Change Management in Islamic Family-Owned Businesses

Introduction

Family-owned businesses are a dominant form of business model in Islamic communities, and their leadership is governed by a family member — usually the family leader. The objective of this literature review is to explore scholars' work on the issues of change in management styles, leadership transition, advantages and disadvantages of family-owned businesses, management of non-family staff members, and how corporate and non-corporate business environments influence business performance (Barnes & Hershon, 2020). Family firms encounter challenges that contribute to business failure like any other business, but they also face additional challenges — such as interference in business decisions caused by family disputes (Zellweger & Sieger, 2010). This interference compounds the challenges already presented by the business environment and can threaten the firm's ability to withstand both internal family differences and external competition.

The family firm leader embodies the values and ethics ingrained in the company's culture. Succession by a new generation presents an array of challenges as new entrepreneurial ideas emerge and management styles must adapt to an ever-changing business environment (Zellweger & Sieger, 2010). While generational change may be perceived as an attempt to undermine the predecessor's management styles, it can also be revolutionary — representing a proactive rather than reactive approach to change. Relying on the inertia of previous crisis-handling measures stifles corporate growth and its adaptation to new environments. Nordqvist and Zellweger (2010) argue that such strategic differences during transition create tension between the need for stability and the desire for change.

Such concerns are warranted when the new leader lacks experience within the firm or the industry, and when proposed measures are unconventional. The organizational facets focused on in this study — strategy, structure, processes, rewards, and people — are identified as critical dimensions of an organization by Canterino et al. (2013). Ultimately, this literature review explores suitable succession planning and transition strategies that can encourage a smooth handover of leadership from one generation to the next.

Family businesses comprise three interdependent entities, each of which is also a standalone element: management, family, and ownership. Some family firms are wholly owned by the family, while others have external shareholders who hold minority equity (Zellweger & Sieger, 2010). Ownership plays a critical role in how a business is run, since external board representatives must influence the corporation's decision-making. When the family holds full ownership, the firm relies on the family or business leader for final decisions. In either case, the family greatly impacts business decisions and management styles (Ye, 2013). Whenever changes in leadership or management style are required, family firms face not only the conventional challenges encountered by non-family businesses, but also additional challenges arising from the founding family's culture — such as Islam — and the ethics and values established by the founder.

A family business is inherently grounded in a long-term strategy that may develop short-term goals and generate conflict. Differences may arise among family members who perceive short-term goals as coming at the expense of the business vision and long-term objectives. Canterino et al. (2013) argue that the family business premise rests on the founder's spirit and tradition, and that the firm's vision, goals, and values determine its characteristics. Common challenges that can compromise a family business's chances of success include conflict between family members, autocratic norms in operations, poor or absent succession planning, nepotism, rigid tradition, poor leadership, and ineffective communication (Vazquez, 2016; Ye, 2013).

Contemporary non-family organizations rely on an organizational culture grounded in the organization's values, regulations, norms, code of conduct, and belief system to guide operations and behavior (Andreassi & Thompson, 2008). This practice stems from the family business culture system that was predominant in the 19th and 20th centuries as an admired form of business administration. From a resource-based view perspective, culture is perceived as a source of wealth that renders a business a competitive advantage. According to Adiguna (2015), a corporation's culture is regarded as a strategic resource that families can use to leverage the organization's entrepreneurship and enhance the distinctiveness of its services and products.

Change Management in Family Businesses

In a flexible family culture not constrained by autocratic management styles, great agility enables the corporation to pursue business opportunities as soon as they arise. Such flexibility also renders family businesses capable of responding to threats as soon as they are identified in the competitive environment (Schulze et al., 2001). However, if the family business culture is traditional and governed by an autocratic system, this compromises its ability to withstand competition and environmental forces.

Family businesses are founder-centric, as founders are the bearers of the firm's cultural vision. The fact that founders' objectives extend beyond pure profit-making is complementary to contemporary business practices whose missions revolve around the creation of value that impacts customers (Dieleman & Koning, 2019). The founder's vision is psychological and social, making their cultural background a critical factor in how the business is run, since it guides the founder's motives and goals (Onyebuchi, 2018). Subjective indicators suggest that reasons for starting a business may include the motivation to be independent, the ability to face challenges, and the aspiration to achieve success (Dieleman & Koning, 2019). A family business may also stem from the founder's professional expertise, their ability to leverage opportunities in a co-ethnic market, and the need for an internal locus of control.

