The Arab region is enriched with countless family-owned businesses that slowly transformed from small trading firms in the early 60s and 70s into regional and global conglomerates and have now started seriously looking at succession planning to manage and preserve their wealth for future generations, according to CTPartners, a leading executive search firm with offices across the globe. Some Arab family-owned businesses have built regional and international marquee brands by adopting international best practices.
A recent research study by CTPartners highlighted the succession planning as one of the key issues when it comes to wealth management and family-owned businesses. CTPartners believes that regional family-owned businesses, which constitute atleast 75% of the private sector economy and employ more than two thirds of the labour force (or 70%) in the Arab region, need to ensure sustainability beyond the founding fathers and their immediate offspring. With this sector forming the backbone of the economy, sustainability of these businesses become important both for the families in question and for their countries.
Interestingly, independent studies rate regional family conglomerates in the Arab World ahead of their Western counterparts, when it comes to succession planning. Both PriceWaterhouse Coopers and Booz & Company suggest that regional conglomerates are ahead of their western counterparts when it comes to succession planning. What lies as a strength in the Arab region is that family businesses are far more dominant than other countries. Regional businesses are already taking measures to streamline operations, recruiting non family-member CEOs, and standardising governance and constitutions.
The CTPartners’ study, Succession Planning at Family-Owned Businesses, explains that there is a paradigm shift in the leadership mentality of family-owned businesses, as regional conglomerates diversify their geographical footprint. The leadership is moving from autocratic control to becoming more inclusive and participative; signs of a more professional approach to managing business affairs. According to CTPartners, shareholders are increasingly emphasising to the management the importance of succession planning in their business strategy, and the need to adopt proper compliance structures and to implement appropriate risk management approach.
Families too are going for a documented future plan, have a clear business vision and are open to the idea of bringing non-family members on the board for more transparency and innovation; signs of a more professional approach to managing business affairs.
The study by CTPartners states that while most family conglomerates would prefer to ‘keep things within the family’, it is becoming increasingly harder to convince shareholders that the founder’s son, daughter or relative will be as successful a CEO or chairman as the original founder. There has been a trend already within family businesses in the UAE to apply tight succession policy and standards. Successors are bound to complete training outside their businesses before coming on board to work for their family, which will happen only if they prove to be capable enough.
CTPartners says that large family conglomerates in the West have also undergone a similar transformation, where they have battled and eventually tackled succession planning in spite of challenges of conflicts and feuds. A few examples would be Wal-Mart Stores, Ford Motor Company, The Gap, Inc., The New York Times Company, BMW, and Hermès International S.A. Regional family businesses in the Arab World have been apt towards taking measures in order to thrive in the years ahead. According to CTPartners, they have successfully survived the tests of two generations and are implementing strict succession policies and wealth transfer strategies to ensure smooth transition.
Nonetheless, succession planning is not the easiest of tasks. CTPartners advises that a structured approach should always be applied when selecting candidates, which would help avoid partiality and control family sentiments. It is also imperative that non-family board members recognise the corporate values and leadership qualities that have made family businesses powerful and an integral part of the society and economy.
Family businesses are evidently significant contributors to the region’s maturing economy. Arab conglomerates are fast adopting a balance of traditional family values and professionalism to ensure smooth sailing of their businesses. It has become their primary concern to maintain and consistently create value over generations in spite of trials of globalisation and generation gap.