LEGAL VIEWPOINT: Family business leadership

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By Dr AbdelGadir Warsama, Legal Counsel

Dr AbdelGadir Warsama, Legal Counsel
Asia 728x90

In all countries, there are many family companies and it is very evident that they are playing an important, active and effective role in developing the corporate industry and the national economy. Family companies normally started by the egnition by one person, who starts the business he \ she likes and keeps on developing and guarding it for long time. At a certain stage, during the process, other family members may join forces with this one-handed pioneer entrepreneur and give him support and necessary impetus to keep the family business rolling-on.

The leadership of the pioneer entrepreneur continues even after other family members join in “what is known” the family business and this continuation is due to many factors including the charisma of the 1st entrepreneur. It is almost established that family companies depend on the leadership of a single dynamic and business oriented entrepreneur perhaps with the assistance of relatives and children when they grow-up. However, certain problems could come up particularly from the siblings who are the 2nd  or 3rd  generation. This is because new comers, most likely, may not follow the leadership style \ structure of the founding parent or grandfather.

After the expansion of the family business and its continuation for years, the family business could face more complex challenges, new challenges from internal or external sources. This is normal for all businesses. This situation could take the new comers to adopt a different leadership style. With particular reference to family business, many studies revealed that there is remarkable noticeable difference between what is known as “necessity – based” entrepreneurship and “opportunity – based” entrepreneurial activity.

The 1st type is represented by the founder because other employment opportunities for him were limited or unavailable at that time. Whereas, on the other hand, the 2nd type is represented by the new generations who join the business after having necessary educational qualifications. The education, professional qualifications and external exposure which has been obtained by the new generation focuses on a new type of leadership.  A new-look for the business, in the natural process in all instances. The old guards, in case they are still involved in the management, may resist the change or move and this could jeopardize the interest of the family business. It is a matter of generational differences or cultural differences. Wisdom, from all parties, is needed in such instances.

To overcome such difficulties we advise that family companies should be institutionalized through adopting certain rules to bring new structure for the company. Institutionalization of the business will definitely help in creating wise leadership of the company away from “personalization” and “I ego”. However, all such steps for new start are in need of close understanding and cooperation among family members. The old classical views and the new comers with their new-look are to match. Many families worked very hard and they survived by over-stepping this period. Others, are keenly advised to follow suit, the matter may take time but it is of vital importance for the survival of the family company. On the other hand, certain incentives from different sources are required to boost institutionalization of family companies.

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