The fundamental motivations to start a family business include creating wealth, individual achievement, an internal locus of control, and agency in life. These motivations may manifest differently depending on the founder's culture and the values and morals they hold. In a study conducted by Ye (2013), five participants who ran a mid-sized family business of Chinese descent identified profit generation and business viability as their main objectives. The economic motivators identified were wealth accumulation, financial security, and financial prosperity. Notably, all participants agreed that the objective was not only to survive in business but to thrive (Nordqvist & Zellweger, 2010). Securing financial freedom for future generations was also a recurring theme in participants' responses.

The entrepreneurial drive among founders lies in the accumulation of knowledge, skills, and ideas, and in the identification of opportunities to which founders dedicate their time and energy. In a family business context, this knowledge is passed on across generations and forms the foundation of most succession plans. The pull factors driving individuals to start a family business include expertise in a particular area, familiarity with the marketplace, and the desire for individual achievement (Chirico & Nordqvist, 2010). Motivation for individual achievement lies in the founder's belief system and encompasses financial, social, and human capital ideals as extrinsic components. Altruistic, non-financial components include the ability to enjoy the entrepreneurial process, which informs the emotional commitment to the family business's success. The owner's drive toward realization is symbolic of a belief system that integrates values, morals, and norms.

The entrepreneurial orientation of family business founders inherently involves a willingness to take risks and dedicate oneself to pursuing a business idea. Individual qualities are critical determinants of business success and rely on the ability to make key decisions, exercise self-assertiveness, and demonstrate self-determination (Chirico & Nordqvist, 2010). An individual's value system dictates their perception of success and is mirrored in the family business culture. Founders share a characteristic toughness reflected in their decision-making and their ability to identify business opportunities regardless of economic conditions. Ye (2013) found that leveraging linguistic skills, business contacts within an ethnic community, and cultural knowledge offers a formidable competitive advantage.

The need to actualize individual aspirations is only realized through building a business that generates wealth and creates freedom of time and choice. Being knowledgeable in a field and leveraging one's qualities to build and adapt a business creates opportunities for family business owners to live their desired lives. The economic resources generated from the business are essential, but non-economic benefits — such as a flexible working style — are equally important (Dieleman & Koning, 2019). Furthermore, for experienced or highly educated individuals, the opportunity cost of employment is often incommensurate with salaried remuneration compared to wealth generation (Vazquez, 2016). The propensity for risk-taking and entrepreneurial ambition synonymous with family business founders makes it possible for the corporation to address national challenges. Additionally, flexible schedules allow founders to adjust their working hours to spend time with their families.

Today, businesses are increasingly adopting familial structures to leverage the benefits of this form of governance — emphasizing commitment, trust, openness, interdependence, and support — in order to build competitive advantages (Vazquez, 2016). Adopting a family-like structure in modern management ensures that employees perceive one another as family members, encouraging them to take their roles and responsibilities seriously. Onyebuchi (2018) argues that organizational family culture is the foundation that grounds an organization as it grows and adapts to its dynamic environment.

This approach to management is premised on the social exchange theory, which interprets the social relationship between employers and employees. It creates a harmonious work environment that leads to a strong positive attitude toward corporate goals, effort beyond defined job requirements, and good communication that aids in realizing corporate strategy (Schulze et al., 2001). The social exchange theory interprets social relationships based on the punishments and rewards accrued through interaction. Onyebuchi (2018) defines organizational family culture as the shared beliefs, attitudes, norms, and values held among people in an organization that enable them to perceive one another as a family. These qualities differentiate a business from its competitors and can constitute a competitive edge. For a family business, establishing a familial feel for non-family employees can be challenging but is essential to organizational success.

Within the Islamic cultural context — Islam being the main religion in the Middle East, constituting approximately 94.45% of the population — management practices and succession planning differ substantially from Western corporate norms (Quijano & Magaña, 2014). Islamic values and principles influence governance, commerce, and every aspect of life across the Middle East. "Islam" in English means "submission to God" and requires Muslims to be obedient to God's will in all aspects of life. God's will is understood through the Quran and the Hadith, derived from the Prophet Mohammed. The governing laws and regulations in predominantly Muslim countries play a critical role in determining social, political, cultural, and economic structures (Schulze et al., 2001), and governments work to preserve Islamic principles in their regulatory frameworks.

