Family firms call heirs to take command

Family-owned businesses in the Middle East have played a key role in employment generation, wealth creation and have contributed immensely to the region’s non-oil GDP for many years.

These businesses started as small trading firms in the 50s and 60s but diversified into various activities such as oil & gas, real estate, financial services, construction, etc. Some of them even became multinational conglomerates and their total assets are said to be worth more than $1 trillion in the region. 

Despite their stupendous growth, the family businesses have been bogged down with issues such as corporate governance, estate planning and succession, casting a shadow on their reputation. 

Many family businesses in the region have reached a critical stage as far as their succession plans are concerned and calling their heirs to assume more responsibilities by nominating them in key positions in the business setup. This process has gained momentum in the last 16 months, thanks to COVID-19. 

An estimated $15 trillion assets are expected to be transferred to the heirs of family-owned businesses globally in the coming decade. 

For the smooth transition of the businesses, there is a need for professional services which are offered by reputed family offices in the region.

Tech-based start-ups

Fresh with ideas and highly educated, the younger generation is looking to further diversify their business activities and plan to scale up their investments in tech-based start-ups which are high in demand in the region.   

Magnitt, the largest online community for start-ups across the MENA region, has 17 GCC-based family offices on its platform. Out of which seven of them invested in at least one GCC-based start-up in 2020.

The MENA region, particularly the UAE, is considered as the epicenter for start-ups and the family offices are keen to identify family businesses that are interested in co-investing in these start-ups. 

They include Artificial Intelligence and machine learning, renewable energy, biotech, cleantech, healthcare, fintech, digital assets, online education and shopping among others.

Lack of transparency

A report by PriceWaterhouseCoopers (PwC) in 2019 said that majority of the family businesses are not run professionally and lack transparency and accountability, let alone corporate governance. They contribute 50-60 percent of the national GDP and employ up to 70 percent of the labor force in the region.

Yet only 31 percent of businesses have a robust, documented and communicated succession plan in place, with only 12 percent making it to the third generation. Family businesses have been an engine for growth and their success translates into prosperity for their respective region, the report said. 

“As region’s family businesses transfer control to the second and third generations, several challenges arise, and the need to set a robust governance framework aligning the growing number of High Net-Worth Individuals,” the report said.

Given these issues, the UAE Cabinet issued the Ultimate Beneficiary Owner (UBO) regulation of 2020 that requires companies to declare the ultimate beneficiary of business transactions, shareholder and voting information. 

This regulation came into effect on 27 October 2020 to avoid mismanagement of funds.

FBs in stock markets

The GCC governments in Qatar and the UAE are offering incentives to the family businesses to get enlisted in the bourses. 

While Abu Dhabi Securities Exchange (ADX) is targeting at least 10 companies, Qatar too has been pushing the agenda to woo these firms.

Owned by Abu Dhabi Wealth Fund ADQ, the ADX ADQ is reaching out to state-run firms and family-owned companies, according to a Bloomberg report.

ADX is offering sweeteners that include flexibility on the minimum stake size required for share sales and promising to reduce or forgo listing fees, Bloomberg said.

Corporate governance in the UAE has come under scanner following alleged accounting scandals, de-listings in Dubai and the experience of large companies such as builder Arabtec Holding, which entered liquidation in 2020. 

On the other hand, the UAE-based property tycoon Hussain Sajwani offered $255 million to buy out minority shareholders in Damac Properties, which he has run for nearly two decades.

Sajwani, who resigned both as chairman and from the board, made the offer through investment vehicle Maple Invest, which said he directly and indirectly controls 88.106 percent of Damac.

Maple Invest intends to increase the holding to at least 90% plus one so it can exercise its right to buy out the remaining minority shareholders, it said in a statement. Damac, listed in Dubai since 2015, would then be delisted.