23 Apr 2001  Research & Ideas

The Gulf: It’s a Family Affair

In a wide-ranging interview with HBS Working Knowledge, HBS professor John Davis discusses the state of family-business research—and the special challenges faced by families in the Gulf Region.

 

Editor's Note— A conversation with John Davis, author of "Challenges Facing Family Companies in the Gulf Region" Family Business Review, vol XIII, no. 3, September 2000.

Q: Where does family business take you?

Davis: I've been in this field since early 1978, first as a graduate student then as a professor and consultant. In these twenty-two-plus years in the field, in addition to the research and writing I have done, I have worked with families in business from over sixty countries. I have traveled to nearly every corner of the globe in my work. It has been a tremendous education.

My article on family companies in the Gulf Region was written for a conference organized by the Kennedy School in Doha, Qatar in 1997. The frameworks and approaches I used in this article really helped me get some leverage on understanding the problems that family companies in this region were facing.

Professor Davis goes to HBS

I was originally trained in economics, getting my undergraduate and Masters degrees in this field. I was working in Boston as an economist in my early twenties and realized that I really liked psychology—and family psychology at that. I stumbled onto the field of Organizational Behavior, applied to a few doctoral programs in Business, got into Harvard, and was thrilled.

My mentor, Professor Renato Tagiuri, connected me with the Owner President Program where I worked with him for four years. We interviewed owner-presidents of family companies in the program, did lots of survey research that we later published. At that time there was virtually no systematic research was being done on family business. So it was completely fresh, which was a doctoral student's dream. You could basically do anything you wanted and they couldn't tell you that you were wrong.

Q: How is family business research changing?

A: The field is becoming much more sophisticated in terms of scholarship and consulting. The founders of the field have been around now for almost a generation and in that time we've seen our numbers grow. I ran the first research conference in the field in 1984 at USC. I struggled to get twenty-five people to the conference. At that conference the academics and consultants came together and created a professional society called the Family Firm Institute (FFI) to develop professionals in the field. Now, when the FFI meets they usually have about 400 attendees. The family business field is very international now, too. In most Western countries you now find at least a few people per country very engaged in family business research and doing some consulting.

In terms of research, we're getting further down the road, but we have so much further to go. We can now answer many basic questions asked by families in business. Some topics like succession have been well covered. There is a respected journal in the field, the Family Business Review, and other academic journals are now accepting articles on family business. Until recently, other journals didn't take our work seriously. Still, we need more researchers, more doctoral students, doing case and survey research on many topics. In particular, not enough has been done to compare the issues and performance of family versus non-family companies.

Q: Does culture make a difference?

A: Yes. But perhaps not as much as many people think. I say that culture is a 5 percent factor, not a 50 percent factor. The issues facing families in business are surprisingly similar across cultures. The way you would go about addressing an issue in a family business does need to accommodate the culture of the family.

One of the things that is clear to me is that businesses that permit and encourage innovation and entrepreneurship in succeeding generations have an easier time adapting to their environment.
—John Davis

What are the common issues? Succession, sibling issues, branch rivalries. You find perennial issues such as, "How do we deal with family relying too much financially on the business, because family dependence can drain the very life out of the business if we give in to it too much?" "How do we develop the next generation successfully, not only so that they're good managers, but also so that the kids grow up to be responsible about their lives and don't become, not only a drain financially for us, but a pain in our hearts and an embarrassment socially? Those are universal concerns.

One part of the work I do is getting families to understand the strengths and weaknesses of their particular culture. The strengths of any culture often tend to be the underbelly of the culture as well. If you're dealing with a patriarchal, hierarchical culture the advantage is that life is highly regulated which can keep the next generation (siblings and cousins) together longer. At the same time, those patriarchal systems tend to diminish initiative and entrepreneurship, discouraging individuals to take different stands, go out and do different businesses or take different paths. It is a curious feature of human psychology that we have difficulty seeing that our strengths and weaknesses are so interrelated.

Q: What's happening in the Gulf?

A: We have seen increasing liberalization of the Gulf economies, for instance, the lowering of barriers to trade for foreign companies. These changes will drive some fundamental changes in these economies. At the same time, the governments of this region are starting to pull back from their welfare state philosophies and encourage the privatization of the economies. These are gradual changes. The governments are trying to minimize social disruptions. But the broad implication is that family companies in the Gulf region have to become much more performance-driven if they are going to survive long-term.

Socially speaking, families are becoming somewhat less enmeshed, hierarchical, and strictly controlling, which is a result of the globalization of these economies as well as western influences on their societies, including the education of the younger generation abroad. I'm waiting to see how open the senior generation will be to these social changes.

What's true in the Gulf region more than almost anywhere else in the world is that there's a huge expatriate work force managing family companies. These foreign managers are not in all the leadership positions because in these family businesses the families typically keep the top leadership roles for themselves. Family businesses of any size generally aren't resistant to hiring good outside talent. It's the question of who's really in charge? What you hope for is that there's a good partnership between the family and non-family managers so that they can be of like-mind in the management of the company. The non-family managers will be highly influential in the next decade as the business families in this region adapt to their new economies.

Q: Considering a Gulf partnership?

A: Make sure that the family is open to really including the non-family managers in important management decisions. Quite often in the family they get together on Sunday afternoon for dinner and make important decisions and the non-family managers aren't around. There are two hierarchies going on, family and business. You really have to respect the business hierarchy if you're going to run a good business. [Ask] "Am I going to be consulted? Are we really going to respect the hierarchy in this business or does family membership count much more than the business role?"

