Opinion

Keeping the oil business in the family

Posted by Scott Johnson

05-Aug-2019


The oil industry is a constant source of stories for the media but one aspect still takes a back seat: the role of family oil businesses, and the unique challenges they face.

This is a surprise in an era where people are starting to recognise the positive and vital role played in economies round the world by family operations such as ones led by Sukhpal Singh Ahluwalia, Georg Schaeffler, and Anthony Bamford.

The families behind global oil conglomerates are incredibly powerful, but they are also widely misunderstood and sometimes misrepresented too. So given their impact in the industry and on the markets, it's worth looking at just three types of challenge they all face.

Succession

Succession is probably the most fraught area for oil families because of the sheer scale of operations, size of investments, numbers of interests and employees globally. The other issue that affects oil families possibly more than any in other sector is that due to the length of time they've been operating, these families can be very large and complex.

Some high-profile oil families contain up to 30 or more close family members, and often the family has a very diverse set of interests, usually including property and land, which sit under the main oil holding group. This is clearly a headache when it comes to the time for the family principal to hang up his boots and pass the business on.

Up until very recently, succession, especially in Middle Eastern families, has been a matter of tradition. Culture has dictated who was to take over, and the family members were job-trained in accordance with these expectations. But as times change, so does the approach of the younger generation, and alongside the need for new skills such as in oil and gas tech, there is sure to be a certain amount of turbulence affecting succession.

Clearly this is a private matter, and we're unlikely to get even a hint of any changes ahead of time, but investors should look closely at each family and try to do some forward planning of their own.

Fostering responsible ownership

There's no hiding from quite how wealthy these families are on paper - many of them rank at the very top of every rich list going. But wealth alone does not mean that the next generation is going to have the same attitude to ownership as their predecessors. In fact, there is evidence to suggest that the further away from the founder a business becomes in terms of generations, the more risk there is to the business itself.

This is because as time goes on, more and more functions are divested to an increasing wide circle of family members who often feel very remote from the ‘centre'. This also applies to family members who are given equity in the company and become shareholders by way of a gift, for example. This can lead to instability if these stakeholders feel they want to sell, but are being railroaded into keeping hold of their shares.

One way many families tackle this issue is by creating a family Charter which sets out a common family vision, and lays out the responsibilities of each family member. Although this seems both practical and sensible, it can be easier than it sounds and many oil families have no doubt shied away from putting in place such a formal structure. But the ones that have are the families most likely to weather the storms that are coming the industry's way over the next 10 years.

Creating a legacy

The final big challenge for many oil families is a perennial one: how to create a lasting legacy that doesn't just involve being known for running a successful oil conglomerate. Philanthropy is a built-in need for many of the world's richest individuals and families but managing philanthropic interests in a way that positively impacts lives and creates a lasting legacy that will be continued down the generations is harder than it sounds.

History has been relatively kind to the oil-rich philanthropic families of the past such as the Rockefellers and Gettys but times have changes and so have public attitudes. Today, oil families also face the threat of accusations over why they are pledging and donating, and family foundations are coming under increasing attack and their motivations questioned.

But one thing is for sure, this won't stop oil-industry families, especially in the gulf states where giving is driven in part by religious imperatives, from donating huge sums to charity; nor will it stop these families from transforming the lives of some of the world's most disadvantaged people. But don't expect to discover many media articles about it because philanthropy is something that's kept very much with the family.

Oil is an industry whose backbone is made up of families across the world. It pays to recognise the part they play, but also accept that up to 80% of companies worldwide are family owned, and oil families have just as many challenges to face over the next 10 years as any other family business.



New service from OilVoice
Trip Shepherd is for companies who need to track their staff in areas of risk.
It's free to use, so we invite you to try it.

Oilfamily businessUnited KingdomGlobal Oil

More items from scottjohnson


Are oil companies doing enough for local fishing communities?

Oil, especially upstream, is a tough business and potentially impacts not just on the environment but also on communities. There is a tendency to think that oil companies don't do enough to counter the fears of local people. But is that really true? Outside of the oil business, companies, and thei ...

Scott Johnson


Posted 1 day agoOpinion > OilFishingCSR +2

Will Brexit affect the UK oil industry?

This week the UK took one step closer to Brexit with the appointment of Boris Johnson as prime minister. While most in the oil and gas industry remain calm about Brexit, some investors involved in activities such as logistics and technology like Tom Chapman , Greg Herrera and Susan McDonald , mu ...

Scott Johnson


Posted 28 days agoOpinion > United KingdomEuropean UnionBrexit

Why is oil security suddenly a top priority in Africa?

Just this week, South Africa announced a new oil and gas policy is in the pipeline. This will be music to the ears of individuals involved in African energy and infrastructure such as Sebastian Wagner , Mzi Khumalo and Olusegun Okubanjo . But questions surely remain as to how the continent can t ...

Scott Johnson


Posted 1 month agoOpinion > Nigeriaenergy securitySub-Saharan Africa +2

Three reasons Africa will determine the oil price in the long term

Africa might only be home to just 4 percent of the world's oil supply but, as many of its oil-rich nations begin taking advantage of this natural resource, it's starting to have an impact on the price of crude oil. This uptick will be good news for the continent's high-profile investors and entrepre ...

Scott Johnson


Posted 2 months agoOpinion > Africamiddle classGeopolitics +4

On the way up: The trends that will impact oil in 2019

The price of oil has been on a bullish trend since the start of the year. This is despite a steep decline at the end of last year because of a significant US shale industry output, which pushed down prices. The prices have recovered at the start of this year because the market has bet that supply w ...

Scott Johnson


Posted 5 months agoOpinion > OilVenezuelaChina +5
All posts from scottjohnson