The Family Business Special [PT2]: The challenges facing Egypt’s family businesses

During the first meeting of the Family Business Consortium in the Arab Region at the American University in Cairo (AUC) School of Business, a number of family business executives and leaders came together to discuss the main challenges they face.

In the first part of this series, Business Forward looked at the DNA of family businesses and small- and medium-sized enterprises (SMEs) and how they contribute to Egypt’s economy. This time around, we look at the most striking issues family businesses have to deal with and which direction they are taking, based on the consortium’s discussion.

In the shadows of the first generation
Successive generations in family businesses grow up in the shadows of the first generation, of which the company usually carries the name and brand. The first person that, for instance, used to fix industrial water pipes with their own hands and has built a name for themselves before starting a family business to do the exact same thing, is usually the one person clients and customers ask for first. People want to deal with the owner and have a difficult time accepting successors to do the job at the same standard and level as the original owners. Hence, it becomes difficult for the successors to keep their footprint in the market.

The alienation of the third generation
The participants of the consortium – which were largely second-generation business owners – believe that the third, new generation is put in a bubble; a move for which they will pay the price in the future. They touched upon the difficulty of their children to return to Egypt after having spent years abroad to study and coming back to deal with a side of a story they had not seen before – namely dealing with workers, salesmen etc. Just like the generation gap that was present between the first and second generation, a much wider one takes its place today between the second and third one.

Most of the participants grew up in Egypt with the mentality that this is the job that they will have when they graduate. Today, their sons and daughters are getting internships at Facebook, Microsoft and Mackenzie Investments, growing up with a totally different mindset.

Some companies are preparing for that by getting the company ready for private equity or initial public offerings (IPO), to keep the door open for the coming generation without forcing them to join. The approach stems in viewing the family business as an investment business. Many companies want a governance restructure in order to attract the younger generations.

By the end of the second generation, any family business should have some sort of transition ready

The shift from family to business
In order to maintain the family business without any problems, it would be beneficial to turn the family business into a public company, some participants believe. That way, the enterprise is forced to restructure its governance and organization, to inject new management tools and to set up criteria on hiring processes. By the end of the second generation, any family business should have some sort of transition ready – either going public and enlisting in the stock market or getting private equity. In the lifespan of a family business, there has to be a disruptor who takes the reins on change.

Some companies did not wait for external pressures to force them to restructure, but implemented corporate governance projects on their own. This entails having a board and being accountable no matter how high up in management family members are, for instance. The key is to move as early as possible and put a firewall between the family ownership and the management of the organization, some participants believe, while others made it a point that not all of them want to move away from being a family business.

However, several participants agreed that the best thing to do is to create an executive body that survives the family. If the family does not exist anymore, this executive body will ensure the continuity of the business. In this case, family business owners and management have to put their own input into the equation, instead of merely relying on consultants.

Talent comes at a high price and is very hard to find

Between respecting expertise and leveraging new talent
One major challenge is attracting smarter people to create an executive body. Most of the small enterprises have a challenge attracting the right people because the career path is very limited in the presence of a “one-man show”. This talent comes at a high price and is very hard to find, as it rather looks for multinational opportunities, not local companies.

How can family businesses respect the expertise that has gotten them this far, and how can they simultaneously introduce new calibres that will always find it threatening in this environment? This question of balance is frequently asked among the participants. Protecting new talents is very important, while always respecting the elderly.

Females in family businesses
As many family businesses are knee-deep rooted in manufacturing and industrial sectors, it has been a challenge for women to maintain a certain level of respect and leeway within the organizations and at working sites. Many employees and workers in family businesses have been working there for years and decades, so they have seen the little girl that was running around the factories, sites and companies turn into the person supervising or managing them. This makes it hard for them to take her seriously on one hand, but also to let her do her job without wanting to help her. It also harms succession prospects.

In conclusion, one thing the participants collectively agree on is the necessity of an exchange forum or platform that connects family business owners and enables knowledge and experience exchange.

Family business participants of the consortium: chairman of Electrolux Egypt Ahmed Bakry, chairman and CEO of SEA Capital Holdings Malta Company Samer ElAlaily, vice chairman of the Board of Directors at Arabian Food Industries Company (DOMTY) Mohamed El Damaty, managing director of PICO Agriculture Hatem El Ezzawy, chairman and CEO of El Sewedy Electrometer Emad El Sewedy, CEO of Interior Decoration, Furniture, Lighting and Art Divisions at Baraka Group, managing director of Azza Fahmy Jewellery Fatma Ghaly, CEO of Mansi Eyewear Maged Mansi, CEO of Al Manar Group Ahmed Nawara, chairman emeritus of Sarhank Group for Investments Moustapha Sarhank, international relations and logistics manager at Sodeco Specialties Dalia Riad.

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