The Gulf Region has a distinctive culture. Don't assume you understand it even if you have done business elsewhere in the Middle East. It's going to take another generation for businesses in this region to approximate Western models. If you are considering doing business in the Gulf, find a good partner there, a family business partner or an entrepreneurial partner. Local partners can be very helpful, but you have to find the right partner who really believes in entrepreneurship. If you get sucked into a traditional, hierarchical organization it can slow down your own business venture.

Q: How do families stay in business today?

A: My next book on family companies looks at a number of successful family dynasties and asks how they keep their businesses in the family over generations. One of the things that is clear to me is that businesses that permit and encourage innovation and entrepreneurship in succeeding generations have an easier time adapting to their environment. My advice to families in business is to run a very professional business. Take pride in your traditions; at the same time encourage entrepreneurship. Encourage diversity in your family and encourage people to do what's in their hearts and what their capabilities really drive them to do. Only if it's useful to the business and to the family members should you bring them into the company.

If you try to force choices within your family, if you constrain family members too much, it's like trying to hold onto a handful of sand. If you squeeze your hand too tight, the sand runs out. You lose it. If you hold it too loosely, the same result. But hold it just carefully and firmly enough, and you keep it. A light hand keeps the sand. The same goes with a family in business.

Changes in Work Life and the Social System

The rate of social changes in the Gulf society has steadily increased. Driven by changing living standards and a greater openness to the outside world, both the home and workplace reflect social changes.

Metropolitan areas and middle-size cities witnessed increased urbanization and population growth. Nomadic communities have become settled or have access to all of the amenities of townspeople. These widespread services include education and training programs that have enhanced literacy rates; improved health, maternal, and pediatric care; better municipal water supplies and other human comfort utilities; real estate loans and housing programs; social security, social insurance, and social care programs for previously underserved populations; an improved food supply and diversification of agriculture; and various basic food subsidy programs (Pitts, 1990).

In most levels of society, the introduction of agricultural products from a variety of regions improves nutrition. There is also a proliferation of global fast food franchises. New leisure and recreational activities and international travel are more routine aspects of life. Education and literacy are at respectable international levels.

Many members of the younger generation—women as well as men—are educated outside the region. They attend universities in the United States and Europe and bring back to the Gulf their technical skills, knowledge of business practices, and exposure to foreign cultures. In addition, transportation throughout the Gulf is modern and efficient. New construction has dramatically altered the landscapes of cities and villages. The urban population of the Gulf Region experiences international standards of affluence.

As in the rest of the world, the Gulf has witnessed dramatic increases in life expectancy, attributed to the success of governmental and philanthropic social programs. Between 1980 and 2000, life expectancy will increase nearly five years. The life span in this region is now comparable to other modernizing economies like Chile.

Advanced technology is being imported and applied in industry and households at an increasing rate, despite some resistance in government and by clerics. Technology impacts business by increasing management capabilities (inventory and cost controls for instance) and reducing labor costs. It impacts households by providing additional entertainment and exposure to the rest of the world and creating more leisure time.

Nearly three decades of rapid economic and sociocultural change have transformed the Emily unit in the Gulf. All of the GCC governments have programs to increase family size. Between 1990 and 1995, household and family size has increased as much as 10% in several Gulf countries. It is interesting to note that larger families not only mean a larger pool of talent for the family's company and more children that can marry into other families, thus extending the family's alliance network, but also more people being economically dependent on the family company. The increasing educational levels of women in the Gulf may mitigate the trend toward larger families. Educated women are more likely to work and have fewer children.

Some of these working women are members of business families, working in their families' companies. Sometimes, these women have studied abroad, earning MBAs from U.S. or European schools, and have returned home to assume management positions of some responsibility. In most cases, these women are not visible to outsiders, abiding by the social rules of the local culture.

The family living group has also shifted from an extended family household to a nuclear family household. Increasingly for young urban professional couples, nuclear family households include two working adults. There are also more young men and women who live apart from their families, pursuing their careers in the cities. It is possible, as in other areas of the world, that Gulf families may eventually see themselves as nuclear rather than extended family groups. The sense of obligation to the extended family may also change.

Today in the Gulf, there is a need for different types of authority within organizations and different human and commercial relationships. Today, wisdom and, ultimately, authority are no longer as determined by age as by familiarity with the current environment, information, and access to that information. Consequently, younger people are becoming more powerful because they are in touch with the changing workplace and new technology, and they understand the future social and business trends of the Gulf.

In other parts of the world, leadership is shifting from primarily older male leaders to a more diverse group. "Good old boys" who made decisions and deals that shaped their companies and communities existed everywhere yesterday. The new generation of business and community leaders includes women and ethnic and religious minorities. The younger generation operates with a new, more collaborative (consensus building), and inclusive style of leadership. This cultural shift is occurring in the Gulf Region also, but at a slower pace. Communities can view shifting demographics, like globalization and information technologies, as a problem or an opportunity. What is inevitable is that the future will place a greater emphasis on collaboration and a new style of leadership. The challenge for the communities of the Gulf is to recognize the advantages of the new generation of leaders and to allow them to lead.

These indicators of socioeconomic transformation present challenges and opportunities for family companies to introduce new products and services demanded by an increasingly wealthy and savvy marketplace and to adapt to the cultural changes around them.

Excerpted with permission from: "Challenges Facing Family Companies in the Gulf Region" Family Business Review, vol XIII, no. 3, September 2000.

Family Business Review is a publication of the Family Firm Institute.

John A. Davis is a Senior Lecturer of Business Administration at Harvard Business School. Davis teaches Management of the Family Business in the MBA Program and Families in Business: From Generation to Generation in the Executive Education Program at Harvard Business School.

John Davis is also the author of Generation to Generation: Life Cycles of the Family Business HBS Press, 1997.