It is easy to overlook the fact that many of the most successful businesses through history started their journey owned and run by families, from Ford to JP Morgan to Walmart. Family businesses have always been a crucial part of every economy, however, within the GCC their contribution to economic growth can’t be overstated.
Research from the International Monetary Fund in 2018 showed that family-owned businesses contributed about 60 percent of the region’s gross domestic product and employed more than 80 perecent of the GCC’s labour force.
Similarly in the UAE and Saudi Arabia various studies estimate that between 60 – 90 percent of the private sector is made up of family-owned businesses.
In many GCC countries, family businesses are the private sector, with their economic success directly linked to the prosperity of the region.
Despite this dominance within the Middle Eastern economy, family businesses face a unique set of challenges including resistance to change among family members and inter-generational conflict. Over the past twelve months these challenges have been compounded by the economic disruption and technological transformation accelerated by the coronavirus pandemic.
This set of unprecedented challenges comes at a time when, within the GCC, roughly 80 percent of family businesses are at a critical transition phase of first to second, or second to third generation.
It is estimated that assets worth $1 trillion will be transferred to the third generation over the next five years. The period of disruption we are living through means all businesses need to adapt, and it’s at such periods of inter-generational change that conflict is most likely to occur among family businesses. These transitions must be navigated sensitively and intelligently to protect family business growth and prosperity across the region.
Family businesses face a set of challenges including resistance to change among family members
A large part of this continuity planning hinges on the families themselves. This is at the heart of our mission at the Family Business Council Gulf (FBCG). We help and advise our members on putting their house in order – in particular through a robust family governance system, and provide a vehicle for families to learn and share their own knowledge and experience with each other.
Yet some of this continuity planning hinges on the external environment, namely the legal options and legislative processes in place in different GCC countries which need to act as a catalyst for the smooth transition of power from one generation to the next.
Collaborating with policymakers and government to help address legal opportunities that can support continuity of family businesses is critical. This is a practice many of FBCG’s peers around the globe have carried out successfully in the past and over the past few years we have been working with government stakeholders on identifying regulatory support for family businesses.
We have also established concrete partnerships, such as our Memorandum of Understanding with the Dubai Chamber of Commerce last year to collaborate on research, education and awareness raising of the changing needs of family business in Dubai.
The Family Ownership Law (9) for 2020 was created which allows new family ownership contracts to be formed setting out the rights and responsibilities of family members. For the family ownership contract to become legally binding, the new law also states that all parties of the contract must be members of the same family and have a single common interest.
The law has been described as ‘the culmination of a legislative revolution’ by Fadi Hammadeh, the creator of the original bill in 2013 and General Counsel to the Al Futtaim Group, a FBCG member family.
FBCG has collaborated with Dubai Chamber on research, education and awareness of the changing needs of family business in Dubai
At the federal level in the UAE, we are in a joint collaboration with the Ministry of Economy to develop a roadmap to regulate operations of family-owned businesses in the country and ensure their continuity over successive generations as part of a wider effort to build a more flexible and sustainable economic model.
We have seen engagement with policymakers used to similar effect in Saudi Arabia, with the establishment of the National Centre for Family Businesses (NCFB) in 2019 which collaborates with Saudi authorities to support the sustainable development of family businesses in the country.
The new Dubai law and the creation of the NCFB in Saudi Arabia are two examples of where steps have been taken to protect the continuity of family businesses in the region, but the opportunity is there for all GCC countries to take action.
I do not think it is an exaggeration to say that the economic prosperity of the GCC rests on the success of its family businesses. This is an opportune time to collaborate strategically with policymakers to not only support the continuity of family businesses but also to drive their overall transformation.
By supporting the process of transfer of ownership and management for family businesses, we can in turn support a more sustainable private sector and the shift to a knowledge-based economy.