Informa Cross Border Insights: Navigating generational shifts in GCC Family Businesses

A generational shift is underway in countries within the GCC, in particular the UAE and KSA.

Attitudes toward family business and succession planning are changing, and after attending and speaking on the Informa Cross Border Planning event panel, which delved into what is driving these changes, Praxis Director and Senior Executive Officer Dan Toft has picked out the three top takeaways for trust and private client practitioners.

What changes have been made to legislation and regulations in the Gulf region?

Values, and attitudes to business within families are developing into a hybrid of western and traditional Middle Eastern values. Recent legislative changes are beginning to have an impact on family businesses across the GCC. Some of the key legislation introduced during 2023 includes the New Companies Law in KSA and implementation of corporation tax in UAE.

More generally, there has been an ever-increasing microscope on the region from a regulatory perspective, since the UAE was placed on the FATF Grey list of partially compliant jurisdictions in March 2022. Initiatives such as the National Centre for Family Businesses in Riyadh and the DIFC Family Wealth Centre in Dubai have been launched to educate families around important topics such as succession planning, governance, tax and digitalisation.

How will family-owned businesses adapt to the ‘new normal’?

Family businesses dominate the region, and so effective succession planning is a top priority for families within the GCC. Passing the baton from one generation to another requires a future-proofed transition plan and assurances that the new head of the family business has the skills to run it successfully.

Last year a programme was launched that means family-owned businesses will, essentially, double their contribution to the region’s GDP by 2032. Up to 90% of private companies in the UAE are family businesses, employing more than 70% of the workforce. They already contribute about 40% of the Emirates GDP. Their value to the region and the increasing complexity of the legal and regulatory framework in which many operate means it is vital that a greater level of governance and professional management is adopted. Finding ways to value family and regional legacy and tradition despite these rapid changes remains vitally important to many families.

What needs to be considered to maximise involvement in family businesses for the next generation?

It is vitally important for the next generation to be digitally minded and to share this knowledge with the wider family. The world revolves around digital now and this is a key factor in bringing businesses success. It is also crucial that business owners put trust in senior officers outside of the family to provide key support to the company in regard to both digitalisation, and IT and data security.

We have witnessed and often encourage the use of philanthropy to engage multiple family members in family business activities and as a way of simply getting everyone into the same room. If one family member has an interest or passion in creating a family legacy, for example by contributing to an initiative to supply fresh water to a village or region, it is often easier for them to contribute to a conversation and to receive support and engagement from other family members than it is if every conversation among the family is wholly finance focused.

Please note that this article is intended to provide a general overview of the matters to which it relates. It is not intended as professional advice and should not be relied upon as such. Any engagement in respect of our professional services is subject to our standard terms and conditions of business and the provision of all necessary due diligence. © Praxis 2023