The Gulf has seen transition planning become a key area of focus in recent years. Across the region, transition-friendly systems and laws are being explored, with fresh initiatives and platforms aimed at providing support to business and high net worth families.
Both the Dubai International Financial Centre and Abu Dhabi Global Market have family office and holding company regimes. The Abu Dhabi Chamber of Commerce and Industry is exploring the setup of a dedicated Family Business Leadership Centre.
If we zoom in on Abu Dhabi, family businesses today represent 50% to 60% (and rising) of non-oil GDP. Some 70% of these businesses are expecting a transition event in the coming five to 10 years. Worryingly, a majority do not have succession plans.
I would argue that failures of transition and intergenerational destruction of family wealth can be traced to the worst effects of fear.
For a principal, it can include fear of death or, perhaps worse for some, irrelevancy. Diving into potentially divisive family politics and trust issues can be a minefield, all of which can be worsened by internecine conflict between half-siblings from multiple marriages. The next generation and wider family may share many of these concerns, among others, albeit from often radically different perspectives. These may be compounded by societal pressures and traditions that may make raising or discussing certain issues with the principal, normally the head of the family, difficult.
For those seeking confirmation for their fears, cautionary and heartbreaking tales of transition plans that went awry resulting in irreparably damaged families certainly abound. With a view to avoiding disputes, a patriarch had distributed his assets among his children with everyone’s agreement, on the unwritten understanding that these properties were to be held in trust for the patriarch’s benefit until his passing. Eventually, the patriarch sought to sell an asset to help address a cash crunch. The daughter in whose name it was registered refused, blocking the sale.
In another example, a patriarch and his sons, who had been for some years involved in the family businesses, agreed that the patriarch would transfer all his shares in the businesses to the children, but would retain chairmanship and managerial control for a time until he was confident they were ready. The sons didn’t wait.
Of course, succumbing to fear and failing to plan is not an answer, neither is a flawed plan built on blind trust or pressure from family members. The potentially disastrous repercussions of each are documented all too well.
Instead, the answer must be to understand and account for family tensions. Fear can serve a beneficial purpose, bringing risks and important issues to attention. Like any emotion, fear can be overridden by reason and willpower. Even if fears cannot always be fully overcome, they can and must be understood, faced and managed.