In times of test, is family best?

Family quarrels are bitter things. They don't go by any rules, they can run unchecked for generations, and they frequently lead to blood - thicker than water, naturally - being spilt.

Transpose that willful intransigence to the company boardroom, and you have a situation that can lay waste to even the mightiest business empire.

Fortunately for the Gulf, a region in which the family firm represents the bedrock of the business community, the last few decades have been remarkably spat-free.

Growth is good, and the founding fathers of the region's family firms have ensured that through judicious management, they have enjoyed success on an almost unprecedented scale. Today, over 75% of all businesses in the GCC are family run, and this in a bloc with a GDP approaching US$1 trillion.

In 2008, the era of the first generation of family leaders is drawing to a close. Senior-generation founders are concerned that their children will not be prepared for the leadership that a successful family enterprise demands, or that family conflicts will arise that threaten harmony and ownership continuity.

They are right to be worried. Studies have shown that seven out of 10 family businesses fail to make the transition to the second generation, and only one in 10 makes it to the third generation.

The rot doesn't stop there either. Currently, only 5% of family businesses survive the third generation, due in large part to a lack of suitable succession strategies.

Those charged with plotting a path from one generation to the next must weigh the advantages and disadvantages of moving to a family shareholding model, inviting private equity or other institutional players into the fold, or going public.

Either way, they are responsible for appointing the right successor, or assembling an executive management team that is capable of keeping the firm on an upward trajectory.

This responsibility extends beyond the family, too. In a part of the world where an estimated 110 million jobs will need to be created over the next 15 years, Gulf family companies will play a vital role in employing the next generation of Gulf talent.

Whichever route each of the Gulf's family firms decides to take, there are likely to be more failures than success stories.

The number of family businesses will shrink as consolidation takes place across the Gulf market, as private equity players and other investors step up their presence, and as disinterested inheritors swap a seat on the board for sundowners in Biarritz.

Still, it would be premature to announce the demise of the family business. Family groups may not be able to remain as closed as they have been over the last 30 years, but they will still shape the future of the region.

For the Gulf business community, the family firm remains the principal link to its past, and the main bridge to its future.

Andrew White is the deputy editor of Arabian Business English.

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