case study

Family business case study

Youssef Soliman

S00805977

MAGHRABY COPIER

Characters:  

·      Abdel-fattah Maghraby-Founder

·      Second generation: Ferras, Saad, Mohamed, Omar

·      Third generation:

·       Ferras’s Kids: Abdel-fattah, Ahmed, seif

The Foundation

Maghraby copier was founded in 1946 by abdelfattah Maghraby. Abdelfattah Maghraby found an opportunity to import high-quality paper from Finland and sell it to newspapers factories, as well as, universities. In the first five years, Maghraby copier became one of the nation’s most profitable firms.  Furthermore, contracts were signed with the main national and private newspapers, which increased the revenue and profits intensively.

           

In 1955, a factory was built to produce paper locally and sell it for a low price for the newspapers and universities that can’t afford to buy the imported products. Moreover, the factory enabled the firm to start the making of notebooks and sell it in stores to customers. Thus, it increased their customer base with students as well. The notebooks introduction was a huge success, as they were able to make notebooks with the best-technological machines available in Egypt, which helped to attract the attention of students.

The Family and inclusion in the business

Abdelfattah Maghraby got married in 1955 and had four sons all of which lived with his wife in his house in Cairo. Maghraby copier was able to maintain its position and status as one of the paper market leaders in Egypt for the next two decades. As the years went by his sons got older and two of them got involved in business. They used to go to auctions in various cities in Egypt to sell the paper to newspapers and universities. Saad his second eldest son went to medical school and was ambitious to become a doctor. He successfully completed his studies and graduated from Cairo University in 1985. After a few years of working in his clinic, he realized that he doesn’t make as much money as his other brothers do, as well as puts greater effort, so he decide it to close his clinic and join his family business.

Ferras wanted to expand the business operations and products, he found an opportunity of making events invitations cards such as weddings and engagements, as well as, make the tickets for concerts or football matches. A separate store was established for the wedding invitations cards. At the beginning it was still barely known, but with some above the line and below the line promotions it was able to gain popularity and was a big hit for the company. Abdelfattah was fair with his sons, whoever he felt was capable of making a decision that what would be beneficial to the company, he gave him a chance. It started with Ferras, when he came up with the idea of the invitation cards sector and then Saad was assigned to attend many auctions on behalf of his father.

 The board of directors consisted of the father, his three eldest sons and the general manager, who started working with him when he first built the factory. Thus, the father decided that any decision that will be taken by the frim must be discussed with all the members of the board before coming up with a conclusion. Abdelfattah wanted to ensure that his sons would cooperate and listen to each other’s ideas and take a decision collectively and that will train them for the future when he’s gone.

The Illness

Abdelfattah after a few months diagnosed with cancer, he had a meeting with his lawyers and three eldest sons to discuss his will. In the meeting, he decided to split the company shares equally between the four brothers and that the eldest, Ferras, will take responsibility of heading the organisation. Saad and Mohamed the other two brothers were a bit disappointed with the decision as there is only a few years difference between them and their older brother, but they respected their father’s decision. Abdelfattah passed away in in 1997 and Ferras took over.

Opting out

They business continued to flourish and building an image of becoming one of the pillars of the Egyptian economy, as many employees worked in the factories and stores, as well as, providing the paper for 75% of the newspapers and universities nationwide. The youngest brother, Omar, who was fifteen years younger than Ferras the oldest, was sent to finish his studies in UK. After a few years of living abroad, his mind was set to become a film director and producer. At first, his brothers were furious, as they felt that their brother is going against his father will and also because they he owned 25% of the business and should get involved. After Omar was done with his studies and came back to Egypt, he sat with his brothers and told them that he insists on pursing a career in film directing and production. Consequently, the three other brothers told him to sell them his shares, so the brother decide on each of the three buying 5% of Omar’s shares and leaving the final 10% for him.

