The influence of family firms in the Middle East cannot be underestimated. They contribute about 60 per cent of the GCC’s GDP) and employ more than 80 per cent of its workforce. Moreover, 90 per cent of the private sector in the UAE and Saudi Arabia consist of family-owned companies.
Such is their dominance that the future prosperity of the Middle East is arguably in their hands. Family firms will be responsible for steering the region through transition – as it moves from being an economy underpinned by oil reserves to one driven by technology and sustainability.
The debate around succession and governance has come to the fore. Partly driven by the unprecedented challenges flowing from the pandemic, both for the family’s business and the family itself. As a result, authorities across the GCC, in particular in Saudi Arabia and the UAE, have had to step in and provide critical regulatory and legal support to help families and their businesses overcome, mitigate and resolve on a long-term basis some of these pertinent issues.
The wave of regulatory and legal support has been innovative, cutting edge and truly ground-breaking.
There are plenty of reasons to be optimistic. Family businesses have proved themselves adept at navigating the past three years of unprecedented disruption. Moreover, many have clear strategies to ensure the region’s economy continues to thrive. They are alive to the need to embrace change.
They understand that digital transformation, innovation and technology are at the core of the GCC’s economic and social development plans – opening gates to new non-oil industries in the digital space and reshaping traditional ones, such as in the finance and financial services industry.
This isn’t just rhetoric; it is backed up by evidence. According to PwC, more than half of family-owned companies plan to expand into new markets or client segments, while three-quarters say that digital, technology and innovation initiatives are a key priority. Likewise, a KPMG report found family businesses were 42 per cent more likely to deploy a business transformation strategy than non-family firms.
Thinking beyond family
It is something we at Jersey Finance are witnessing. Firms are scaling up their adoption of regtech and wealthtech solutions to support their compliance, reporting and anti-money laundering (AML) obligations; and enhance their onboarding processes.
Yet, for all the good intentions, managing and preparing succession plans will be vital in ensuring continuity – not just for the family business but for the region’s economy. Many family businesses in the Middle East are reaching a critical stage in their succession – second-generation family members are already majority shareholders in over half of businesses.
Planning for the succession of a long-standing family business can be complex. There will undoubtedly be conflicts – professional governance policies akin to corporate-level governance will need to be in place to minimise potential disruption.
Younger generations will also be reluctant to pick up the baton. All, or some of the next generation, may be interested in the business and show a flair for management or other roles within it, but many will not. Indeed, a recent report, Succession Intention, revealed that only 22 per cent of the ‘NextGens’ in the UAE intend to join their family business – although it is notable that this is higher than the rest of the world, where only 14 per cent expressed an interest to continue running the family firm.
Map out the succession - early
A succession plan is as vital as ever, perhaps even more so. Formal transition plans that are transparent will help smooth the process. They will reassure management and shareholders that the company’s culture remains intact and their long-term strategy remains aligned.
Just as the Middle East is transitioning from an old economy to a new one, the next generations of business leaders will need to evolve. They will need to have a long-term vision and be innovative and agile; they will need to be attuned to the changing mood of governments, consumers and investors, who now have sustainability firmly embedded in their minds.
Family-owned firms have proved their resilience decade after decade. Never more so than during the pandemic. If they can involve the younger generations and embrace technology and sustainability with a clear strategic focus, they will again prove their resilience.
This is a journey for the family and its businesses. No quick-fix will provide a long term, robust and sustainable future-proof solution. The first step is to engage and procure credible, experienced and trusted expertise.