The family is the most important facet of Islamic culture and is the foundation of society, as reflected in family business structures. Notably, the Islamic concept of family extends beyond the nuclear family — unlike in Western culture, there is no clear differentiation between the extended and nuclear family, and a tribal attitude toward family membership is adopted. Any individual entitled to inheritance is considered a family member (Golestani, 2019). A family therefore comprises a spouse, brothers, sisters, nephews, grandchildren, parents, children, grandparents, nieces, uncles, and aunts. The family is further organized into three tiers: the first and closest bond comprises the immediate family (father, mother, spouse, children, and grandchildren); the second tier includes grandparents, siblings, nephews, and nieces; and the third includes uncles, aunts, and their children.

In the Quran, marriage does not separate an individual from their family but is perceived as an expansion of it. The Quran also instructs cordial interactions, mutual financial and non-financial assistance, and the cultivation of respect among members. These characteristics are emphasized as the greatest form of benevolence in Islamic norms. The emphasis on financial mutual assistance is a core element promoting family business in Islamic societies.

The father and male figurehead lead the family structure, and the hierarchical ranking emanates from gender differences and the ages of family members. The norms in Islam regarding hierarchy and patriarchy derive from the Quran: "Men are in charge of women. So, righteous women are devoutly obedient" (Golestani, 2019; Quran, Chapter Nesa, Verse 39). The family structure in an Islamic context determines the roles and responsibilities that different members assume in the family business. Having Islam as the foundation of a family business results in Islamic principles being embraced throughout firm operations.

A husband's responsibilities to his wife include providing a means of living, improving living conditions, showing respect, being a kind and pleasant companion, and preserving the family's welfare as a God-given responsibility. A wife's responsibilities include bearing and nurturing children, being respectful and obedient, and observing the sanctity of their marriage agreement (Golestani, 2019). Consequently, the heirs to the family business are typically the closest males, as they are tasked with meeting the family's financial obligations.

Islamic Family Business Organizational Culture

The relationship between parents and children is built on core values — respect, obedience, responsibilities, and expectations — that determine the family business's succession process. The father is obligated to provide for the children and to teach them the essential skills of life. Children must respect their parents and be appreciative of the sacrifices made on their behalf. After obedience to God, the Prophet Mohammed, and spiritual leaders, children are expected to obey their father and then their mother. Children are perceived as God's gift to spouses, bringing fortune, blessings, and prosperity. However, these gifts can only be realized through proper guidance, training, and righteous upbringing (Golestani, 2019). Sons are nurtured to eventually assume their father's role, while daughters are perceived as connecting the family through emotional bonds (Schulze et al., 2001). From this discussion, it can be deduced that sons are more closely involved in the family business while daughters are primarily associated with family matters.

The core values propagated by family business founders and evident in organizational culture stem from the Islamic religion and are as follows.

Respect. The Quran emphasizes the importance of respect without conditions or exceptions. One Imam states: "Honor your parents, do not speak to them harshly or mistreat them. Speak to them amicably and lower for them the wings of humility and kindness" (Golestani, 2019; Hakim, 2010, p. 79). These values have been transmitted across generations and are embedded in Islamic culture, serving as core values explicitly or inherently held in family businesses in Muslim countries.

Obedience. Children must obey their parents — more especially the father — in recognition of the sacrifices made to raise them and train them in the Islamic way of life. The father bears the responsibility of being compassionate, loving, and dedicated to nurturing, which gives him authority over his children. However, children retain the option to withhold obedience if the commanded action is sinful. This principle applies in the family business context, where the values propagated by business leaders are essentially subordinate to those dictated in the Quran (Golestani, 2019), though in practice the values held by family leaders are typically aligned with Quranic teachings.

Reciprocity. The father is expected to be caring, loving, and nurturing to his son, and the son is expected to reciprocate these qualities toward his own children in old age. This responsibility also falls upon daughters until they marry, at which point it transfers to the son-in-law (Nordqvist & Zellweger, 2010). This principle derives from the Quranic axiom that the measure one gives is the measure one will receive — a hypothesis embraced today by contemporary organizations seeking to create family-like work environments.

