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A family affair

A family affair

A far greater proportion of companies in the region are family owned than the global average. But even successful family owned companies rarely make it past the third generation.

July 4, 2010 11:53 by

Family businesses face a number of challenges. For several years, public offerings seemed to be the way forward as stock markets in the region tried to build up their portfolios and increase liquidity. Also, an IPO seemed to serve as another marker of financial success.

For families, going public meant an influx of cash that could be used to distribute to members who wanted to divest. But Walid Chiniara, founder of family business adviser Shoora, has another opinion about public offerings. “We have discovered that they don’t work,” he says.

In the current climate, many firms believe the amount of capital that can be raised in an IPO is not an accurate reflection of their worth.

Chiniara calls the economic crisis a “salvation” for family businesses. “When there is a credit crunch people start to realize that the stock market doesn’t go up every day, it can go down.”

But if companies are staying within the family for now, what are the challenges? “When you work with individuals, you work with intangibles,” Chiniara says. He says he has had clients tell him their elderly fathers maintain legal control over executing deals and are reluctant to hand over power to their children, even as they progress towards a semi-retired lifestyle.

For children and grandchildren in a patriarchal company and family, this can be frustrating. “No human being wants to sit at home and do nothing, but sometimes they have this issue with their parents where they feel overshadowed,” Chiniara says
Bringing a family together to discuss business challenges can help them understand which members are best positioned to take over managerial roles, and discuss the ways in which non-participating family members are tied to the company. Mismanagement and disagreement between family members can be disastrous. “We’re not talking about businesses anymore, we’re talking about brand names,” he says.

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