Family Businesses

Challenges and Solutions in Managing Emotions in Family Businesses:

In his book "Shortcut for a Better Life", the writer Ziad Rayess mentions: A company is classified as a family business when it fulfills the following qualifications:

• Family members have effective ownership of the capital.
• Members of a single family have the greatest share of votes in the general assembly or board of directors.
• Members of a single family have the authority to determine company strategy.
• At least one generation has participated in managing the company.
• Family members intend to make the company sustainable.

A study by the American Atlantic Council indicated that family businesses make up about two thirds of companies around the world and 70–90% of global GDP. They provide about 50–80% of all jobs worldwide, which shows how important they are to achieving international economic growth. There are many family businesses, including Nike, Hyundai, and Samsung.

I would like to discuss the aspect of emotions, whether between partners or between the partners and the management of this type of company (family or mixed), especially in Middle Eastern society. Many businesses are built on family ties or friendships, and in most businesses of this type, the management is tied to one of the partners. There is no official or professional method whatsoever for interactions between partners and management; rather, sensitive emotions generally prevail in discussions, especially ones related to financial statements. Many of the proposals and inquiries are taken suspiciously, and people are reluctant to bring up even innocent questions. This likewise makes it difficult for the other side to understand them. Over time, some of them decide to withdraw and isolate themselves, and things may deteriorate to the point of adversity or severing the relationship, or even worse.

25 years ago, I was new to presenting reports to the board of directors. At one meeting, there was an older man with us who asked some questions about the statement I was presenting to the board, as well as some questions about the progress and mechanisms of the work. At the time, I felt that he was suspicious of my performance or felt there was a lack of control, or something of the sort. Without me noticing it, I began to look upset and nervous, and spoke very sharply, defending my position and presenting all sorts of evidence of my honesty.

The man turned to me, astonished, and said, “Why are you being so sharp with me? Don’t take things emotionally or personally. If we (the board members) doubted your professionalism or honesty, you wouldn’t be here with us. You have to completely separate these issues from any sensitivities, emotions and explanations that are outside of the context of the purely professional work we’re engaged in. Our job is to have an impartial discussion in which every party can present their comments so we can add value and do business properly.

This was a lesson for me on the necessity of emotional detachment in discussions as well as detachment from personal considerations. This doesn’t mean shying away from social responsibilities, which every person in a position of responsibility must fulfill.

It’s important to spread this culture, especially at companies that have a familial dimension, which are most vulnerable to this type of challenge. It will lead to the company regressing or closing if it isn’t built on clear foundations with a clear governance system.

Approval of periodic financial statements presented by the finance department can help with this. Some of the most important statements are:

1. A budget projection
2. An income statement
3. A balance sheet
4. A statement of cash flow
5. Establishing internal company policies that cover all aspects of work, the authority granted to different people, and the hiring process. There also has to be outside financial auditing that oversees implementation of all necessary international financial standards. Regular meetings should be held at intervals commensurate with the business’s development.

Conclusion:

Managing a family business can be difficult, especially when emotions are involved. In most family businesses, management is tied to one of the partners, and sensitive emotions can run high during discussions, making it difficult to separate personal feelings from professional decisions. However, it is crucial to separate emotions from professional decision-making to ensure the company's success and longevity. Approving periodic financial statements, establishing internal company policies, and hiring outside financial auditors can help separate emotions from professional decisions. Cultivating a culture of emotional objectivity in discussions can benefit family businesses, ensuring that they are built on clear foundations with a clear governance system. By doing so, family businesses can achieve success and contribute to the global economy's growth.