The UAE and Saudi Arabia have come up with far-reaching regulations to prep their family businesses for the future. But these businesses have to play their parts to perfection too. Image Credit: Shutterstock

The past three years have been a challenging period for family businesses navigating a global pandemic, broken supply chains and an energy crisis. Yet, despite these significant obstacles, we have seen how events have served to accelerate developments across many industries, whether it is sustainable finance, digitalisation, or the requirement for new skills.

These changes have impacted almost all types of businesses across sectors, and the impact is perhaps most evident in the family business landscape. Businesses have had to rise to the occasion, responding by placing innovation, collaboration, and ingenuity at the heart of solutions. It is paramount that they continue to do so.

Are family businesses clued up on digital?

The GCC economy has thrived in the past because of the integral role played by family businesses – they contribute about 60 per cent of the regional GDP and employ more than 80 per cent of its workforce. But they will need to adapt their business models if they are to maintain their influence on an economy in transition.

The GCC’s bustling economy has been underpinned by its significant oil reserves, but as this reliance on oil subsides, a new knowledge-based economy is emerging. Digital transformation, innovation and technology are at the core of the GCC’s economic and social development plans – opening gates to industries in the digital space and reshaping traditional ones.

Digitisation is moving at speed and family businesses need to grasp the mettle to stay in the race. During the pandemic, digital adoption among businesses advanced around seven years in the space of just a few months, according to global management consultant McKinsey. And it is here to stay, with 125 million new consumers in the US and Europe adopting digital channels since the onset of the pandemic.

Updating with new regulations

Certainly, we are seeing firms scale up their adoption of ‘regtech’ and ‘wealthtech’ solutions to support their compliance, reporting and anti-money laundering (AML) obligations; and enhance their onboarding processes.

The pandemic arguably accelerated awareness around climate change too. The findings of an IMF report earlier this year suggested that the pandemic has increased the degree of public worry about climate change – and also increased the willingness to support green recovery policies. We need to be attuned to the changing mood.

Think ESG

Investors are demanding more evidence-driven approaches to meeting sustainable development goals. Subsequently, we have seen the emergence of large alternative fund structures deploying capital into areas such as renewable energy. It is also notable that inter-generational wealth transfers are fuelling rapid growth in sustainable finance.

The business case for continuing to be part of the sustainable finance solution in the longer term is compelling. Still, more than that, family businesses have a responsibility to leverage their expertise and capital to support the transition to an environmentally and socially sustainable global economy. They need to embrace ESG frameworks that are equally weighted – social issues around employees and well-being are under increasing scrutiny.

What is more, the debate around family businesses and family offices, particularly around governance, has evolved markedly over the last few years. Governments, regulators, and the private wealth industry recognise the increasingly important contribution that families and their businesses make, whether in employment, investment, or innovation.

Just as the GCC is transitioning from an old economy to a new one, businesses need to adapt and evolve. They will need to have a vision, be innovative and agile; they will need to attract and look after the best talent to stay relevant; and they will need to embrace technology.

Both of the region’s leading economies - the UAE and Saudi Arabia - have introduced significant regulatory and legal changes aimed directly at family businesses, supporting them both in their operations and also providing a framework to help with addressing governance and succession. These changes are cutting edge and, in some cases, first of their kind globally.

It will be those family-owned businesses – with capital, a clear vision, strong values, and a long-term focus on the future - that will be best placed, not only to navigate the economic transition but to future-proof their business for generations to come. There is a recognition of this and acceptance both by the private and public sectors.