Disputes over the control and shareholding of family businesses are reaching uncomfortable levels in the Middle East, threatening to undermine the performance of many businesses.
At a recent conference on family businesses in Saudi Arabia it was estimated that around SR20 billion ($5.3 billion) is being held by Saudi courts as a result of disputes arising from family business-related issues. No numbers exist for the whole region, but the amount of money tied up in disputes in Saudi are thought to be a reflection of what is going on in much of the rest of the big Gulf economies.
Loutfi Echhade, a partner in EY’s Saudi Arabian office and head of the firm’s family business efforts in the Middle East, reckons that internal conflict among families is probably the single biggest issue for family businesses in the region. “Relationship conflicts are the more serious, long lasting and damaging for regional family businesses.”
He added: “It should be noted that most of these conflicts arise after the death or incapacitation (serious illness) of the founder or patriarch and in the absence of well-defined succession planning and governance framework.” Often when family business disputes end up in courts the assets of the business are frozen until there is a satisfactory resolution of the disputes.
“Although strong cultural traditions including respect for the elder generation have to a certain extent protected the families from conflicts, we are beginning to see a number of families in the GCC going through some family feuds,” said Amin Nasser, a partner at PWC in a recent article written about the subject for the professional services group.
Echhade says that family businesses in the region need to identify and resolve conflicts. “This should be done through early succession planning, proper governance structures, strong, clear and agreed protocols, rules and policies, and a high level of open communication among the family members. There also needs to be a better alignment of the strategies and direction of the family and business.
He added: “Collaboration represents the best internal strategy to resolve conflicts in family businesses”.