Family owned businesses across the Gulf Cooperation Council countries generate nearly $100bn in annual revenues, a new study showed.
According to a report by Gulf Family Business Council and McKinsey & Company, nearly 60 to 70 per cent of Middle East businesses are owned by families with the majority of them deriving the bulk of their revenues from their home markets.
The report also showed that most of these businesses are currently transitioning from the second to third generation- a critical juncture as just 15 per cent of them are likely to survive the process.
“One major risk during this transition is for large family businesses to get fragmented,” said GFBC’s chairman Abdulaziz Abdullah Al Ghurair.
“Preparation is needed to avoid loss of family harmony and business disruption which in turn leads to loss of economic value.”
The study revealed that 44 per cent of all family businesses polled in the region had an employment policy for the next generation. But just 17 per cent had an effective assessment method to identify the responsibilities of the next generation.
The GBFC report further recommended that the ‘rules of the game’ need to be clearly stated to the next generation to effectively transition and manage any conflict.
GCC’s family businesses have generally grappled to implement proper corporate governance procedures but the latest report showed that companies are progressing in that category.
Around 66 per cent of businesses polled said that they have started to put building blocks in place to implement a corporate governance system. But only half of them (33 per cent) said that they have adopted these practices fully and they are working effectively.
Family businesses generate more than 80 per cent of non-oil gross domestic product in the Gulf, according to audit firm PwC. This makes their survival integral to the regional economy, experts say.
Due to their economic relevance, veterans like Al Ghurair have called for regulations that will help smoothen the transition of power within family businesses after the death of the founder. Earlier this year, he urged that the authorities should consider introducing wills and trusts that are compliant with Islamic principles to ease succession process in these companies.