Succession plans crucial to family businesses, says UBS

Only 30 per cent of the world’s family businesses are passing the reins onto the next generation and the problem is endemic in the Middle East, according to financial services provider UBS AG.

The Swiss company has found that only half of the 300 to 500 families they meet annually put together a succession plan to prepare the company’s future leaders.

Large family sizes in the Middle East, whereby up to 50 people may be involved or have a stake in a company, also complicates the issue, according to UBS’ global head of family advisory Dr Henry Hirzel.

Speaking to Gulf Business, he said: “Here, [the founders] built their businesses over the last 50 and 60 years and now have to hand over all of the assets or link to the business somehow. And the challenge is how to separate the family assets from the business assets. And then the other piece is how to make sure those family members who are really interested and capable of running the company are running it.

“Due to the laws here, the ownership gets distributed to quite a few family members, so you can end up with shareholders who might not be that interested in the business which is an issue. So there are questions and debates on ensuring the business is run by capable family members, while ensuring all [the rest] are treated fairly.”

However, only around 7 per cent of prospective company heirs across the world said they intended to enter the family business a year after finishing university, according to a survey of 28,000 students by accountancy firm Ernst and Young.

The issue is less of a problem in the Middle East, with the younger generation more likely to enter the family company than their global counterparts.

But according to Hirzel, there is a greater tendency in the region towards grooming just the male family members to take over.

As such these companies risk excluding a “big talent pool” that could ultimately hinder their ability to compete in the future.

He added: “Things are changing slowly. I see families who say, I just want to have the best, the most capable to run the business. There was one family that had more than 20 children and they selected the second daughter of the second wife to run the company. In the case of families that just have girls, then they groom the daughters. If you want to stay competitive, you have to choose the best.”