list of issues facing regional family-owned enterprises.

“Very few firms have anything written down in terms of governance, either at the level of substantive decision making or in terms of values and culture,” he says. LBS runs executive education programmes and an EMBA at the Dubai International Finance Centre.

Prof Nicholson says students often finish determined to develop systematic methods for family decisions and to define the principles underpinning their enterprise. A family charter, or set of principles defining the values of the business and regulating the relationship between the owners and executives, is a common area of focus.

“It [the charter] can get a family to speak in one voice and deal with squabbles and different interests – it won’t eliminate these issues but can find rational ways to resolve them.”

 

Striking a balance

 

Narain Jashanmal’s great-grandfather founded one of the Gulf region’s most prominent retailers almost a century ago in Iraq. Indian migrant Rao Sahib Jashanmal’s general store in Basra evolved into a regional wholesale and retail giant, from books to household and luxury goods.

A member of its fourth generation of executives, Mr Jashanmal had been encouraged to view the business as a family asset rather than a career. Starting in a junior post, he heard about IMD’s course on Leading Family Businesses at a training session when he was about to take on a managerial post at Jashanmal’s book business.

The Lausanne course was one of the “best programmes” he had taken, looking at how to strike a balance between the executive and family owners and active versus non-active shareholders.

Inspired by the course, he set up a communications group between the executive team and the family. “What I thought could be done better was to engage shareholders more in the business by communicating more effectively.” Mr Jashanmal expanded dry financial reports into clearer documents and spoke to key shareholders to “give them a deeper understanding of the business”.

Having been professionalised in the 1970s and 1980s, Jashanmal offered him no “C-level” senior executive positions. So after 10 years he moved on to lead Facebook’s retail and ecommerce sales in the Middle East and north Africa.

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.