The rise and expansion of the Business

After dealing with the family issues with their brother, they focused on expanding the business regionally. First, they entered the Jordanian market; they were able to establish themselves as one of the market leaders in a rapid period of time. They were able to generate around 900 million LE revenues in 2002 and business value was around 3 billion LE. The expansion didn’t stop there, Lebanon was the next market they entered, however, it wasn’t as profitable as they expected and due to many political issues, it was hard to increase their sales as the country was divided. The regional expansion was their main aim and Saudi Arabia was next on their agenda. Saudi Arabia is country known to have difficulties accepting foreign businesses becoming dominant in their nation, as many of the major business must be related to the royal family. Also, they faced the issue that they must have a local partner in the company. Ferras had a negative feeling about entering Saudi Arabia, so he and his brothers decided not to enter.

The introduction of the third generation

Each of the brothers is married and has children. As the years went by and the business is stable in terms of revenue and profit, the children start to get old and want to get involved in the business. First, there was Abdelfattah, Ferras’s eldest son, he studied in UK and after he finished his studies, he went back and got involved in the business. First he had to go to the factories in order to know the basics about the business, and then he was assigned to be the manager of the events invitations cards store. He gained a lot of experience by getting to speak with the customers and by getting involved with the market as well.

A problem started when Abdel fattah’s twin siblings, who were three years younger than him, and two cousins, one a son of Saad’s and the other is Mohamed’s. All the third generation were roughly the same age, from 22-26 so there weren’t much of an age difference. All of the third generation wanted to get involved with the business, as they wanted to be as successful and rich as their fathers. However, the business can’t be handled by all of these family members and tensions started to build as some felt that Ferras’s children are getting a better treatment than the others.

As more of Saad’s and Mohamed’s Children got involved the tension between the cousins started to develop and each of the fathers want to protect and satisfy his children. Factions started to show in the business and the three brothers had a conflict on what each of the children should do. Ferras felt that due to his children being older than the others they should get the high managerial roles, but Mohamed and Saad were aggressively against it. Furthermore, they feared that if all their children got involved and the money was split equally between them, it wouldn’t be sufficient for each member to take care of his or her own family in the future.

The three brothers from the second generation had a private meeting to discuss the future of the company and business. They decided that they either put rules and clauses that ensure that each section of the family is treated equally in the management and financially, or split the business. The problem here is that the newspaper sector is much more profitable than the others, so all of them want that sector for their families.

·      The dilemma is the business doesn’t need all these members of the family to be involved.

·      It won’t be as profitable and there are fears that conflict may occur with the third generation.

·      The family are considering splitting the business

Issues:

·      Cousin rivalry

The cousins want to be equally treated and involved in the business, as all of them feel they have the right to be involved in business, due to the Egyptian tradition. Abdel-Fattah is only a few years older than the rest, and only because he’s Ferras son, he is being shaped to be the head of the third generation. 

·      Competition between brothers for business

Due to the involvement of the third generation tensions started to rise between the brothers. The consideration of splitting the business is likely to happen, however, all of them want to have the most profitable part of the business, the newspaper sector. There is a fear that they might split up and compete with each other. Also the fear that the business, might not be enough for all the family members to generate profit that maintains their status within the society and their lifestyle.

·      Jealousy and envy

Abdel-fattah jr twin siblings are jealous and fear that they won’t be able to be as involved as their brother. Also the cousins don’t see a reason why they shouldn’t be as involved as Abdel-fattah, as each of their fathers’ have the same shares and power in the company.

Theory:

Special problems of Family business (Florence Kaslow , Solis Kaslow)

Power imbalance will create jealousy within a family owned businesses. Also they argue that argue that the spill over of personality conflict will affect the business. Furthermore, an equal treatment of family members, who should have equal power, will affect the business, as well as, create tension within family members outside the business.

The three-circle model of Family business

This theory has three dimensions the ownership, the business and the family. A conflict in the family business means that there will be a problem in the ownership due to siblings’ problems, the business aspect will be affected and the family aspect will have tensions, due to the rising problems and conflicts.

The three-dimensional development model

The cousin involvement in the ownership hindered the business, as the cousins feared they wont generate enough money or be as in charge as Abdelfattah jr.  Controlling owner as the head or founder, then the siblings come to control together, then the cousins. The family axis includes entering the business, working together and passing the baton. This is where the conflict occurs.