Brotherhood. The Islamic religion emphasizes brotherhood, especially among siblings. The eldest son is tasked with assuming the father's responsibilities should the father become incapacitated (Golestani, 2019), and younger siblings are expected to respect the elder brother accordingly. The emphasis on brotherhood in the Quran extends to a tribal sense of solidarity in Islamic societies, creating the unity needed to support peers' businesses and promote both internal and external partnerships in family businesses.

Succession planning in Islamic culture is well recognized within the family hierarchy. Elements of contemporary succession planning can help smooth the transition into new management. For example, the unquestionable authority of the family leader should be gradually relaxed to allow greater participation in decision-making — recognized as an open-door policy approach. Canterino et al. (2013) posit that families serve three critical roles in the entrepreneurial process of family firms: teaching and learning skills that encourage the corporation's economic development, propagating a moral system complementary to business operations, and creating a culture that motivates enterprise development and its preservation across succeeding generations.

The primary barrier to realizing these goals is adherence to autocratic management styles that limit a family firm's ability to adapt to changing business environments. Other barriers to a seamless generational transition include family members clinging to traditions antagonistic to new ways of doing business, nepotism, poor communication within the family and the firm, and the absence of clear succession planning (Barnes & Hershon, 2020). Succession planning and the transfer of governance from one generation to the next are critical to sustaining organizational success, as family firms frequently fail to survive beyond the third generation without deliberate planning.

The lack of succession planning in most family businesses often stems from the founder's or leader's reluctance to relinquish power and fear of losing identity. It may also reflect a spouse's fear of transferring governance to the children, fear of death, or reluctance to discuss the business's future beyond the founder's lifetime (Canterino et al., 2013). Additional barriers include the fear of having personal opinions contradict family members' ideologies at the expense of existing relationships, and reliance on an outdated organizational culture.

To overcome the challenges in transitional governance, radical action is needed: defining the mandate for change, conducting negotiations among stakeholders regarding this mandate, and prioritizing urgent matters in response to the events necessitating the transition (Canterino et al., 2013). In the Islamic cultural context, this involves the immediate leader — or the most suitable family member if the eldest son is not prepared — assuming leadership and following an agreed action plan.

Focusing on financial security is the second priority in establishing a competitive advantage. While long-term objectives can become a source of tension among family members, building the new leader's credibility increases the overall chances of success (Schulze et al., 2001). Hindrances in the organizational culture of Islamic family businesses include inertia from previous management styles and the risk-averse tendencies of those assuming leadership. To take decisive action and focus on profit generation, the incoming leader must be entrepreneurially aggressive and prepared to confront challenges that arise during the transition.

Building a strategy requires developing a long-term vision for transforming the business. This process should include input from stakeholders — board members, employees, and non-family owners — to mitigate challenges arising from perceived divergence from the founder's ethos (Andreassi & Thompson, 2008; Zellweger & Sieger, 2010). The firm's direction should be determined by this vision, which should articulate the logic behind new strategic goals and how the firm intends to leverage its strengths. Finally, to ensure a smooth transition, the firm's structure should be aligned with its vision, culture, and human resources toward the actualization of the new vision and the overcoming of barriers to change.

Values are a central pillar of organizational culture. Organizational values define what is perceived as morally acceptable and desirable, and what is unacceptable (Zellweger & Sieger, 2010). In family firms, values function as an ethical code of conduct that is upheld and transmitted across the organization by its leader. In the Islamic context, such values include hard work, mutual support, service loyalty, honesty, respect, and commitment (Chirico & Nordqvist, 2010). Values are manifested in the spoken and unspoken norms governing how an organization operates.

Prospective employees whose belief systems would undermine the founding principles that guide organizational operations — especially during difficult times — should be carefully evaluated. However, employees with different ideologies from management and family members should not be excluded; they should be allowed to express their perspectives (Dieleman & Koning, 2019). Creating this space for free expression encourages constructive criticism and enables better problem-solving approaches.

To overcome the challenge of establishing a familial bond with non-family employees, family business owners can show genuine interest in workers' families, provide medical insurance for employees and their immediate families, contribute to employees' education, offer housing and scholarships for employees' children, and organize annual family gatherings. These measures create more intimate bonds with employees and make them feel like genuine members of the family business (Zellweger & Sieger, 2010).