Family businesses in the Arab world: how to pass to the next generation without falling apart

A founder built the company from nothing over 30 years. His three sons work in it, his daughter is a shareholder by inheritance but does not work there, one son believes he should lead because he is the eldest, another because he is the most capable. And the founder keeps postponing the whole conversation “for later”. Then “later” arrives suddenly, and the company has no plan.

Why this matters so much in our region

Family businesses are the backbone of the region’s economy, and many have now reached the moment of handing over from the founding generation to the second or third. What makes this moment distinctive in the Arab world is that the family is not just a group of owners: it is relationships, customs, respect for elders, and inheritance rules that divide ownership among more heirs with every generation.

The three-circle model

One of the best-known ways to understand a family business is the three-circle model: family, ownership and management. Every family member sits in one or more circles: some own and work in the business, some own but do not work there, some work there but do not own, and some belong to the family only.

Trouble starts when roles get mixed: when a son is treated in a meeting as a son rather than a manager, when a shareholder who does not work in the business demands a say in operations because they are “entitled”, or when a relative is hired for being a relative rather than for being the best candidate.

Where family businesses stumble at handover

• No written succession plan: the founder avoids the subject because it feels like talking about his departure, and the children avoid it out of respect. So the decision hangs until circumstances force it.
• Seniority instead of capability: respecting the eldest is a beautiful family value, but it is not always the best criterion for choosing who leads the company.
• Ownership fragmenting through inheritance: with each generation there are more shareholders with different interests, and without clear rules every decision becomes a family negotiation.
• Family-only boards: so there is no independent voice to ask the hard questions.

Practical steps before it becomes a crisis

1. A written family constitution: setting the conditions for family members to work in the business, how leaders are chosen, how profits are distributed and how disputes are resolved.
2. Separate the family council from the board: the family council for family affairs and values, the board for company decisions, ideally with independent members.
3. A staged succession plan: who will lead, when, how they will be prepared, and what the founder’s role will be after the handover.
4. Clear criteria for hiring and promotion: applied to family members as to everyone else, with work experience outside the company before joining it.

The family business that survives the passing of generations is not the one whose members love each other most. It is the one that wrote its rules before it needed them.