Enduring legacy: Role of family businesses in the regional ecosystem

Enterprising. Resilient. Expansive. Perhaps the most apt qualifiers that spring to mind when one considers family businesses and their role within the wider economic landscape.

Strategic, committed to long-term visions and operating on strong fundamentals are some of the many reasons why family businesses have proved resilient time and again.

According to the 2021 EY and University of St. Gallen Family Business Index, the world’s largest 500 family businesses collectively generated $7.28tn in revenue and employed 24.1 million people. The EMEIA (Europe, Middle East, India and Africa) region was home to 52 per cent of those companies in the index, of which three were headquartered in the UAE.

The UAE and the GCC region are no different, with family-owned companies not only considered one of the most trusted forms of business, but also credited as major drivers of job creation and inclusivity.

“Family businesses have long played an important role in the development of the economies across the Gulf region. Just like governments, family businesses across the region have responded to economic, social, technological and demographic changes, whilst at the same time being true to their heritage and traditions,” says John Iossifidis, group CEO of Al Ghurair Investment, a Dubai-headquartered family business group with operations in sectors such as food, resources, properties, construction, energy, mobility and ventures.

Adopting change
Customers and markets have evolved over time – a trend that has prompted change across companies and is also propelling family-owned enterprises to strive and transition towards a technology-driven, sustainable future. Family businesses in the Middle East hold clear priorities for the imminent future and five themes have emerged, according to PwC’s Middle East Family Business Survey 2021. These include diversification, transformation, family values, resilience and impact.

Expanding into new markets/client segments is a top priority for 58 per cent of Middle East family businesses over the next two years, the PwC survey revealed. Meanwhile, increasing use of new technologies and improving digital capabilities are top priorities for 55 per cent and 47 per cent of such businesses over the next two years, respectively.

Leveraging technologies and digital solutions, family businesses are ready to embrace change to up their game. “To remain viable, businesses must continually grow and adapt to current times. As traditional boundaries are being disrupted due to tech innovation, the digital age presents opportunities for retailers like us to bring in greater levels of operational efficiency and customer centricity in their business models – especially when it comes to the customer experience,” notes Mohammad Badri, director of Eros Group, a UAE-based organisation specialising in the distribution and retail of consumer electronics, mobility, IT, home appliance and convergence products.

“It has helped us build delivery capabilities such as buy online, and develop support and payment competencies through automated customer service, digital payment service, etc.”

Iossifidis adds: “Digitalisation and the use of data is an integral part of our transformation journey – be it promoting fully digital workflows, further investing in technology to optimise business operations or the use of data to enable our people to make better decisions. We aim to continue looking for ways to integrate modern applications within our organisational capabilities.”

Keeping order
While harnessing innovative technologies to underpin operational capabilities is paramount, sound corporate governance is also key to business continuity and growth, the absence of which can pose several challenges. Governance is equally important for family businesses to foster harmony and help drive the company in a seamless fashion. Institutionalising clear policies and frameworks enables effective management and helps achieve objectives.

Iossifidis says, “In 2020, we embarked on a strategic transformation journey that places high importance in augmenting Al Ghurair’s governance and corporate structure. With the breadth of our business, we recognise the need to build governance structures to ensure strategic execution and good management. As the region also undergoes a dramatic economic transformation, family businesses need to be agile – to be able to capture opportunities arising from such changes. We strive to be on top of emerging ESG (environment, social and governance) trends, especially because we are also one of the biggest employers in the region, with around 28,000 employees.”

Meanwhile, effective succession planning ensures companies earmark new leaders to run point in terms of natural progression and also in the event of unforeseen challenges. Earlier this year, a new law was issued to regulate family business ownership in Abu Dhabi. The law, which aimed to facilitate smooth transition of businesses between generations, empowered owners of family businesses to prevent the selling of shares or dividends outside the family; to require prior approval from family partners before a shareholder could sell his/her equity stake to a non-family member; and to issue family-owned shares with weighted voting rights. However, the directive is not applicable to family-owned businesses where non-family members own more than 40 per cent of shares.

“Succession in a family business is perhaps the most critical challenge. Also, when many family-owned businesses are passed on to the next-generation heirs, there is a sense of entitlement,” adds Badri. “My father, Yousuf Badri, is a visionary man who had a clear direction for the company and Eros continues this vision, which is to bring value to all our stakeholders. Eros Group is managed by my brother (Ahmad Badri) and I since early 2012. As next-generation successors, we initially worked at different companies before joining the family business, which helped in bringing a new set of capabilities, experience, and fresh thinking.”

Many Middle East family businesses are reaching a critical stage of succession, the PwC survey noted – with second generation family members already majority shareholders in 56 per cent of businesses.

Adel Sajan, managing director of Danube Group, a UAE-based conglomerate with interests in building materials, home décor and real estate development – opines that the second generation of the family is now closely working under the leadership of the first generation. “My father, Rizwan Sajan, the chairman and founder of Danube Group, started the business in 1993 along with my mother who supported him. I belong to the second generation. Then my uncle, Anis Sajan, joined the business and developed a new arm – Milano. Gradually, they’ve both led the business to wherever it is today.”

He adds: “We have a clear-cut business strategy for the family-owned business – growing with the family. Each new member develops a new branch of the business and takes it to the next level. This way, we all contribute to the group and the individual brands and divisions.”

In May this year, Easa Saleh Al Gurg Group, the Dubai-based family business, confirmed the appointment of Dr Raja Easa Al Gurg as its new chairperson, succeeding her father who passed away in March. The company said the appointment, which is in-line with the group’s pre-approved succession planning charter, ensured a smooth business transition. “Succeeding my late father is a tremendous privilege and one that I take up with great responsibility. I look forward to continuing on the path of his forward thinking strategies for the Group as he was a true visionary,” says Dr Al Gurg.

Long haul
Dynamic market conditions, macroeconomic factors and unforeseen events – such as the global health crisis from which the world continues to heal – are likely to pose challenges, which businesses, including family-owned ones, must overcome to stay in the reckoning.

“Family businesses need to innovate in order to remain relevant to our various stakeholder groups – whether it be about implementing technology-enabled business processes, adapting to new ways of working or embracing ESG practices,” adds Iossifidis.

Meanwhile, Danube Group’s Azhar Sajan, who is director of Casa Milano, says: “Most of the challenges in a family-owned business come from the external front – especially when there is a slowdown in economic activities or a Covid-19 pandemic-like situation. However, if one remains focused, then facing challenges becomes easy, especially if you can assess the situation correctly.”

Family businesses have stood the test of time and judging by precedent, will continue to be the bastion of economic progress in years to come.