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How can Lebanese family businesses survive for generations?

Source: Reuters – The Daily Star – Despite the Lebanese government’s failure to provide proper support for the private sector in Lebanon, family businesses have seen remarkable success as the biggest providers of job opportunities in the country, experts say.

“Family businesses provide over 80 percent of job opportunities in Lebanon which leaves the public sector with a much smaller percentage,” said Josianne Sreih, director of the Institute of Family and Entrepreneurial Business at the Lebanese American University.

The success of many family businesses in Lebanon despite the lack of a proper infrastructure is, however, threatened by other challenges that need to be recognized and addressed quickly, Sreih said.

“One of the challenges facing family businesses is moving smoothly from one generation to the [next] while making sure to appoint the right person in the lead position,” Sreih added.

She argues that while smooth succession also poses a challenge for corporations, in family businesses the transition can be more complicated because emotions can interfere with rational decisions.

Unlike corporations, emotions can come into play when family members decide to choose the most competitive candidate to lead the business, Sreih explained.

“In corporations you have a board of directors and a nomination committee who are fully responsible for nominating and electing the next successor,” she told The Daily Star. “But in family businesses emotions are meshed with objective thinking most of the time.”

Sreih argues that succession should not be considered as a point in time but rather as a process.

“The successor should take the lead by learning about the history and culture of the business in addition to the strategic plans that were previously adopted and which led to the success of the business in the first place,” she said.

She added that the latest research in governance stipulates the appointment of non-family independent directors on the board of family businesses just to bring a professional flavor to decision-making.

This is what Shoura group in Egypt has done to ensure the sustainability of the business.

Shoura Group originated from the activities of the renowned Egyptian El Shiaty family whose business centered on the agricultural and textiles industry for over 100 years.

In 1958, engineer Hamed El Shiaty established his private enterprise “Tawkilat” for pesticides which was developed in 1989 as a subsidiary of Shoura Group, out of which Shoura Chemicals was born.

“In 2004, when our grandchildren started working with us, we decided to separate ownership from management,” said Ashraf El Shiaty, vice president of Shoura Group.

Shiaty’s remarks came during the “Innovation in Family Business Forum” held earlier this month at the Four Seasons Hotel to discuss challenges facing family businesses in Lebanon and the Arab world.

Shiaty said that Shoura Group today has over 14 companies that have boards and presidents. “We are not on the boards of any of these companies and it was very tough for my father not to be included although he is the owner of the whole group,” he said.

“This is why we created ‘Shoura International,’ which owns all of our other companies with my father presiding over it.”

A study published by the global network KPMG on family businesses emphasizes the importance of separating ownership from management as well.

“With success naturally comes growth, and growth brings business complexity and increasing demands on the founder’s time. The founder is more likely to trust blood ties than contracts and thus, over time, is likely to involve the family members in the business, maybe the brothers, often the sons or daughters, and, perhaps later, the cousins. A tightly knit group of two or three family members starts controlling the expanding business,” it said.

It added that the best solution was to try to scale back growth ambitions for two to three years, to create the time and mindset to separate management from ownership.

“That requires first cultivating a strong second line of managers, while professionalizing the family business by creating standard processes and financial controls for all key activities,” it said.

Shiaty said each one of his companies was managed by independent teams while his job was to make sure that they were always motivated.

“I don’t run any company by myself but I write the charters that should govern the relation between presidents and the coming generations,” he said.

He explained that he knew the presidents of each company because he had dealt with them but it might not be the case for future generations.

“This is why charters that put rules between presidents and the coming generations should be in place,” he said.

Shiaty also advised the establishment of a family council in order o resolve conflicts.

For many family businesses, innovation drives the early years of operation. The following generations often tend to be caretakers rather than innovators.

Not paying sufficient attention to innovation within a business may be one of the contributing factors to why so many family businesses fail to sustain their success.

“If family businesses want to survive today they must be able to innovate and think out of the box,” Sreih said.

She explained that the market trends change over the years and new generations must be able to stay close to their customers to follow up on their needs in order to ensure their sustainability in the market.

She argued that family businesses also face the challenge of competing with international and multinational companies by lowering their costs.

“The government must play a key role with regard to costs incurred in operating a business in Lebanon such as reducing the cost of electricity, for instance,” she said.

“But the government is not helping at all, unfortunately.”

Echoing Sreih, Raphael Debbane, chairman of Debbane Saikali Group, emphasized the need to adopt an innovation program to ensure the continuous success in family businesses.

Debbane said that the company’s management must work on fostering innovation while the board of directors should make sure that the management has properly invested in innovation in a way that yields valuable results.

“The board of directors must review regularly the effectiveness of innovation efforts in addition to providing the sufficient funding budget while making sure that this funding is available at the needed time,” he said.

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