By Mohammad A. Baker, Deputy Chairman & CEO, GMG
The 2023 EY and University of St. Gallen Family Business Index reported a remarkable 10% surge in revenue for global family businesses, collectively amassing an impressive $US8.02 trillion, outpacing the growth rates of both advanced and emerging market economies. This unequivocally demonstrates the significant financial influence of family enterprises within a region, and this is particularly pronounced in the GCC, where family businesses are the backbone of the economy.
A recent report by Arabian Business on family-owned businesses in the Middle East underlined the impact of family businesses on the Gulf economy. The report positioned culture as the driver behind the traditional commercial success of the region's family-owned businesses, with the authors noting that familial relationships and trust provide a solid foundation for the growth and continuity of family-owned companies.
While these values remain fundamental to corporate strategies, the operating environment has shifted in unprecedented ways in recent years. Only a proper succession plan can guarantee a smooth transition to the next generation and avoid the "third generation curse", where only a few family businesses survive into the third generation. Indeed, in a survey by PwC, only 33% of family businesses in the region have a robust, documented, and communicated succession plan, compared to 55% globally. The consequences of this gap can be disastrous, as family businesses in the UAE contribute 60% of the country's gross domestic product (GDP) and 80% of the workforce.
This is why initiatives like the Dubai Family Business Management programme, championed by Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, are imperative, as they aim to empower the next generation of family business leaders. This initiative aligns with Dubai's Economic Agenda and further establishes the city as a global business hub.
While initiatives like these have been implemented, there is still no magic bullet that can ensure a smooth transition; however, in our experience, there are a few principles that have proved effective.
The first step is to start early. Succession planning is not a sprint, it's a marathon. It is a continuous process that begins well before the new generation takes the helm. For instance, I first started working in our family business, GMG, in 2010, I spent the first six years immersing myself in every aspect of the business. This helped me immensely when I took over the reins from my father, Abdul Aziz Baker. Therefore, family business owners should initiate the dialogue with their potential successors and other stakeholders as soon as possible and involve them in the decision-making process.
Second, succession planning must be aligned with the company's vision and values, which should be clearly defined and communicated. Family business owners should articulate their goals and expectations for the future of the business, as well as their personal aspirations and legacy. My father was tenacious and ambitious; he never took 'no' for an answer and taught me very early on that GMG would grow through its partners' success. These values remain an intrinsic part of our DNA even today.
Third, succession planning should be based on a realistic assessment of the capabilities and readiness of the potential successors, as well as of the current state and needs of the business. Owners should evaluate their heirs' skills, experience, personality, and motivation and identify any gaps or areas for improvement. Sometimes, this involves looking beyond the family toward professional advisors, such as managers' lawyers, accountants, or consultants, to provide objective and impartial guidance from experts who understand their specific context and challenges. They should also leverage best practices and benchmarks from other successful family businesses in the region or globally.
Finally, owners should develop a clear strategic plan and execute it. Succession planning should result in a clear and detailed strategy that outlines the roles and responsibilities of the successors, as well as the timeline and milestones for the transition. Family business owners should implement the plan gradually and systematically, ensuring a smooth handover of ownership and management. They should also monitor and evaluate the progress and performance of the successors, providing feedback and support along the way.
The good news is that the new generation of Gulf business leaders are even more attuned to the evolving business landscape. For instance, in the Middle East, the younger generation of family business leaders are among the most involved, knowledgeable, and motivated when it comes to discussing environmental, social, and governance (ESG) concerns, a national priority for many GCC countries, including the UAE. According to a PwC report, 58% of Middle Eastern young executives in family firms feel their family business can set the standard for sustainable business.
This sets up these enterprises for even greater success. When my father asked me to take over as the CEO, I accepted the role, but on one condition – the board does not talk to me for one year, and I can do whatever I want. This was the best decision both I and GMG ever made. In my first year as CEO, I started laying the foundation for our bold ambitions and aggressive global growth strategy.
The UAE government is keen to strengthen the country's family business structure. The UAE passed the Federal Decree Law on family businesses last year to provide guidelines to ensure their sustainability and help diversify their activities in various business sectors, especially in the new economy field. Earlier, the government launched Thabat Venture Builder. This program aims to double family-owned businesses' contribution to the nation's gross domestic product to $320 billion by 2032 and help them become more innovative and adopt new technologies.
UAE family businesses have a unique opportunity to capitalize on their cultural heritage and create lasting value for themselves and their communities. By adopting proper succession planning practices, they can ensure that their businesses remain relevant and resilient for generations to come.