Perspectives from ISB

As per recent estimates, around 80% of the companies in the gulf region, producing more than 90% of its non-oil wealth, are family-owned or controlled. These family firms are mostly fairly recent creations—the products of the oil and property booms of the 1970s and 1980s. They have received generous support from the state, which is desperate to shift workers from the public to the private sector (in the United Arab Emirates 90% of employed citizens, work for the state). Over the next decade, up to half the region’s business families, controlling assets worth perhaps a trillion dollars, will hand the reins to the next generation.

However majority of them are woefully unprepared. A proper succession requires good governance, which is absent in most cases. Moreover family tradition often conspires against merit: families routinely favor the eldest son regardless of his ability. The scope for feuds is also increased by the complexity of family structures and the region’s courts are not equipped to cope with the resulting disputes. An estimated 70% of Saudi families have at least one succession problem tied up in court.

As a result often, such disputes are settled through Royal diktat. One such famous family dispute involved two relatives, Abdullah and Majid, who inherited joint control of Al-Futtaim Group, a Dubai-based empire, part of which now operates the Mall of the Emirates with its famous ski slope. The dispute proved so damaging that Sheikh Mohammed bin Rashid al-Maktoum, then crown prince and now Emir, stepped in, locking them in a room and refused to let them out until they had divided up the empire.

Source: The Economist