Perspectives from ISB

The family business is one of the oldest and most common economic organisational models. The significant role they play in the global economy is undeniable, with companies such as BMW, Wal-Mart, Toyota and many more all having started as family businesses, and at some point adapting their structures, processes and policies to continue to grow with resilience.

This approach especially rings true for those companies operating in a challenging economic climate, as is the case in the Middle East. With family businesses representing more than 70 per cent of the private sector in the GCC, these companies must take the necessary steps to ensure sustainability and bolster against external pressures.

Effective corporate governance will help reduce family ownership challenges and facilitate the long-term success of the business. Succession planning must also be carefully considered. If this is not done properly and the principal owner passes away, the law of the deceased person’s habitual residence or domicile is likely to determine succession. Finally, one of the greatest advantages of a family business is its ownership structure; they benefit from a shorter chain of command and a sense of dedication and solidarity that can only come from family ties. However, this can sometimes be an obstacle, too. An enduring family business knows exactly when to restructure and what would guide that structure. To determine how to do this effectively, family businesses should consider the preservation of the family business culture, brand and profitability, but also the optimum tax model, control of the business, regulatory issues, an exit route for family shareholders and training for family executives.

With family businesses now a US$100 billion market in the GCC, they carry an enormous economic responsibility. By looking at corporate and legal frameworks, planning for the inevitable and making sure the right structure is in place, these businesses will not only survive in the current economic climate but thrive in the long-run, contributing to the region’s economic prosperity.

Source: Copeman-Hill, Rupert. and Master, Piers., The National, December 18, 2016;